Document:

Exhibit 10.1

 

CONSTRUCTION LOAN AGREEMENT

 

	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

 

THIS CONSTRUCTION LOAN AGREEMENT dated
January 26, 2015, is made and executed between Applied Optoelectronics, Inc. ("Borrower") and East West Bank ("Lender")
on the following terms and conditions. Borrower has applied to Lender for one or more loans for purposes of constructing the Improvements
on the Real Property described below. Lender is willing to lend the loan amount to Borrower solely under the terms and conditions
specified in this Agreement and in the Related Documents, to each of which Borrower agrees. Borrower understands and agrees that:
(A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements
as set forth in this Agreement, and (B) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

 

TERM. This Agreement shall be effective
as of January 26, 2015, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender
have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such
time as the parties may agree in writing to terminate this Agreement.

 

ADVANCE AUTHORITY. 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.

 

LOAN. The Loan shall be in an amount
not to exceed the principal sum of  U.S. $22,000,000.00 and shall bear interest on so much of the principal sum as shall
be advanced pursuant to the terms of this Agreement and the Related Documents. The Loan shall bear interest on each Advance from
the date of the Advance in accordance with the terms of the Note. Borrower shall use the Loan Funds solely for the payment of:
(A) the costs of constructing the Improvements and equipping the Project in accordance with the Construction Contract; (B) other
costs and expenses incurred or to be incurred in connection with the construction of the Improvements as Lender in its sole discretion
shall approve; and (C) if permitted by Lender, interest due under the Note, including all expenses and all loan and commitment
fees described in this Agreement. The Loan amount shall be subject at all times to all maximum limits and conditions set forth
in this Agreement or in any of the Related Documents, including without limitation, any limits relating to loan to value ratios
and acquisition and Project costs.

 

PROJECT DESCRIPTION. The word "Project"
as used in this Agreement means the construction and completion of all Improvements contemplated by this Agreement, including without
limitation the erection of the building or structure on the Real Property identified to this Agreement by Borrower and Lender,
installation of equipment and fixtures, landscaping, and all other work necessary to make the Project usable and complete for the
intended purposes. The Project includes the following work:

 

To construct a 106,000 SF of a new office
building and a 9,600 SF MOVCD cleaning room building.

 

The word "Property" as used in
this Agreement means the Real Property together with all Improvements, all equipment, fixtures, and other articles of personal
property now or subsequently attached or affixed to the Real Property, together with all accessions, parts, and additions to, all
replacements of, and all substitutions for any of such property, and all proceeds (including insurance proceeds and refunds of
premiums) from any sale or other disposition of such property. The real estate described below constitutes the Real Property
as used in this Agreement.

 

The real estate or its address is commonly
known as:

Real Property located at 13115 Jess
Pirtle Boulevard and vacant land, Sugar Land, TX 77478.

 

FEES AND EXPENSES. As a condition
of Lender making the Loan, Borrower agrees to pay the following fees, charges, and expenses, in addition to all others set forth
in this Agreement: See "Financial Analysis Requirement" for Construction Cost Breakdown. Whether or not the Project
shall be consummated, Borrower shall assume and pay upon demand all out-of-pocket expenses incurred by Lender in connection with
the preparation of loan documents and the making of the Loan, including without limitation the following: (A) all closing costs,
loan fees, and disbursements; (B) all expenses of Lender's legal counsel; and (C) all title examination fees, title insurance premiums,
appraisal fees, survey costs, required fees, and filing and recording fees.

 

AUTOMATIC PAYMENTS. Borrower hereby
authorizes Lender automatically to deduct from Borrower's Demand Deposit - Checking account, numbered 63842272, the amount of any
loan payment. If the funds in the account are insufficient to cover any payment, Lender shall not be obligated to advance funds
to cover the payment. At any time and for any reason, Borrower or Lender may voluntarily terminate Automatic Payments.

 

 

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NO CONSTRUCTION PRIOR TO RECORDING OF
SECURITY DOCUMENT. Borrower will not permit any work or materials to be furnished in connection with the Project until (A)
Borrower has signed the Related Documents; (B) Lender's mortgage or deed of trust and other Security Interests in the Property
have been duly recorded and perfected; (C) Lender has been provided evidence, satisfactory to Lender, that Borrower has obtained
all insurance required under this Agreement or any Related Documents and that Lender's liens on the Property and Improvements are
valid perfected first liens, subject only to such exceptions, if any, acceptable to Lender.

 

REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds,
as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:

 

Organization. Borrower is a corporation
for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the
laws of the State of Delaware. Borrower is duly authorized to transact business in all other states in which Borrower is doing
business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing
business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which
the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power
and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage.
Borrower maintains an office at 13115 Jess Pirtle Blvd., Sugar Land, TX 77478. Unless Borrower has designated otherwise in writing,
the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral.
Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's
name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges,
and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental
authority or court applicable to Borrower and Borrower's business activities.

 

Assumed Business Names. Borrower
has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding
the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: AOI.

 

Authorization. Borrower's execution,
delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by
Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's
articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any
law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties.

 

Financial Information. Each of Borrower's
financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement,
and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

 

Legal Effect. This Agreement constitutes,
and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid,
and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

 

Properties. Except as contemplated
by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender,
and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's
properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating
to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing
statement under any other name for at least the last five (5) years.

 

Hazardous Substances. Borrower hereby
(1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from
a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or
threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including
the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction
of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure
or otherwise.

 

Litigation and Claims. No litigation,
claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending
or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.

 

 

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Taxes. To the best of Borrower's
knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments
and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have been provided.

 

Lien Priority. Unless otherwise
previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing
or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's
Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such
Collateral.

 

Binding Effect. This Agreement,
the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their
successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

 

Title to Property. Borrower has,
or on the date of first disbursement of Loan proceeds will have, good and marketable title to the Collateral free and clear of
all defects, liens, and encumbrances, excepting only liens for taxes, assessments, or governmental charges or levies not yet delinquent
or payable without penalty or interest, and such liens and encumbrances as may be approved in writing by the Lender. The Collateral
is contiguous to publicly dedicated streets, roads, or highways providing access to the Collateral.

 

Project Costs. The total cost for
the Project shall not exceed $41,579,606.00. The Project costs are true and accurate estimates of the costs necessary to complete
the Improvements in a good and workmanlike manner according to the Plans and Specifications presented by Borrower to Lender, and
Borrower shall take all steps necessary to prevent the actual cost of the Improvements from exceeding the Project costs.

 

Utility Services. All utility services
appropriate to the use of the Project after completion of construction are available at the boundaries of the Collateral.

 

Assessment of Property. The Collateral
is and will continue to be assessed and taxed as an independent parcel by all governmental authorities.

 

Compliance with Governing Authorities.
Borrower has examined and is familiar with all the easements, covenants, conditions, restrictions, reservations, building laws,
regulations, zoning ordinances, and federal, state, and local requirements affecting the Project. The Project will at all times
and in all respects conform to and comply with the requirements of such easements, covenants, conditions, restrictions, reservations,
building laws, regulations, zoning ordinances, and federal, state, and local requirements.

 

Survival of Representations and Warranties.
Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants
made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement
or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations,
warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be
continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full
force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated
in the manner provided above, whichever is the last to occur.

