Contract analysis

I. Executive Summary The purpose of this memorandum is to provide Halcyon Semiconductor AG ("Halcyon AG") and Halcyon Semiconductor Americas Inc. ("Halcyon Americas" and, together with Halcyon AG, "Halcyon" or the "Company") with a comprehensive analysis of the term sheet for the proposed consent decree agreed in principle by the parties on October 20, 2023, following court-ordered mediation before the Honorable Patr

II. Procedural Background A. The Acquisition and Federal Review On September 8, 2022, Halcyon Semiconductor AG, acting through its wholly owned U.S. subsidiary Halcyon Semiconductor Americas Inc. (a Delaware corporation, EIN 84-3921057), entered into an Agreement and Plan of Merger (the "Merger Agreement") with Meridian Photonics Inc. (a Delaware corporation, EIN 93-1284563), pursuant to which Halcyon agreed to acqui

III. Term-by-Term Analysis of the Proposed Consent Decree We turn now to a detailed examination of each material term of the proposed consent decree as reflected in the October 20, 2023 term sheet. For each term, we describe the obligation, assess its practical and strategic impact on Halcyon, and provide our recommendation. A. Term 1: FRAND Licensing Commitment for Meridian CPO Patents

1. Description of the Obligation Under the proposed consent decree, Halcyon commits to offering licenses on Fair, Reasonable, and Non-Discriminatory ("FRAND") terms for all forty-seven (47) of Meridian's United States patents related to co-packaged optics technology. This obligation applies to any party that requests a license to one or more of the covered patents, without limitation as to the identity, size, or mark

2. Assessment. Halcyon and Meridian do not currently maintain a broad licensing program for the forty-seven CPO-related patents. Prior to the acquisition, Meridian had entered into a limited number of cross-license agreements with certain competitors, including a 2019 cross-license with Luminos Systems Corp. covering specific packaging and integration patents, and a 2021 cross-license with Crestwave Optical Technolog

3. Recommendation. This term is acceptable. The time-limited and FRAND-standard nature of this commitment limits the downside to Halcyon while maintaining the Company's patent monetization rights. The five-year sunset and the narrow scope of the covered patent portfolio are particularly favorable features. We recommend that Halcyon accept this obligation, subject to the negotiation of more specific FRAND definitional

1. Description of the Obligation The proposed consent decree would require Halcyon to maintain backward-compatible interoperability between Meridian CPO modules and third-party switch ASICs that conform to the Optical Internetworking Forum ("OIF") 400ZR and 800ZR implementation agreements. The OIF is an industry consortium that develops interoperability agreements and implementation specifications for optical network

2. Assessment. The interoperability obligation is, in practical terms, one of the least burdensome provisions of the proposed consent decree, because it largely codifies Meridian's existing engineering practices and product design philosophy. Meridian's current CPO modules are designed and certified to comply with OIF 400ZR and 800ZR standards, and Meridian has been an active participant in the OIF standards developm

3. Recommendation. This term is acceptable. It imposes minimal incremental burden on Halcyon given the Company's existing compliance with OIF standards and is fully consistent with Halcyon's stated market strategy of expanding Meridian's CPO customer base. We recommend that the final decree language clarify that the interoperability obligation pertains to OIF 400ZR and 800ZR standards as published and in effect at th

1. Description of the Obligation The proposed consent decree would prohibit Halcyon from conditioning the supply of Meridian CPO modules on a customer's purchase of Halcyon power-management integrated circuits or any other Halcyon semiconductor components. In other words, Halcyon may not engage in tying or bundling arrangements that require a customer to buy Halcyon products as a precondition for purchasing Meridian

2. Assessment. This provision directly addresses the second principal theory of harm advanced in the AG's Complaint: that Halcyon would leverage Meridian's dominant position in the CPO transceiver market (approximately 38% pre-merger Meridian share, 58% combined post-merger) to force customers to purchase Halcyon's analog and power-management ICs as a condition of accessing Meridian's CPO modules. This classic tying

3. Recommendation. This term is acceptable. It is consistent with Halcyon's publicly stated commitment to customer choice and does not impair Halcyon's ability to engage in legitimate competitive activity in the power-management IC market. We recommend acceptance, subject to confirmation in the final decree language that the five-year sunset applies to this obligation as well. D. Term 4: Independent Compliance Monito

1. Description of the Obligation The proposed consent decree provides for the appointment of Kirkdale Compliance Group LLC, with offices at 233 South Wacker Drive, Suite 4100, Chicago, Illinois 60606, as an independent compliance monitor. The monitor's appointment would be for a term of five (5) years, coterminous with the behavioral obligations, expiring on or about November 8, 2028. The monitor is required to submi

2. Assessment. The appointment of an independent compliance monitor is a standard feature of behavioral consent decrees in antitrust enforcement actions. Monitoring provisions serve the dual purpose of assuring the enforcing authority that the respondent is adhering to its obligations and providing the respondent with an independent source of guidance and validation regarding its compliance practices. The scope of th

3. Recommendation. This term is acceptable. It represents a standard consent decree feature with manageable costs and scope. We recommend acceptance, subject to the negotiation of appropriate confidentiality protections and information access protocols in the final decree language. E. Term 5: Civil Penalty

1. Description. The proposed consent decree requires Halcyon to pay a civil penalty of $1,500,000 to the State of Oregon. The penalty is payable within thirty (30) days of entry of the consent decree by the Court.

