Blog: APPLIED OPTOELECTRONICS, INC. : Entry into a Material Definitive Agreement, Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K) – Marketscreener.com

Item 1.01 Entry Into a Material Definitive Agreement




Purchase Agreement


On September 15, 2022 (the “Effective Date”), Applied Optoelectronics, Inc.
(“AOI” or the “Company”) and Prime World International Holdings Ltd. (the
“Seller”), which is a company incorporated in the British Virgin Islands and
wholly owned subsidiary of AOI, entered into a definitive agreement (the
“Purchase Agreement”) with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.
(the “Purchaser”), which is a company incorporated in the People’s Republic of
China (“PRC”). Pursuant to the Purchase Agreement, among other things, AOI would
divest its manufacturing facilities located in the PRC and certain assets
related to its transceiver business and multi-channel optical sub-assembly
products for the internet datacenter, fiber-to-the-home (“FTTH”) and telecom
markets (the “Transferred Business”). AOI would retain its manufacturing
facilities in Taiwan and Sugar Land, Texas, as well as assets related to its
cable television (“CATV”) business and to its manufacturing of lasers and laser
components for the internet datacenter, FTTH, telecom and CATV markets. The
closing of this transaction (the “Closing”) is subject to regulatory approvals
and closing conditions as described below and set forth in the Purchase
Agreement. AOI anticipates that the transaction will not be completed until
2023.

Transaction Structure; Reorganization

This transaction is structured such that Global Technology Co., Ltd., a company
incorporated in the PRC and wholly-owned subsidiary of the Seller (the “PRC
Subsidiary”), would become a wholly-owned subsidiary of a new company that the
Seller will establish in Hong Kong ( “Newco”), and then the Purchaser would
purchase from the Seller all of the share capital of Newco (such shares, the
“Newco Shares,” and such transaction, collectively, the “Newco Sale”). Prior to
consummating the Newco Sale, the Seller will contribute to Newco 100% of its
equity interests in the PRC Subsidiary, such that the PRC Subsidiary will become
a wholly owned subsidiary of Newco (the “Reorganization”). As a result of the
Reorganization and Newco Sale, upon the Closing the PRC Subsidiary will be
indirectly wholly owned by Purchaser.

Purchase Price; Use of Proceeds

The purchase price payable by the Purchaser to the Seller will be an amount
equal to the $150,000,000 USD equivalent of Renminbi (the “Purchase Price”),
less a holdback amount as described below (the “Holdback Amount”) (the Purchase
Price less the Holdback Amount, the “Initial Consideration”).

The Holdback Amount will be based on the aggregate value of certain inventory of
the PRC Subsidiary that is held for sale to or through AOI, which value will be
determined based on an audit of the PRC Subsidiary’s financial statements (the
“Completion Audit”). The Completion Audit is to be conducted only after certain
filings are made with the Committee on Foreign Investment in the United States
(“CFIUS”) and CFIUS notifies the parties that it has concluded that the
transaction is not subject to review under Section 721 of the U.S. Defense
Production Act of 1950, as amended, including implementing regulations (“DPA”),
or that CFIUS has completed all action under the DPA with respect to the
transaction (as applicable, the “CFIUS Approval”). As a result, the size of the
Holdback Amount will not be known until the CFIUS Approval is obtained and such
Completion Audit is conducted.

Half of the Initial Consideration will be paid to the Seller upon the later of
(i) the issuance of the Completion Audit, and (ii) the Purchaser obtaining
certain outbound direct investment filings, approvals, and/or certificates from
the competent Development and Reform Commission and Commerce Department of the
PRC and the outbound direct investment foreign exchange registration with a
competent bank designated by the State Administration of Foreign Exchange of the
PRC (collectively, the “ODI Approval”). The Purchaser will pay the Seller the
remainder of the Initial Consideration at the Closing.

Amounts from the Holdback Amount will be released to the Seller after the
Closing in monthly installments equal to the value of certain inventory of the
PRC Subsidiary depleted during the applicable month, for twelve months or until
all of such inventory has been depleted.

As a condition to Closing, the Seller will be required to use a portion of the
Initial Consideration to (i) repay certain account payables owed by AOI or its
affiliates to the PRC Subsidiary as of the reference date for the Completion
Audit; and (ii) provide payment for all of the then outstanding principal
amounts and accrued interests of the secured borrowings of the PRC Subsidiary
(which payments are subject to reimbursement at Closing) and cause any liens on
the PRC Subsidiary’s real property securing such borrowings to be released.
Similarly, within seven (7) business days after the Closing, the Purchaser will
be required to pay all account payables owed to AOI or its affiliates (excluding
the PRC Subsidiary and Newco) as of the reference date for the Completion Audit.
The net impact of these obligations to settle inter-company balances cannot yet
be determined.

The Seller will also be required to make capital contributions to the PRC
Subsidiary in an amount determined with reference to (i) fifty percent (50%) of
the difference between the PRC Subsidiary’s net asset value as of December 31,
2020 and June 30, 2022, which is estimated to be $6.3 million, and (ii) the
difference between the PRC Subsidiary’s net asset value as of June 30, 2022 and
its net asset value as of the reference date used for the Completion Audit,
which amount cannot yet be determined.

Prior to the Closing, AOI anticipates investing an amount equal to between 4%
and 10% of the estimated proceeds from the transaction in exchange for a 10%
equity interest in the Purchaser. Additional details regarding such investment
are subject to further negotiation between the parties.

