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Note T - Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Commitments and Contingencies Disclosure [Text Block] | NOTE T—COMMITMENTS AND CONTINGENCIES Commitments The Company conducts part of its operations from leased facilities and also leases equipment. Rent expense was $1.3 million, $1.4 million, and $1.3 million, respectively, for the years ended December 31, 2021, 2020 and 2019, respectively. At December 31, 2021, the approximate minimum rental commitments under noncancellable leases in excess of one year that expire at varying dates through 2029 were as follows (in thousands):
Year ended December 31, |  | Amount |
2022 |  | $ | 1,334 |
2023 |  |  | 1,393 |
2024 |  |  | 1,231 |
2025 |  |  | 1,257 |
2026 |  |  | 1,197 |
thereafter |  |  | 2,923 |
|  | $ | 9,335 |
Employment Agreements and Consultancy Agreements The Company has entered into employment and indemnification agreements with three executive officers. These agreements provide that if their employment is terminated as a result of a change of control of the Company, or if their employment is terminated for certain other reasons set forth in the agreements, the Company will be required to pay a severance payment in an amount equal to their annual base salary, and other additional compensation due under the terms of the agreements. The Company has also entered into employment and indemnification agreements with one other executive officer. This agreement provides that if his employment is terminated as a result of a change of control of the Company, the Company will be required to pay a severance payment in an amount equal to six months of his annual base salary and other additional compensation due under the terms of the agreements. Contingencies From time to time, the Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, inquiries, investigations, audits and other regulatory proceedings, such as described below. The Company records a loss provision when it believes it is both probable that a liability has been incurred and the amount can be reasonably estimated. Unless otherwise disclosed, the Company is unable to estimate the possible loss or range of loss for the legal proceeding described below. Except for the lawsuits described below, the Company believes that there are no claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on it. Class Action and Shareholder Derivative Litigation On August 7, 2018, a derivative lawsuit was filed in the United States District Court for the Southern District of Texas styled Lei Jin, derivatively on behalf of Applied Optoelectronics, Inc. v. Chih-Hsiang (“Thompson”) Lin, Stefan J. Murry, William H. Yeh, Alex Ignatiev, Richard B. Black, Min-Chu Chen, Alan Moore, and Che-Wei Lin and Applied Optoelectronics, Inc., No. 4:18-cv-02713 alleging breaches of fiduciary duties, unjust enrichment, and violations of Section 14(a) of the Exchange Act based on similar factual allegations as in the securities class action captioned Mona Abouzied v. Applied Optoelectronics, Inc., Chih-Hsiang (Thompson) Lin, and Stefan J. Murry, et al., Case No. 4:17-cv-02399, which had been previously filed against the Company and was dismissed following a settlement in 2020. On December 18, 2018, a second derivative complaint was filed styled Yiu Kwong Ng v.Chih-Hsiang (“Thompson”) Lin, Stefan J. Murry, William H. Yeh, Alex Ignatiev, Richard B. Black, Min-Chu Chen, Alan Moore, and Che-Wei Lin and Applied Optoelectronics, Inc., No. 4:18-cv-4751 alleging the same causes of actions as the Jin complaint and additional factual allegations regarding our announcement on September 28, 2018 that the Company had “identified an issue with a small percentage of 25G lasers within a specific customer environment.” On January 11, 2019, the Court consolidated these two derivative actions, and on January 15, 2019, the Court entered an order staying the actions pending the resolution of the securities class actions. On June 24, 2020, the plaintiffs filed a notice that the stay of proceedings had been terminated, and on July 2, 2020, the parties filed a Joint Stipulation and Proposed Scheduling Order. The Court entered the stipulated scheduling order on the same date, under which Defendants were required to file and serve their response or responsive pleading to the complaint by August 3, 2020. By agreement of the parties, the Court subsequently extended the deadline for Defendants to file and serve their response or responsive pleading to December 2, 2020. On December 2, 2020, Defendants filed their motion to dismiss the consolidated derivative complaint. On December 7, 2020, Plaintiffs filed a notice alerting the Court that they were intending to file an amended complaint, which was subsequently filed by Plaintiffs on January 13, 2021. Defendants filed a motion to dismiss all claims on March 1, 2021. On June 25, 2021, the parties filed a stipulation indicating that they had reached a settlement-in-principle of the action. In the stipulation, the Company agreed to implement various corporate governance reforms as specified in the Settlement Agreement in addition to having its D&O insurance carrier make a payment to the Plaintiffs in exchange for a full dismissal of all claims and customary releases. On June 28, 2021, the Court stayed all deadlines in the action for 30 days to allow the parties to finalize the settlement. The deadline was extended to late August. On August 30, 2021, the Plaintiffs filed an unopposed Motion for Preliminary Approval of the Settlement agreed to by the parties. On November 2, 2021, the Court granted final approval of the settlement and closed the case. The deadline to appeal has now passed with no party appealing final judgement. This motion was granted on August 31, 2021 and the Court set the Settlement Hearing date for November 4, 2021. The Company has complied with all requirements of the Settlement Agreement and the Settlement Hearing is on schedule to take place on November 4, 2021. The Company has agreed to implement various corporate governance reforms as specified in the Settlement Agreement in addition to having its D&O insurance carrier make a payment to the Plaintiffs in exchange for a full dismissal of all claims and customary releases. Other Contingencies On August 9, 2021, the Company has received a Taxes Notification of Audit Result (“Notice”) from the Texas Comptroller’s Office (the “Comptroller”), for fiscal years between 2016 and 2019, informing the Company that the Comptroller believes the Company did not qualify for certain sales and use tax exemptions on various Research and Development purchases and accordingly the Company is liable for Sale and Use Tax in the amount of approximately $1.0 million including interest charges. The Company paid $0.4 million for the tax notice but challenged the remaining tax assessments and vigorously defended its position. The Comptroller’s office has not made final assessments after the Company’s defenses. However, the management estimated the additional tax assessment will be in the range of $0.2 million to $0.4 million including interest charges.

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