NOTE Q—COMMITMENTS AND CONTINGENCIES

Commitments

The Company conducts part of its operations from leased facilities and also leases equipment. Rent expense was each $1.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.

The Company entered into a long-term lease agreement for land use rights in China. The agreement specified a lease fee of $5.0 million of which $1.1 million was paid in 2017 and the remaining $3.9 million will be paid in 2018.

At December 31, 2017, 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 ending December 31,	Amount
2018	$	1,066
2019		1,015
2020		1,007
2021		1,020
2022		1,020
thereafter		6,954
	$	12,082

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. These agreements provide that if their 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 their six months of their 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. Except for the lawsuit described below, the Company believes that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on it.

On August 5, 2017, a lawsuit was filed in the U.S. District Court for the Southern District of Texas against the Company and two of its officers in Mona Abouzied v. Applied Optoelectronics, Inc., Chih-Hsiang (Thompson) Lin, and Stefan J. Murry, et al., Case No. 4:17-cv-02399. The complaint in this matter seeks class action status on behalf of the Company’s shareholders, alleging violations of Sections 10(b) and 20(a) of the Exchange Act against the Company, its chief executive officer, and its chief financial officer, arising out of the Company’s announcement on August 3, 2017 that “we see softer than expected demand for our 40G solutions with one of our large customers that will offset the sequential growth and increased demand we expect in 100G.” The original complaint requests unspecified damages and other relief. The Company disputes the allegations set forth in the original complaint and intends to vigorously contest the matter. An amended complaint is due to be filed in this matter by March 5, 2018.