 

CONDITIONS PRECEDENT TO EACH ADVANCE.
Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment
to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

 

Equity Funds. Borrower shall provide
evidence of equity funds totaling $19,579,606.00 prior to the initial advance from the Loan Fund. Lender may, at Lender's
option, require that the equity funds be deposited with Lender as a portion of the Loan Fund, which funds shall be disbursed prior
to any Loan proceeds.

 

Approval of Contractors, Subcontractors,
and Materialmen. Lender shall have approved a list of all contractors employed in connection with the construction of the Improvements,
showing the name, address, and telephone number of each contractor, a general description of the nature of the work to be done,
the labor and materials to be supplied, the names of materialmen, if known, and the approximate dollar value of the labor, work,
or materials with respect to each contractor or materialman. Lender shall have the right to communicate with any person to verify
the facts disclosed by the list or by any application for any Advance, or for any other purpose.

 

Plans, Specifications, and Permits.
Lender shall have received and accepted a complete set of written Plans and Specifications setting forth all Improvements for the
Project, and Borrower shall have furnished to Lender copies of all permits and requisite approvals of any governmental body necessary
for the construction and use of the Project.

 

 

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Architect's and Construction Contracts.
Borrower shall have furnished in form and substance satisfactory to Lender an executed copy of the Architect's Contract and an
executed copy of the Construction Contract.

 

Related and Support Documents. Borrower
shall provide to Lender in form satisfactory to Lender the following support documents for the Loan: Assignment of Architect's
Contract and Assignment of Construction Contract. 

 

Budget and Schedule of Estimated Advances.
Lender shall have approved detailed budget and cash flow projections of total Project costs and a schedule of the estimated amount
and time of disbursements of each Advance.

 

Borrower's Authorization. Borrower
shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the consummation
of the Project and duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition,
Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, in their
sole discretion, may require.

 

Bond. If requested by Lender, Borrower
shall have furnished a performance and payment bond in an amount equal to 100% of the amount of the Construction Contract, including
indemnification of mechanic's, contractor's and materialman's liens, with such riders and supplements as Lender may require, each
in form and substance satisfactory to Lender, naming the General Contractor as principal and Lender as an additional obligee.

 

Appraisal. If required by Lender,
an appraisal shall be prepared for the Property, at Borrower's expense, which in form and substance shall be satisfactory to Lender,
in Lender's sole discretion, including applicable regulatory requirements.

 

Plans and Specifications. If requested
by Lender, Borrower shall have assigned to Lender on Lender's forms the Plans and Specifications for the Project.

 

Environmental Report. If requested
by Lender, Borrower shall have furnished to Lender, at Borrower's expense, an environmental report and certificate on the Property
in form and substance satisfactory to Lender, prepared by an engineer or other expert satisfactory to Lender stating that the Property
complies with all applicable provisions and requirements of the "Hazardous Substances" paragraph set forth in this Agreement.

 

Soil Report. If requested by Lender,
Borrower shall have furnished to Lender, at Borrower's expenses, a soil report for the Property in form and substance satisfactory
to Lender, prepared by a registered engineer satisfactory to Lender stating that the Property is free from soil or other geological
conditions that would preclude its use or development as contemplated without extra expense for precautionary, corrective or remedial
measures.

 

Survey. If requested by Lender,
Borrower shall have furnished to Lender a survey of recent date, prepared and certified by a qualified surveyor and providing that
the Improvements, if constructed in accordance with the Plans and Specifications, shall lie wholly within the boundaries of the
Collateral without encroachment or violation of any zoning ordinances, building codes or regulations, or setback requirements,
together with such other information as Lender in its sole discretion may require.

 

Zoning. Borrower shall have furnished
evidence satisfactory to Lender that the Collateral is duly and validly zoned for the construction, maintenance, and operation
of the Project.

 

Title Insurance. Borrower shall
have provided to Lender a TLTA Lender's extended coverage policy of title insurance with such endorsements as Lender may require,
issued by a title insurance company acceptable to Lender and in a form, amount, and content satisfactory to Lender, insuring or
agreeing to insure that Lender's security agreement or other security document on the Property is or will be upon recordation a
valid first lien on the Property free and clear of all defects, liens, encumbrances, and exceptions except those as specifically
accepted by Lender in writing. If requested by Lender, Borrower shall provide to Lender, at Borrower's expense, a foundation endorsement
to the title policy upon the completion of each foundation for the Improvements, showing no encroachments, and upon completion
an endorsement which insures the lien-free completion of the Improvements. Specifically, Borrower shall provide to Lender the following
title insurance endorsements: 102.5 Alta 9, Alta 6, Alta 32, Alta 33, Alta 103.5 and Alta 101.3.

 

 

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Insurance. Unless waived by Lender
in writing, Borrower shall have delivered to Lender the following insurance policies or evidence thereof: (a) an all risks course
of construction insurance policy (builder's risk), with extended coverage covering the Improvements issued in an amount and by
a company acceptable to Lender, containing a loss payable or other endorsement satisfactory to Lender insuring Lender as mortgagee,
together with such other endorsements as may be required by Lender, including stipulations that coverages will not be cancelled
or diminished without at least thirty (30) days prior written notice to Lender; (b) owners and General Contractor general liability
insurance, public liability and workmen's compensation insurance; (c) flood insurance if required by Lender or applicable law;
and (d) all other insurance required by this Agreement or by the Related Documents.

 

Workers' Compensation Coverage.
Provide to Lender proof of the General Contractor's compliance with all applicable workers' compensation laws and regulations with
regard to all work performed on the Project.

 

Payment of Fees and Expenses. Borrower
shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or
any Related Document.

 

Satisfactory Construction. All work
usually done at the stage of construction for which disbursement is requested shall have been done in a good and workmanlike manner
and all materials and fixtures usually furnished and installed at that stage of construction shall have been furnished and installed,
all in compliance with the Plans and Specifications. Borrower shall also have furnished to Lender such proofs as Lender may require
to establish the progress of the work, compliance with applicable laws, freedom of the Property from liens, and the basis for the
requested disbursement.

 

Certification. Borrower shall have
furnished to Lender a certification by an engineer, architect, or other qualified inspector acceptable to Lender that the construction
of the Improvements has complied and will continue to comply with all applicable statutes, ordinances, codes, regulations, and
similar requirements.

 

Lien Waivers. Borrower shall have
obtained and attached to each application for an Advance, including the Advance to cover final payment to the General Contractor,
executed acknowledgments of payments of all sums due and releases of mechanic's and materialmen's liens, satisfactory to Lender,
from any party having lien rights, which acknowledgments of payment and releases of liens shall cover all work, labor, equipment,
materials done, supplied, performed, or furnished prior to such application for an Advance.

 

No Event of Default. There shall
not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related
Document.

 

DISBURSEMENT OF LOAN FUNDS. The
following provisions relate to the disbursement of funds from the Loan Fund.

 

Application for Advances. Each application
shall be stated on a standard AIA payment request form or other form approved by Lender, executed by Borrower, and supported by
such evidence as Lender shall reasonably require. Borrower shall apply only for disbursement with respect to work actually done
by the General Contractor and for materials and equipment actually incorporated into the Project. Each application for an Advance
shall be deemed a certification of Borrower that as of the date of such application, all representations and warranties contained
in the Agreement are true and correct, and that Borrower is in compliance with all of the provisions of this Agreement.