AOI currently intends that the remainder of the net proceeds from the
transaction would be used for general working capital purposes.

Representations and Warranties; Covenants

Pursuant to the Purchase Agreement, the Seller and the Purchaser made customary
representations and warranties for transactions of this type. In addition, the
Seller agreed to be bound by certain covenants that are customary for
transactions of this type, including obligations to operate its businesses in
the ordinary course and to refrain from taking certain specified actions without
the prior written consent of the Purchaser, in each case, subject to certain
exceptions and qualifications. Additionally, for a period of seven years from
the Closing, the Purchase Agreement restricts the ability of the Seller and its
affiliates to engage in businesses competitive with the Transferred Business
anywhere in the world, and restricts the ability of the Purchaser and its
affiliates to engage in the CATV business in North America for a period of seven
years from the Closing as long as the PRC Subsidiary is AOI’s largest supplier
of networking products for CATV.



Conditions to Closing


The Closing is subject to the satisfaction or waiver of certain closing
conditions, including, without limitation: (i) the parties obtaining CFIUS
Approval, (ii) the Purchaser obtaining the ODI Approval, (iii) approval of the
Newco Sale and related transactions by the Company’s stockholders or the
Company’s receipt and delivery to the Purchaser of an opinion of Delaware
counsel confirming that such stockholder approval is not required pursuant to
the Delaware General Corporation Law, and (iv) completion of the Reorganization.



Termination


If any of the conditions to Closing have not been satisfied by 5:00 p.m. Beijing
time on the date that is nine months after notice of the Newco Sale is filed
with CFIUS or such later date as the Seller may agree, then the Purchase
Agreement will automatically terminate with immediate effect. In addition, the
Purchase Agreement may be terminated at any time prior to the Closing by either
the Purchaser or the Seller if the Closing does not occur as a result of the
other party failing to comply with certain obligations, including, among others,
(i) the Purchaser’s payment of the Purchase Price, (ii) delivery to the other
party of evidence that such party is authorized to execute the Purchase
Agreement, and (iii) delivery to the other party of an executed instrument of
transfer in respect of the Newco Shares.

If the Purchase Agreement is terminated for certain specified reasons prior to
the Closing, the Purchaser or the Seller, as applicable, will be required to pay
a breakup fee equal to 2% of the Purchase Price. The breakup fee payable by the
Purchaser may be reduced to 1% of the Purchase Price if such termination is a
result of the Purchaser’s failure to obtain the ODI Approval due to Purchaser’s
breach of certain of its obligations under the Purchase Agreement. No
termination fee applies in the event the Purchase Agreement is terminated due to
a failure to receive CFIUS approval, provided that the parties comply with their
obligations to seek CFIUS approval.









Ancillary Agreements


The Purchase Agreement requires that the parties enter into a (i) Trademark
License Agreement, pursuant to which AOI will license certain trademarks to the
PRC Subsidiary and the Purchaser, (ii) Technology Cross-License Agreement,
pursuant to which the certain intellectual property will be licensed to certain
licensee(s), (iii) Product Supply Agreement, pursuant to which the Purchaser
will purchase certain products and services from AOI, and (iv) Contract
. . .

Item 7.01 Regulation FD Disclosure

On September 15, 2022, the Company issued a press release announcing the
execution of the Purchase Agreement, a copy of which is furnished as Exhibit
99.1 and incorporated herein by reference.

The information in Item 7.01 of this Current Report on Form 8-K, including
Exhibit 99.1 attached hereto, is being furnished and shall not be deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), or otherwise subject to the liabilities of that section,
and it shall not be deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, or under the Exchange Act, whether made
before or after the date hereof, except as expressly set forth by specific
reference in such filing to Item 7.01 of this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.





(d) Exhibits



Exhibit
No.          Description
  2.1*         Agreement for the Sale and Purchase of a New Company to Be Established
             in Hong Kong Special Administrative Region of The People's Republic Of
             China, dated as of September 15, 2022, by and between Prime World
             International Holdings Ltd., Applied Optoelectronics, Inc. and Yuhan
             Optoelectronic Technology (Shanghai) Co., Ltd.
  10.1         Form of Trademark License Agreement, by and among Applied
             Optoelectronics, Inc. Global Technology Co., Ltd., and Yuhan
             Optoelectronic Technology (Shanghai) Co., Ltd.
  10.2         Form of Technology Cross-License Agreement, by and among Applied
             Optoelectronics, Inc. Global Technology Co., Ltd., and Yuhan
             Optoelectronic Technology (Shanghai) Co., Ltd.
  10.3*        Form of Product Supply Agreement, by and between Applied
             Optoelectronics, Inc. and Yuhan Optoelectronic Technology (Shanghai) Co.,
             Ltd.
  10.4*        Form of Contract Manufacturing Agreement, by and among Applied
             Optoelectronics, Inc. Global Technology Co., Ltd., and Yuhan
             Optoelectronic Technology (Shanghai) Co., Ltd.
  99.1**       Press Release of Applied Optoelectronics, Inc., dated September 15,
             2022
104          Cover Page Interactive Data File (embedded within the Inline XBRL
             document).



* Certain portions of this exhibit have been omitted pursuant to Item 601(a)(5)
and 601(b)(2) of Regulation S-K. A copy of the omitted portions will be
furnished supplementally to the Securities and Exchange Commission upon request;
provided, however that the Company may request confidential treatment pursuant
to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for the
information so furnished.

** Furnished herewith, not filed.

© Edgar Online, source Glimpses

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