2. Assessment. Under ORS 646.775, the Attorney General is authorized to seek civil penalties for violations of the Oregon Antitrust Act. The statutory penalty framework permits the imposition of penalties on a per-violation basis, and in a case involving the conduct at issue here — an allegedly anticompetitive merger affecting multiple customers and transactions over a period of months — the maximum aggregate penalty

3. Recommendation. This term is acceptable. The penalty amount is de minimis in the context of this transaction and Halcyon's financial position, and it eliminates the Company's exposure to potentially much larger penalties that could be assessed following an adverse judgment at trial. We recommend acceptance without modification. F. Term 6: No Divestiture Requirement

1. Description. The proposed consent decree does not require the divestiture of any portion of Meridian Photonics Inc.'s business, assets, or operations. No structural remedy of any kind is included in the proposed settlement. Halcyon retains 100 percent ownership and operational control of Meridian as a wholly owned subsidiary.

2. Assessment. This is, without question, the most significant and favorable element of the proposed settlement. From the inception of this litigation, the central risk to Halcyon has been the possibility that the Court could order a structural remedy — partial or full divestiture of the Meridian business — if the AG prevailed at trial. The AG's Complaint expressly sought injunctive relief that included the possibili

3. Recommendation. This term is highly favorable and represents the cornerstone of the proposed settlement. We strongly recommend acceptance.

IV. Comparison to Continued Litigation Risk Having analyzed each term of the proposed consent decree individually, we now turn to an assessment of the risks and costs that Halcyon would face if it declined the proposed settlement and continued to litigate the case through trial. This comparative analysis further supports our recommendation to accept the proposed terms. A. Risk of Adverse Judgment at Trial The Court's

V. Total Cost of Settlement vs. Litigation A. Settlement Cost Summary The following table summarizes the direct costs associated with the proposed settlement: Internal compliance implementation costs include the establishment of a FRAND licensing desk to receive and process license requests, the formalization of interoperability testing protocols aligned with the consent decree requirements, and the development and d

VI. Negotiation Points for Final Decree Language While we recommend acceptance of the material terms reflected in the October 20, 2023 term sheet, several points should be addressed in the negotiation of the final consent decree language to protect Halcyon's interests and minimize the risk of future disputes. We recommend that counsel focus on the following issues during the drafting process:

1. No Admission of Liability. The consent decree must include prominent and unambiguous language establishing that Halcyon neither admits nor denies the allegations set forth in the AG's Complaint, and that the entry of the consent decree does not constitute a finding or admission of any violation of the Oregon Antitrust Act or any other law. This language should be placed in the recitals of the decree and repeated i

2. Uniform Five-Year Sunset. The final decree language should confirm that the five-year term applies uniformly to all behavioral obligations, including the FRAND licensing commitment, the interoperability obligation, and the non-discrimination in supply obligation. As noted above, the term sheet does not include an explicit sunset date for the non-discrimination obligation, and this omission should be corrected in t

3. Confidentiality Protocols for Compliance Monitor. The decree should include detailed provisions governing the compliance monitor's obligations with respect to the confidentiality of Halcyon's proprietary and competitively sensitive information. These provisions should specify the categories of information subject to heightened confidentiality protections, the measures the monitor must take to safeguard such inform

4. Definition of FRAND Terms. The consent decree should define "Fair, Reasonable, and Non-Discriminatory" terms with sufficient specificity to prevent future disputes. We recommend that the decree reference comparable industry FRAND frameworks, such as those adopted by ETSI for standard-essential patents in the telecommunications sector, as a benchmark for interpreting the FRAND obligation. The decree should also spe

5. Scope of Interoperability Obligation. The final decree should clarify that the interoperability obligation requires Halcyon to maintain compatibility with the OIF 400ZR and 800ZR standards as published and in effect at the time of the decree's entry, and does not obligate Halcyon to support future OIF standards that have not yet been adopted or published at the time of entry. This clarification is important to pre

6. Dispute Resolution Mechanism. The decree should include a dispute resolution mechanism for alleged violations of the consent decree terms. We recommend a two-step process: first, mandatory mediation before a neutral mediator (potentially Judge Loomis, if available) for a period of thirty days; second, if mediation is unsuccessful, referral to the Court for formal enforcement proceedings. This structure would provi

7. Modification Provision. The decree should include a provision allowing either party to petition the Court for modification of the decree's terms based on changed market conditions, technological developments, or other material changes in circumstances. Such provisions are standard in consent decrees of this nature and provide necessary flexibility to adapt the decree to evolving conditions without requiring th