 

Payments. At the sole option of
Lender, Advances may be paid in the joint names of Borrower and the General Contractor, subcontractor(s), or supplier(s) in payment
of sums due under the Construction Contract. At its sole option, Lender may directly pay the General Contractor and any subcontractors
or other parties the sums due under the Construction Contract. Borrower appoints Lender as its attorney-in-fact to make such payments.
This power shall be deemed coupled with an interest, shall be irrevocable, and shall survive an Event of Default under this Agreement.

 

Projected Cost Overruns. If Lender
at any time determines in its sole discretion that the amount in the Loan Fund is insufficient, or will be insufficient, to complete
fully and to pay for the Project, then within ten (10) days after receipt of a written request from Lender, Borrower shall deposit
in the Loan Fund an amount equal to the deficiency as determined by Lender. The judgment and determination of Lender under this
section shall be final and conclusive. Any such amounts deposited by Borrower shall be disbursed prior to any Loan proceeds.

 

 

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Final Payment to General Contractor.
Upon completion of the Project and fulfillment of the Construction Contract to the satisfaction of Lender and provided sufficient
Loan Funds are available, Lender shall make an Advance to cover the final payment due to the General Contractor upon delivery to
Lender of endorsements to the ALTA title insurance policy following the posting of the completion notice, as provided under applicable
law. Construction shall not be deemed complete for purposes of final disbursement unless and until Lender shall have received all
of the following:

 

(1) Evidence satisfactory to Lender that
all work under the Construction Contract requiring inspection by any governmental authority with jurisdiction has been duly inspected
and approved by such authority, that a certificate of occupancy has been issued, and that all parties performing work have been
paid, or will be paid, for such work;

 

(2) A certification by an engineer, architect,
or other qualified inspector acceptable to Lender that the Improvements have been completed substantially in accordance with the
Plans and Specifications and the Construction Contract, that direct connection has been made to all utilities set forth in the
Plans and Specifications, and that the Project is ready for occupancy; and

 

(3) Acceptance of the completed Improvements
by Lender and Borrower.

 

Construction Default. If Borrower
fails in any respect to comply with the provisions of this Agreement or if construction ceases before completion regardless of
the reason, Lender, at its option, may refuse to make further Advances, may accelerate the indebtedness under the terms of the
Note, and without thereby impairing any of its rights, powers, or privileges, may enter into possession of the construction site
and perform or cause to be performed any and all work and labor necessary to complete the improvements, substantially in accordance
with the Plans and Specifications.

 

Damage or Destruction. If any of
the Collateral or Improvements is damaged or destroyed by casualty of any nature, Borrower shall immediately commence and continue
to restore the Collateral and Improvements to the condition in which they were before such damage or destruction with funds other
than those in the Loan Fund and complete such restoration within a reasonable time thereafter. Lender shall not be obligated to
make disbursements under this Agreement until such restoration has been accomplished.

 

Adequate Security. When any event
occurs that Lender determines may endanger completion of the Project or the fulfillment of any condition or covenant in this Agreement,
Lender may require Borrower to furnish, within ten (10) days after delivery of a written request, adequate security to eliminate,
reduce, or indemnify Lender against, such danger. In addition, upon such occurrence, Lender in its sole discretion may advance
funds or agree to undertake to advance funds to any party to eliminate, reduce, or indemnify Lender against, such danger or to
complete the Project. All sums paid by Lender pursuant to such agreements or undertakings shall be for Borrower's account and shall
be without prejudice to Borrower's rights, if any, to receive such funds from the party to whom paid. All sums expended by Lender
in the exercise of its option to complete the Project or protect Lender's interests shall be payable to Lender on demand together
with interest from the date of the Advance at the rate applicable to the Loan. In addition, any Advance of funds under this Agreement,
including without limitation direct disbursements to the General Contractor or other parties in payment of sums due under the Construction
Contract, shall be deemed to have been expended by or on behalf of Borrower and to have been secured by Lender's Deed of Trust,
if any, on the Collateral.

 

CESSATION OF ADVANCES. If Lender
has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have
no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms
of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower
or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged
a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify
or revoke such Guarantor's guaranty of the Loan or any other loan with Lender.

 

LIMITATION OF RESPONSIBILITY. The
making of any Advance by Lender shall not constitute or be interpreted as either (A) an approval or acceptance by Lender of the
work done through the date of the Advance, or (B) a representation or indemnity by Lender to any party against any deficiency or
defect in the work or against any breach of any contract. Inspections and approvals of the Plans and Specifications, the Improvements,
the workmanship and materials used in the Improvements, and the exercise of any other right of inspection, approval, or inquiry
granted to Lender in this Agreement are acknowledged to be solely for the protection of Lender's interests, and under no circumstances
shall they be construed to impose any responsibility or liability of any nature whatsoever on Lender to any party. Neither Borrower
nor any contractor, subcontractor, materialman, laborer, or any other person shall rely, or have any right to rely, upon Lender's
determination of the appropriateness of any Advance. No disbursement or approval by Lender shall constitute a representation by
Lender as to the nature of the Project, its construction, or its intended use for Borrower or for any other person, nor shall it
constitute an indemnity by Lender to Borrower or to any other person against any deficiency or defects in the Project or against
any breach of any contract.

 

 

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AFFIRMATIVE COVENANTS. Borrower
covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

 

Notices of Claims and Litigation.
Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and
all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.

 

Financial Records. Maintain its
books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books
and records at all reasonable times.

 

Financial Statements. Furnish Lender
with the following:

 

Additional Requirements. Borrower
understands and agrees that while this Agreement is in effect, Borrower will maintain a financial condition indicated by the following
statements at all times, unless otherwise noted:

 

Interim Statements. As soon as available,
but in no event later than forty-five (45) days after the end of each quarter, Borrower shall provide Lender with
balance sheet, income and expense statements, reconciliation of net worth and statement of cash flows, with notes thereto for the
period ended, prepared by Borrower.

 

Annual Statements.  As soon
as available, but in no event later than forty-five (45) days after the end of each fiscal year, Borrower shall provide
Lender with balance sheet, income and expense statements, reconciliation of net worth and statement of cash flows, with notes thereto
for the year ended, audited by a certified public accountant satisfactory to Lender.

 

All financial reports required to be provided
under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being
true and correct.

 

Additional Information. Furnish
such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules,
budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender
may request from time to time.

 

Financial Covenants and Ratios.
Comply with the following covenants and ratios:

 

Additional Requirements. Borrower
understands and agrees that while this Agreement is in effect, Borrower will maintain a financial condition indicated by the following
ratios at all times, unless otherwise noted:

 

Annual EBITDA (to be measured quarterly
on a rolling-4-quarter basis). Maintain a minimum annual EBITDA (defined as annual earnings before interest, tax, depreciation,
amortization, stock option expense and other non-cash expenses as agreed on a consolidated basis) of not less than $3,500,000.00
for reporting period ending 9/30/14, $5,500,000.00 for reporting period ending 12/31/14 to 12/31/15, covenant levels
for reporting period ending 3/31/16 and thereafter are to be reset annually based on Board-approved projection.

 

Adjusted Current Ratio (to be
measured quarterly). Maintain a minimum Adjusted Current Ratio (defined as current assets divided by the sum of current liabilities
and long-term portion of Revolving Line of Credit loan outstanding) of not less than 1.35 to 1.

