Contract analysis

I. Executive Summary and Purpose The purpose of this memorandum is to analyze the principal tax, regulatory, and structural considerations arising from the capped call transactions that Optiwave Semiconductor Corp. ("OWS" or the "Company") proposes to enter into concurrently with the issuance of its 2.75% Convertible Senior Notes due 2028 (the "Notes"). This memorandum is intended to serve as a comprehensive internal

1. U.S. Federal Income Tax Treatment. The characterization of the capped call transactions from OWS's perspective, including the proper treatment of the premium paid and the consequences of settlement.

2. Section 1032 Analysis. The application of Section 1032 of the Internal Revenue Code to OWS upon settlement of the capped calls in shares of its own common stock.

3. Constructive Sale Risk Under Section 1259. Whether the combination of the convertible Notes and the capped call transactions gives rise to constructive sale treatment under Section 1259 of the Internal Revenue Code with respect to OWS's common stock.

4. Dodd-Frank and Regulatory Implications. The application of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including security-based swap regulation by the SEC and related CFTC considerations, to OWS and the dealer counterparties.

5. ISDA Documentation Structure and Key Negotiation Points. The framework for documenting the capped call transactions under the 2002 ISDA Master Agreement and the principal elections, terms, and negotiation points in the Schedule and Confirmation. This memorandum should be read in conjunction with the separate Calderwood & Harkness LLP memorandum dated April 10, 2023 (prepared by Claire Dempsey and Leonard Cross), w

II. Transaction Overview and Key Economic Terms A. Structure of the Capped Call The capped call transactions are privately negotiated call spread transactions on OWS common stock, to be entered into between OWS, on the one hand, and each of Ridgepoint and Northvane, on the other hand. Each capped call transaction is structured as a combination of two economically linked option positions: a purchased call option at a

III. U.S. Federal Income Tax Analysis — OWS Perspective A. Characterization of the Capped Call Transactions A threshold question for the U.S. federal income tax analysis is the proper characterization of the capped call transactions. Two principal characterizations are available: (i) integration with the Notes as a single financial instrument, or (ii) treatment as separate prepaid forward contracts on OWS common stoc

Section 1032 of the Internal Revenue Code provides that a corporation does not recognize gain or loss on the receipt of money or other property in exchange for its own stock, including treasury stock. This provision is fundamental to the tax treatment of corporate equity issuances and repurchases and has been interpreted broadly by the IRS and the courts to cover range transactions in which a corporation issues or re

Section 1259 of the Internal Revenue Code provides that a taxpayer is treated as having made a "constructive sale" of an "appreciated financial position" if the taxpayer enters into certain enumerated transactions that substantially eliminate risk of loss and opportunity for gain with respect to the appreciated financial position. The enumerated transactions include short sales, offsetting notional principal contract

IV. Dodd-Frank Act and CFTC Regulatory Considerations A. Overview of Regulatory Framework Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203), enacted in 2010, established a comprehensive regulatory framework for over-the-counter ("OTC") derivatives. Title VII divided regulatory jurisdiction over OTC derivatives between the Securities and Exchange Commission ("SEC") and the Co

V. ISDA Documentation Structure A. Framework: 2002 ISDA Master Agreement Each capped call transaction will be documented under a separate 2002 ISDA Master Agreement (published by the International Swaps and Derivatives Association, Inc.) between OWS, on the one hand, and each dealer counterparty, on the other hand. Accordingly, two ISDA Master Agreements will be executed: one between OWS and Ridgepoint Capital Market

VI. Counterparty Hedging Activity and Market Impact A. Initial Hedge Upon execution of the capped call transactions on the trade date (expected to be May 30, 2023), the dealer counterparties are expected to establish initial delta hedges by purchasing shares of OWS common stock in the open market and/or by entering into other derivative transactions referencing OWS common stock. The initial delta hedge for a capped c