 

Except as provided above, all computations
made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.

 

Other Agreements. Comply with all
terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify
Lender immediately in writing of any default in connection with any other such agreements.

 

Insurance. Maintain fire and other
risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties
and operations, in form, amounts, and coverages reasonably acceptable to Lender and by insurance companies authorized to transact
business in Texas. BORROWER MAY FURNISH THE INSURANCE REQUIRED BY THIS AGREEMENT WHETHER THROUGH EXISTING POLICIES OWNED OR
CONTROLLED BY BORROWER OR THROUGH EQUIVALENT COVERAGE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN TEXAS.
Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory
to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written
notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets
in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable
or other endorsements as Lender may require.

 

 

    	7

    	 

    

 

 

Insurance Reports. Furnish to Lender,
upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including
without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties
insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining
those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually),
Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement
cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

 

Loan Fees, Charges and Expenses.
Whether or not the Project is completed, Borrower also shall pay upon demand all out-of-pocket expenses incurred by Lender in connection
with the preparation of loan documents and the making of the Loan, including, without limitation, all closing costs, fees, and
disbursements, all expenses of Lender's legal counsel, and all title examination fees, title insurance premiums, appraisal fees,
survey costs, required fees, and filing and recording fees.

 

Loan Proceeds. Use the Loan Funds
solely for payment of bills and expenses directly related to the Project.

 

Taxes, Charges and Liens. Pay and
discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges,
levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy,
lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower
shall have established on Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien,
or claim in accordance with GAAP.

 

Performance. Perform and comply,
in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all
other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default
in connection with any agreement.

 

Inspection. Permit employees or
agents of Lender at any reasonable time to inspect the Project and, upon reasonable prior notice, from time to time during Borrower’s
regular business hours but no more than once per year (unless an Event of Default has occurred and is continuing), to inspect any
other Collateral for the Loan and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any
records (including without limitation computer generated records and computer software programs for the generation of such records)
in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.

 

Construction of the Project. Commence
construction of the Project no later than February 3, 2015, and cause the Improvements to be constructed and equipped in a diligent
and orderly manner and in strict accordance with the Plans and Specifications approved by Lender, the Construction Contract, and
all applicable laws, ordinances, codes, regulations, and rights of adjoining or concurrent property owners. Borrower agrees to
complete the Project for purposes of final payment to the General Contractor on or before May 29, 2016, regardless of the reason
for any delay.

 

Defects. Upon demand of Lender,
promptly correct any defect in the Improvements or any departure from the Plans and Specifications not approved by Lender in writing
before further work shall be done upon the portion of the Improvements affected.

 

Project Claims and Litigation. Promptly
inform Lender, as soon as Borrower becomes aware, of (1) all material adverse changes in the financial condition of the General
Contractor; (2) any litigation and claims, actual or threatened, affecting the Project or the General Contractor, which could materially
affect the successful completion of the Project or the ability of the General Contractor to complete the Project as agreed; and
(3) any condition or event which constitutes a breach or default under any of the Related Documents or any contract related to
the Project.

 

 

 

    	8

    	 

    

 

 

Payment of Claims and Removal of Liens.
(1) Cause all claims for labor done and materials and services furnished in connection with the Improvements to be fully paid and
discharged in a timely manner, (2) diligently file or procure the filing of a valid notice of completion of the Improvements, or
such comparable document as may be permitted under applicable lien laws, (3) diligently file or procure the filing of a notice
of cessation, or such comparable document as may be permitted under applicable lien laws, upon the happening of cessation of labor
on the Improvements for a continuous period of thirty (30) days or more, and (4) take all reasonable steps necessary to remove
all claims of liens against the Collateral, the Improvements or any part of the Collateral or Improvements, or any rights or interests
appurtenant to the Collateral or Improvements. Upon Lender's request, Borrower shall make such demands or claims upon or against
laborers, materialmen, subcontractors, or other persons who have furnished or claim to have furnished labor, services, or materials
in connection with the Improvements, which demands or claims shall under the laws of the State of Texas require diligent assertions
of lien claims upon penalty of loss or waiver thereof. Borrower shall, within ten (10) days after the filing of any claim of lien
that is disputed or contested by Borrower, provide Lender with a surety bond issued by a surety acceptable to Lender sufficient
to release the claim of lien or deposit with Lender an amount satisfactory to Lender for the possibility that the contest will
be unsuccessful. If Borrower fails to remove any lien on the Collateral or Improvements or provide a bond or deposit pursuant to
this provision, Lender may pay such lien, or may contest the validity of the lien, and Borrower shall pay all costs and expenses
of such contest, including Lender's reasonable attorneys' fees.

 

Taxes and Claims. Pay and discharge
when due all of Borrower's indebtedness, obligations, and claims that, if unpaid, might become a lien or charge upon the Collateral
or Improvements; provided, however, that Borrower shall not be required to pay and discharge any such indebtedness, obligation,
or claim so long as (1) its legality shall be contested in good faith by appropriate proceedings, (2) the indebtedness, obligation,
or claim does not become a lien or charge upon the Collateral or Improvements, and (3) Borrower shall have established on its books
adequate reserves with respect to the amount contested in accordance with GAAP. If the indebtedness, obligation, or claim does
become a lien or charge upon the Collateral or Improvements, Borrower shall remove the lien or charge as provided in the preceding
paragraph.

 

Environmental Studies. Promptly
conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender
or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous
substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or
any facility owned, leased or used by Borrower.

 

Additional Assurances. Make, execute
and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements,
instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans
and to perfect all Security Interests in the Collateral and Improvements.

 

LENDER'S EXPENDITURES. If any action
or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with
any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when
due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf
may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or
paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and
paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures paid by Lender for such purposes
will then bear interest at the Note rate from the date paid by Lender to the date of repayment by Borrower. To the extent permitted
by applicable law, all such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during
either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment
which will be due and payable at the Note's maturity.

 

NEGATIVE COVENANTS. Borrower covenants
and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

 

Indebtedness and Liens. (1) Except
for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur
or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant
a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse
any of Borrower's accounts, except to Lender.

 

Continuity of Operations. (1) Engage
in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate,
merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of
the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of
1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable
the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state
law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of
Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure.

 

 

    	9

    	 

    

 

 

Loans, Acquisitions and Guaranties.
(1) Loan, invest in or advance money or assets to any other person, enterprise or entity (provided that Borrower may make arms-length
loans or advances to or investments in subsidiaries in the ordinary course of business if the making of such loan, advance or investment
does not create an Event of Default under this Agreement), (2) purchase, create or acquire any interest in any other enterprise
or entity except the following: (i) the target company is in the same or similar line of business as Borrower, (ii) the acquisition
shall be completed on a non-hostile basis, (iii) the aggregate amount of all permitted acquisitions does not exceed $7,000,000
per fiscal year, (iv) Borrower shall provide the Lender with proforma financial statements giving effect to the acquisition which
demonstrate continued pro forma compliance with the financial covenants after giving effect to such acquisition, (v) the Borrower
or a wholly-owned domestic Subsidiary is the surviving entity, and (vi) the acquisition would not otherwise result in an Event
of Default, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.

 

Modification of Contract. Make or
permit to be made any modification of the Construction Contract.

 

Liens. Create or allow to be created
any lien or charge upon the Collateral or the Improvements.

 

Agreements. Enter into any agreement
containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement
or in connection herewith.

 

GENERAL PROJECT PROVISIONS. The
following provisions relate to the construction and completion of the Project:

 

Change Orders. All requests for
changes in the Plans and Specifications, other than minor changes involving no extra cost, must be in writing, signed by Borrower
and the architect, and delivered to Lender for its approval. Borrower will not permit the performance of any work pursuant to any
change order or modification of the Construction Contract or any subcontract without the written approval of Lender. Borrower will
obtain any required permits or authorizations from governmental authorities having jurisdiction before approving or requesting
a new change order.

 

Purchase of Materials; Conditional Sales
Contracts. No materials, equipment, fixtures, or articles of personal property placed in or incorporated into the Project shall
be purchased or installed under any Security Agreement or other agreement whereby the seller reserves or purports to reserve title
or the right of removal or repossession, or the right to consider such items as personal property after their incorporation into
the Project, unless otherwise authorized by Lender in writing.

 

Lender's Right of Entry and Inspection.
Lender and its agents shall have at all times the right of entry and free access to the Property and the right to inspect all work
done, labor performed, and materials furnished with respect to the Project. Lender shall have unrestricted access to and the right
to copy all records, accounting books, contracts, subcontracts, bills, statements, vouchers, and supporting documents of Borrower
relating in any way to the Project.

 

Lender's Right to Stop Work. If
Lender in good faith determines that any work or materials do not conform to the approved Plans and Specifications or sound building
practices, or otherwise depart from any of the requirements of this Agreement, Lender may require the work to be stopped and withhold
disbursements until the matter is corrected. In such event, Borrower will promptly correct the work to Lender's satisfaction. No
such action by Lender will affect Borrower's obligation to complete the Improvements on or before the Completion Date. Lender is
under no duty to supervise or inspect the construction or examine any books and records. Any inspection or examination by Lender
is for the sole purpose of protecting Lender's security and preserving Lender's rights under this Agreement. No default of Borrower
will be waived by any inspection by Lender. In no event will any inspection by Lender be a representation that there has been or
will be compliance with the Plans and Specifications or that the construction is free from defective materials or workmanship.

 

Indemnity. Borrower shall indemnify,
defend, and hold Lender harmless from any and all claims asserted against Lender or the Property by any person, entity, or governmental
body, or arising out of or in connection with the Property, Improvements, or Project, so long as such claims asserted against the
Lender are not due to Lender’s own fault or negligence. Lender shall be entitled to appear in any proceedings to defend itself
against such claims, and all costs and expenses Lender's reasonable attorneys' fees incurred by Lender in connection with such
defense shall be paid by Borrower to Lender. All amounts paid by Lender under this paragraph shall be secured by Lender's security
agreement or Deed of Trust, if any, on the Property, shall be deemed an additional principal Advance under the Loan, payable upon
demand, and shall bear interest at the rate applicable to the Loan.

 

Publicity. Lender may display a
sign at the construction site informing the public that Lender is the construction lender for the Project. Lender may obtain other
publicity in connection with the Project through press releases and participation in ground-breaking and opening ceremonies and
similar events.

 

Actions. Lender shall have the right
to commence, appear in, or defend any action or proceeding purporting to affect the rights, duties, or liabilities of the parties
to this Agreement, or the disbursement of funds from the Loan Fund. In connection with this right, Lender may incur and pay reasonable
costs, expenses and Lender's reasonable attorneys' fees. Borrower covenants to pay to Lender on demand all such expenses, together
with interest from the date Lender incurs the expense at the rate specified in the Note, and Lender is authorized to disburse funds
from the Loan Fund for such purposes.

 

 

    	10

    	 

    

 

 

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.

 

DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:

 

Payment Default. Borrower fails
to make any payment when due under the Loan.

 

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 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 or any Grantor's property or Borrower's
or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement 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 Agreement 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.

 

Defective Collateralization. This
Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to
create a valid and perfected security interest or lien) at any time and for any reason.

 

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.

 

Breach of Construction Contract.
The Improvements are not constructed in accordance with the Plans and Specifications or in accordance with the terms of the Construction
Contract.

 

Cessation of Construction. Prior
to the completion of construction of the Improvements and equipping of the Project, the construction of the Improvements or the
equipping of the Project is abandoned or work thereon ceases for a period of more than ten (10) days for any reason other than
unforeseeable weather condition or force majeure, or the Improvements are not completed for purposes of final payment to the General
Contractor prior to May 29, 2016, regardless of the reason for the delay.

 

Transfer of Property. Sale, transfer,
hypothecation, assignment, or conveyance of the Property or the Improvements or any portion thereof or interest therein by Borrower
or any Borrower without Lender's prior written consent.

 

Condemnation. All or any material
portion of the Collateral is condemned, seized, or appropriated without compensation, and Borrower does not within thirty (30)
days after such condemnation, seizure, or appropriation, initiate and diligently prosecute appropriate action to contest in good
faith the validity of such condemnation, seizure, or appropriation.

 

Events Affecting Guarantor. Any
of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent,
or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

 

 

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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 the Loan is impaired.

 

Right to Cure. If any default, other
than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar
default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after Lender sends
written notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within thirty (30)
days; or (2) if the cure requires more than thirty (30) days, immediately initiate steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.

 

EFFECT OF AN EVENT OF DEFAULT; REMEDIES.
Upon the occurrence of any Event of Default and at any time thereafter, Lender may, at its option, but without any obligation to
do so, and in addition to any other right Lender without notice to Borrower may have, do any one or more of the following without
notice to Borrower: (a) Cancel this Agreement; (b) Institute appropriate proceedings to enforce the performance of this Agreement;
(c) Withhold further disbursement of Loan Funds; (d) Expend funds necessary to remedy the default; (e) Take possession of the Property
and continue construction of the Project; (f) Accelerate maturity of the Note and/or Indebtedness and demand payment of all sums
due under the Note and/or Indebtedness; (g) Bring an action on the Note and/or Indebtedness; (h) Foreclose Lender's security agreement
or Deed of Trust, if any, on the Property in any manner available under law; and (i) Exercise any other right or remedy which it
has under the Note or Related Documents, or which is otherwise available at law or in equity or by statute.

 

COMPLETION OF IMPROVEMENTS BY LENDER.
If Lender takes possession of the Collateral, it may take any and all actions necessary in its judgment to complete construction
of the Improvements, including but not limited to making changes in the Plans and Specifications, work, or materials and entering
into, modifying or terminating any contractual arrangements, subject to Lender's right at any time to discontinue any work without
liability. If Lender elects to complete the Improvements, it will not assume any liability to Borrower or to any other person for
completing the Improvements or for the manner or quality of construction of the Improvements, and Borrower expressly waives any
such liability. Borrower irrevocably appoints Lender as its attorney-in-fact, with full power of substitution, to complete the
Improvements, at Lender's option, either in Borrower's name or in its own name. In any event, all sums expended by Lender in completing
the construction of the Improvements will be considered to have been disbursed to Borrower and will be secured by the Collateral
for the Loan. Any such sums that cause the principal amount of the Loan to exceed the face amount of the Note will be considered
to be an additional Loan to Borrower, bearing interest at the Note rate and being secured by the Collateral. For these purposes,
Borrower assigns to Lender all of its right, title and interest in and to the Project Documents; however Lender will not have any
obligation under the Project Documents unless Lender expressly hereafter agrees to assume such obligations in writing. Lender will
have the right to exercise any rights of Borrower under the Project Documents upon the occurrence of an Event of Default. Except
as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement or by any other
writing, shall be cumulative and may be exercised singularly or concurrently.

 

ADDITIONAL DOCUMENTS. Borrower shall
provide Lender with the following additional documents:

 

Corporate Resolution. Borrower has
provided or will provide Lender with a certified copy of resolutions properly adopted by Borrower's Board of Directors, and certified
by Borrower's corporate secretary, assistant secretary, or other authorized officer, under which Borrower's Board of Directors
authorized one or more designated officers or employees to execute this Agreement, the Note and any and all Security Agreements
directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated
under this Agreement, and to consent to the remedies following any default by Borrower as provided in this Agreement and in any
Security Agreements.

 

Opinion of Counsel. When required
by Lender, Borrower has provided or will provide Lender with an opinion of Borrower's counsel certifying to and that: (1) Borrower's
Note, any Security Agreements and this Agreement constitute valid and binding obligations on Borrower's part that are enforceable
in accordance with their respective terms; (2) Borrower is validly existing and in good standing; (3) Borrower has authority to
enter into this Agreement and to consummate the transactions contemplated under this Agreement; and (4) such other matters as may
have been requested by Lender or by Lender's counsel.

 

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

 

 

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INTEREST ALLOCATION. Lender
and Borrower have agreed to allocate the amount of $330,000.00 from the loan proceeds for payment of interest (“Interest
Allocation”).  Pursuant to the interest payment schedule outlined in the Loan Documents, Lender will advance funds from
the Interest Allocation to keep interest payment current.  Should the funds in the Interest Allocation be completely disbursed,
Borrower agrees to maintain the interest payments current or to replenish the Interest Allocation with sufficient funds as required
by the Lender.  Notwithstanding the above, Borrower may, with notice to Lender, make interest payments directly to Lender
pursuant to the interest payment schedule outlined in the Loan Documents.

 

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.

 

MISCELLANEOUS PROVISIONS. The following
miscellaneous provisions are a part of this Agreement:

 

Amendments. This Agreement, together
with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.

 

Attorneys' Fees; Expenses. Borrower
agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this
Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys'
fees and legal expenses whether or not there is a lawsuit, including Lender's reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.

 

Authority to File Notices. Borrower
appoints and designates Lender as its attorney-in-fact to file for the record any notice that Lender deems necessary to protect
its interest under this Agreement. This power shall be deemed coupled with an interest and shall be irrevocable while any sum or
performance remains due and owing under any of the Related Documents.

 

Caption Headings. Caption headings
in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

 

Governing Law. This Agreement 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 Agreement has been accepted by Lender in the State of Texas.

 

Indemnification of Lender. Borrower
agrees to indemnify, to defend and to save and hold Lender harmless from any and all claims, suits, obligations, damages, losses,
costs and expenses (including, without limitation, Lender's reasonable attorneys' fees, as well as Lender's architect's and engineering
fees), demands, liabilities, penalties, fines and forfeitures of any nature whatsoever that may be asserted against or incurred
by Lender, its officers, directors, employees, and agents arising out of, relating to, or in any manner occasioned by this Agreement
and the exercise of the rights and remedies granted Lender under this Agreement, so long as such claims asserted against the Lender
are not due to Lender’s own fault or negligence. The foregoing indemnity provisions shall survive the cancellation of this
Agreement as to all matters arising or accruing prior to such cancellation and the foregoing indemnity shall survive in the event
that Lender elects to exercise any of the remedies as provided under this Agreement following default hereunder.

 

Consent to Loan Participation. Borrower
agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one
or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or
more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter
relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation
interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners
of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the
sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest
in the Loan.

 

 

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No Waiver by Lender. Lender shall
not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver
by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's
or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent
is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

 

Payment of Interest and Fees. Notwithstanding
any other provision of this Agreement or any provision of any Related Document, Borrower does not agree or intend to pay, and Lender
does not agree or intend to 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 the Loan which would in any way or event (including demand,
prepayment, or acceleration) cause Lender to contract for, charge or collect more for the Loan than the maximum Lender would be
permitted to charge or collect by any applicable federal or Texas state law. Any such excess interest or unauthorized fee will,
instead of anything stated to the contrary, be applied first to reduce the unpaid principal balance of the Loan, and when the principal
has been paid in full, be refunded to Borrower.

 

Severability. If a court of competent
jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding
shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending
provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so
modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or
unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision
of this Agreement.

 

Successors and Assigns. All covenants
and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors
and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right
to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.

 

Survival of Representations and Warranties.
Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants
made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement
or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations,
warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be
continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full
force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated
in the manner provided above, whichever is the last to occur.

 

Time is of the Essence. Time is
of the essence in the performance of this Agreement.

 

Waive Jury. All parties to this Agreement
hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

 

DEFINITIONS. The following capitalized
words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all
references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular
shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise
defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and
terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting
principles as in effect on the date of this Agreement:

 

Advance. The word "Advance"
means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance
basis under the terms and conditions of this Agreement.

 

Agreement. The word "Agreement"
means this Construction Loan Agreement, as this Construction Loan Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Construction Loan Agreement from time to time.

 

Architect's Contract. The words
"Architect's Contract" mean the architect's contract dated September 11, 2014 between Borrower and Yong Architects, Inc.
A Subchapter S Corporation, the architect for the Project.

 

Borrower. The word "Borrower"
means Applied Optoelectronics, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

 

 

    	14

    	 

    

 

 

Collateral. The word "Collateral"
means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly
or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's
lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.

 

Completion Date. The words "Completion
Date" mean May 29, 2016.

 

Construction Contract. The words
"Construction Contract" mean the contract dated September 11, 2014 between Borrower and Skanska, the general contractor
for the Project, and any subcontracts with subcontractors, materialmen, laborers, or any other person or entity for performance
of work on the Project or the delivery of materials to the Project.

 

Contractor. The word "Contractor"
means Skanska, the general contractor for the Project.

 

Environmental Laws. The words "Environmental
Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health
or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub.
L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant
thereto.

 

Event of Default. The words "Event
of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.

 

GAAP. The word "GAAP"
means generally accepted accounting principles.

 

Grantor. The word "Grantor"
means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation
all Borrowers granting such a Security Interest.

 

Guarantor. The word "Guarantor"
means any guarantor, surety, or accommodation party of any or all of the Loan and any guarantor under a completion guaranty agreement.

 

Guaranty. The word "Guaranty"
means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

 

Hazardous Substances. The words
"Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated,
stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are
used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste
as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos.

 

Improvements. The word "Improvements"
means all existing and future buildings, structures, facilities, fixtures, additions, and similar construction on the Collateral.

 

Indebtedness. The word "Indebtedness"
means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other
indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

 

Lender. The word "Lender"
means East West Bank, its successors and assigns.

 

Loan. The word "Loan"
means the loan or loans made to Borrower under this Agreement and the Related Documents as described .

 

Loan Fund. The words "Loan
Fund" mean the undisbursed proceeds of the Loan under this Agreement together with any equity funds or other deposits required
from Borrower under this Agreement.

 

 

    	15

    	 

    

 

 

Note. The word "Note"
means the promissory note dated January 26, 2015, in the original principal amount of $22,000,000.00 from Borrower to Lender,
together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the promissory
note or agreement.

 

Permitted Liens. The words "Permitted
Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments,
or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers,
or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase
money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement,
have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.

 

Plans and Specifications. The words
"Plans and Specifications" mean the plans and specifications for the Project which have been submitted to and initialed
by Lender, together with such changes and additions as may be approved by Lender in writing.

 

Project. The word "Project"
means the construction project as described in the "Project Description" section of this Agreement.

 

Project Documents. The words "Project
Documents" mean the Plans and Specifications, all studies, data and drawings relating to the Project, whether prepared by
or for Borrower, the Construction Contract, the Architect's Contract, and all other contracts and agreements relating to the Project
or the construction of the Improvements.

 

Property. The word "Property"
means the property as described in the "Project Description" section of this Agreement.

 

Real Property. The words "Real
Property" mean the real property, interests and rights, as further described in the "Project Description" section
of this Agreement.

 

Related Documents. The words "Related
Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Loan.

 

Security Agreement. The words "Security
Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other
agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.

 

Security Interest. The words "Security
Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a
lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral
chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract,
lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract,
or otherwise.

 

 

BORROWER ACKNOWLEDGES HAVING READ ALL
THE PROVISIONS OF THIS CONSTRUCTION LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS CONSTRUCTION LOAN AGREEMENT IS DATED
JANUARY 26, 2015.

 

BORROWER:

 

 

APPLIED OPTOELECTRONICS, INC.

 

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

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

 

 

LENDER:

 

EAST WEST BANK

 

By: _____________________________________________

Authorized Signer

 

 

    	16Exhibit 10.2

 

COMMERCIAL SECURITY AGREEMENT

 

	Grantor:	
        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

 

 

 

THIS COMMERCIAL SECURITY AGREEMENT dated
January 26, 2015, is made and executed between Applied Optoelectronics, Inc. ("Grantor") and East West Bank ("Lender").

 

GRANT OF SECURITY INTEREST. For valuable
consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may
have by law.

 

COLLATERAL DESCRIPTION. The word
"Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the
payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:

 

All inventory, equipment, accounts (including
but not limited to all health-care-insurance receivables), instruments (including but not limited to all promissory notes), letter-of-credit
rights, letters of credit, documents, deposit accounts, investment property, money, other rights to payment and performance, and
general intangibles (including but not limited to all software and all payment intangibles excluding Borrower’s Intellectual
Property; all fixtures; all timber to be cut; all attachments, accessions, accessories, fittings, increases, tools, parts, repairs,
supplies, and commingled goods relating to the foregoing property, and all additions, replacements of and substitutions for all
or any part of the foregoing property; all insurance refunds relating to the foregoing property; all good will relating to the
foregoing property; all records and data and embedded software relating to the foregoing property, and all equipment, inventory
and software to utilize, create, maintain and process any such records and data on electronic media; and all supporting obligations
relating to the foregoing property; all whether now existing or hereafter arising, whether now owned or hereafter acquired or whether
now or hereafter subject to any rights in the foregoing property; and all products and proceeds (including but not limited
to all insurance payments) of or relating to the foregoing property. See Exhibit "A" for legal description of Property
attached hereto and forming a part hereof

 

In addition, the word "Collateral"
also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever
located:

 

(A) All accessions, attachments, accessories,
tools, parts, supplies, replacements of and additions to any of the collateral described herein, whether added now or later.

 

(B) All products and produce of any of
the property described in this Collateral section.

 

(C) All accounts, general intangibles,
excluding Borrower’s Intellectual Property, instruments, rents, monies, payments, and all other rights, arising out of a
sale, lease, consignment or other disposition of any of the property described in this Collateral section.

 

(D) All proceeds (including insurance proceeds)
from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due
from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement
or other process.

 

(E) All records and data relating to any
of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain,
and process any such records or data on electronic media.

 

(F) all accounts and general intangibles
that consist of rights to payment from the sale, licensing or disposition of all or any part of, or rights in, the Intellectual
Property (the “Rights to Payment”).

 

The word "Intellectual Property"
means all of Borrower’s right, title, and interest in and to the following:

 

(A) Copyrights, Trademarks and Patents;

 

(B) Any and all trade secrets, and any
and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired
or held;.

 

 

    	1

    	 

    

 

 

(C) Any and all design rights which may
be available to Borrower now or hereafter existing, created, acquired or held;

 

(D) Any and all claims for damages by way
of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for
and collect such damages for said use or infringement of the intellectual property rights identified above;.

 

(E) All licenses or other rights to use
any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted
by such license or rights; and

 

(F) All amendments, renewals and extensions
of any of the Copyrights, Trademarks or Patents.

 

Notwithstanding the foregoing, if a judicial
authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary
to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the date of
this Agreement, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest
in the Rights to Payment.

 

Some or all of the Collateral may be located
on the following described real estate:

 

as shown on the exhibit named "Exhibit
"A"", attached hereto and incorporated herein by this reference

 

CROSS-COLLATERALIZATION. In addition
to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any
one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter
arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct
or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually
or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise. However, this Agreement shall
not secure, and the "Indebtedness" shall not include, any obligations arising under Subchapters E and F of Chapter 342
of the Texas Finance Code, as amended.

 

RIGHT OF SETOFF. To the extent permitted
by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some
other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor 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. Grantor
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.

 

GRANTOR'S REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:

 

Perfection of Security Interest.
Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender's security interest in the Collateral.
Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral,
and Grantor will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession
by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness
is paid in full and even though for a period of time Grantor may not be indebted to Lender.

 

Notices to Lender. Grantor will
promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to
time) prior to any (1) change in Grantor's name; (2) change in Grantor's assumed business name(s); (3) change in the management
of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change
in Grantor's state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any
other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor's
name or state of organization will take effect until after Lender has received notice.

 

No Violation. The execution and
delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate
or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.

 

Enforceability of Collateral. To
the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code,
the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations
concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes
subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona
fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or
delivered pursuant to a contract of sale, or for services previously performed by Grantor with or for the account debtor. So long
as this Agreement remains in effect, Grantor shall not, without Lender's prior written consent, compromise, settle, adjust, or
extend payment under or with regard to any such Accounts. There shall be no setoffs or counterclaims against any of the Collateral,
and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those
disclosed to Lender in writing.

 

 

    	2

    	 

    

 

 

Location of the Collateral. Except
in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of
intangible property such as accounts or general intangibles, the records concerning the Collateral) at Grantor's address shown
above or at such other locations as are acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender in form satisfactory
to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation
the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all
storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

 

Removal of the Collateral. Except
in the ordinary course of Grantor's business, including the sales of inventory, Grantor shall not remove the Collateral from its
existing location without Lender's prior written consent. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles
outside the State of Texas, without Lender's prior written consent. Grantor shall, whenever requested, advise Lender of the exact
location of the Collateral.

 

Transactions Involving Collateral.
Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as otherwise provided for in this
Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default
under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify
as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer
in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for
in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (other
than in the ordinary course of business) shall be held in trust for Lender and shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.

 

Title. Grantor represents and warrants
to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for
the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those
which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend
Lender's rights in the Collateral against the claims and demands of all other persons.

 

Repairs and Maintenance. Grantor
agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all
times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered
or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the
Collateral.

 

Inspection of Collateral. Lender
and Lender's designated representatives and agents shall have the right, upon reasonable prior notice, during Grantor’s usual
business hours, to examine and inspect the Collateral wherever located.

 

Taxes, Assessments and Liens. Grantor
will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory
note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or
may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay
and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected
to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest,
costs, Lender's reasonable attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral.
In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the
Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor
further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid
in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not
jeopardized.

 

Compliance with Governmental Requirements.
Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter
in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating
to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product
or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding,
including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.

 

Hazardous Substances. Grantor hereby
(1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any
and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify and defend
shall survive the payment of the Indebtedness and the satisfaction of this Agreement.

 

 

    	3

    	 

    

 

 

Maintenance of Casualty Insurance.
Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together
with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at
least thirty (30) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure
to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will
not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements
as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single
interest insurance," which will cover only Lender's interest in the Collateral.

 

Application of Insurance Proceeds.
Grantor shall promptly notify Lender of any loss or damage to the Collateral if the estimated cost of repair or replacement exceeds
$10,000.00, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do
so within fifteen (15) days of the casualty.

 

Insurance Reports. Grantor, upon
request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may
reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4)
the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining
that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost
of the Collateral.

 

Financing Statements. Grantor authorizes
Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At
Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue
Lender's security interest in the Property. This includes making sure Lender is shown as the first and only security interest holder
on the title covering the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless
prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute
documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement.

 

GRANTOR'S RIGHT TO POSSESSION AND TO
COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession
of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent
with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to
any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral.
Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. If an Event of Default exists,
Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application
to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender
shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action
for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances,
but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall
not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve
or maintain any security interest given to secure the Indebtedness.

 

LENDER'S EXPENDITURES. If any action
or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with
any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when
due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf
may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or
paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and
paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures paid by Lender for such purposes
will then bear interest at the Note rate from the date paid by Lender to the date of repayment by Grantor. To the extent permitted
by applicable law, all such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during
either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment
which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall
be in addition to all other rights and remedies to which Lender may be entitled upon Default.

 

DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:

 

Payment Default. Grantor fails to
make any payment when due under the Indebtedness.

 

Other Defaults. Grantor 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 or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between
Lender and Grantor.

 

    	4

    	 

    

 

 

Default in Favor of Third
Parties. 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 Grantor's property or ability to perform
Grantor's obligations under this Agreement or any of the Related Documents.

 

False Statements. Any warranty,
representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement 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.

 

Defective Collateralization. This
Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to
create a valid and perfected security interest or lien) at any time and for any reason.

 

Insolvency. The dissolution or termination
of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor'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 Grantor.

 

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 Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment
of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there
is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Grantor 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 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.

 

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

 

Cure Provisions. If any default,
other than a default in payment is curable, it may be cured if Grantor, after Lender sends written notice to Grantor 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.

 

RIGHTS AND REMEDIES ON DEFAULT.
If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party
under the Texas Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following
rights and remedies only after Grantor has exhausted all remedies under the Cure Provisions section as referenced above:

 

Accelerate Indebtedness. Lender
may declare the entire Indebtedness immediately due and payable, without notice of any kind to Grantor.

 

Assemble Collateral. Lender may
require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents
relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to
be designated by Lender. Lender also shall have full power to enter, provided Lender does so without a breach of the peace or a
trespass, upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods
not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender
makes reasonable efforts to return them to Grantor after repossession.

 

Sell the Collateral. Lender shall
have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that
of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily
in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law,
reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of
the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into
and authenticates an agreement waiving that person's right to notification of sale. The requirements of reasonable notice shall
be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and
selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.

 

 

    	5

    	 

    

 

 

Appoint Receiver. Lender
shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect
and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral
and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without
bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the
Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as
a receiver.

 

Collect Revenues, Apply Accounts.
Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender
may at any time in Lender's discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness
or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money
orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate
collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

 

Obtain Deficiency. If Lender chooses
to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness
due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.

 

Other Rights and Remedies. Lender
shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended
from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.

 

Election of Remedies. Except as
may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the Related Documents,
or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation
of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise
its remedies.

 

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

 

MISCELLANEOUS PROVISIONS. The following
miscellaneous provisions are a part of this Agreement:

 

Amendments. This Agreement, together
with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.

 

Attorneys' Fees; Expenses. Grantor
agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys'
fees and legal expenses whether or not there is a lawsuit, including Lender's reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

 

Caption Headings. Caption headings
in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

 

Governing Law. This Agreement 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 Agreement has been accepted by Lender in the State of Texas.

 

 

 

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No Waiver by Lender. Lender
shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right.
A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to
demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course
of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations
as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all
cases such consent may be granted or withheld in the sole discretion of Lender.

 

Notices. Any notice required to
be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received
by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed,
when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses
shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes,
Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law,
if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

 

Power of Attorney. Grantor hereby
appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend,
or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender
may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection
and the continuation of the perfection of Lender's security interest in the Collateral.

 

Severability. If a court of competent
jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding
shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending
provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so
modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or
unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision
of this Agreement.

 

Successors and Assigns. Subject
to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to
the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than
Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness
by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

 

Survival of Representations and Warranties.
All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this
Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall
be paid in full.

 

Time is of the Essence. Time is
of the essence in the performance of this Agreement.

 

Waive Jury. All parties to this Agreement
hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

 

DEFINITIONS. The following capitalized
words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all
references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular
shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise
defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

 

Agreement. The word "Agreement"
means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

 

Borrower. The word "Borrower"
means Applied Optoelectronics, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

 

Collateral. The word "Collateral"
means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section
of this Agreement.

 

Default. The word "Default"
means the Default set forth in this Agreement in the section titled "Default".

 

 

    	7

    	 

    

 

 

Environmental Laws. The words "Environmental
Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health
or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub.
L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant
thereto.

 

Event of Default. The words "Event
of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.

 

Grantor. The word "Grantor"
means Applied Optoelectronics, Inc..

 

Guaranty. The word "Guaranty"
means the guaranty from guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty
of all or part of the Note.

 

Hazardous Substances. The words
"Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated,
stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are
used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste
as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos.

 

Indebtedness. The word "Indebtedness"
means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other
indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents.
Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross-Collateralization
provision of this Agreement.

 

Lender. The word "Lender"
means East West Bank, its successors and assigns.

 

Note. The word "Note"
means the Note dated January 26, 2015 and executed by Applied Optoelectronics, Inc. in the principal amount of $22,000,000.00,
together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note
or credit agreement.

 

Property. The word "Property"
means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description"
section of this Agreement.

 

Related Documents. The words "Related
Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.

 

GRANTOR HAS READ AND UNDERSTOOD ALL
THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 26, 2015.

 

 

 

GRANTOR:

 

APPLIED OPTOELECTRONICS, INC.

 

 

 

 

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

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

 

 

 

    	8

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