Contract analysis

I. EXECUTIVE SUMMARY This memorandum sets forth our reassessment of the defense strategy for Halcyon Semiconductor Americas Inc. ("Halcyon Americas" or the "Company") following the Honorable Robert Castañeda's July 7, 2023 order denying Halcyon Americas's Motion to Dismiss ("MTD") the civil complaint filed by the Oregon Attorney General's office (the "AG") in the above-captioned matter. The purpose of this memorandum

1. Expert Retention. Retain Dr. Franklin Morrow, Principal of Stonebridge Analytics LLC, as the defense expert economist. Dr. Morrow's expertise in semiconductor and technology merger analyses, combined with his experience testifying in state and federal antitrust proceedings, makes him ideally suited to counter the AG's market-definition and competitive-effects arguments. Estimated engagement cost through trial or s

2. Aggressive discovery on Market Definition and Competitive Effects. Prepare for and execute an assertive discovery plan focused on developing the factual record necessary to support a broader market definition than the AG has proposed, to demonstrate procompetitive efficiencies arising from the transaction, and to rebut the AG's vertical foreclosure theory.

3. Internal Settlement Assessment. Begin an internal assessment of acceptable settlement parameters, including a behavioral remedy framework (e.g., FRAND licensing commitments, interoperability obligations, non-discrimination commitments, independent compliance monitor, and modest civil penalty) that would preserve the transaction while satisfying the AG's stated concerns. We do not recommend proactively proposing se

4. Local Counsel Coordination. Continue close coordination with local counsel Grantham Davis & Kowalski LLP ("GDK"), specifically Thomas Kowalski (partner) and Rachel Ingram (associate), on Oregon procedural matters, local filings, third-party subpoena service, and protective order negotiations. Client Briefing. Priya Nagarajan, U.S. Deputy General Counsel of Halcyon Semiconductor Americas Inc., and Katrin Schreiber,

II. BACKGROUND A. The Transaction On September 8, 2022, Halcyon Semiconductor AG ("Halcyon AG"), a German-domiciled Aktiengesellschaft and global semiconductor manufacturer, acting through its wholly owned U.S. subsidiary, Halcyon Semiconductor Americas Inc. (a Delaware corporation, EIN 84-3921057, headquartered at 4500 Great America Parkway, Suite 300, Santa Clara, California 95054), entered into an Agreement and Pl

III. ANALYSIS OF THE COURT'S JULY 7 ORDER DENYING THE MOTION TO DISMISS A. Federal Preemption Ruling Court's Holding. The court held that the HSR Act's pre-merger notification and waiting-period framework does not preempt state antitrust enforcement actions, even where the federal antitrust agencies have granted early termination of the HSR waiting period. Court's Reasoning. Judge Castañeda's analysis of the preempti

IV. REVISED DEFENSE STRATEGY A. Core Merits Defense Themes In light of the court's ruling and the case's progression to the discovery phase, we have refined our core defense themes as follows:

1. Broader Market Definition. The linchpin of our merits defense is the argument that the AG's proposed relevant product market — "co-packaged optics transceiver modules for data-center applications" — is unreasonably narrow and does not reflect the competitive realities of the optical transceiver industry. We will argue that the properly defined relevant product market should encompass all optical transceivers for d

2. Dynamic, Rapidly Growing Market. The CPO market is a nascent technology market experiencing rapid growth. The total U.S. CPO market was approximately $875 million in fiscal year 2022, and industry analysts project significant compound annual growth rates as hyperscale data-center operators increasingly adopt CPO technology for next-generation deployments. In such a dynamic market environment, static market-share s

3. Procompetitive Efficiencies. The combination of Halcyon's established analog and mixed-signal integrated circuit design expertise with Meridian's 47 CPO-related patents and advanced silicon photonics manufacturing capabilities generates substantial procompetitive efficiencies that benefit consumers, including Oregon-based data-center operators. These efficiencies include: (a) cost savings from vertical integration

4. Viable Competitors and Ease of Entry. The U.S. CPO transceiver market is served by capable, well-resourced competitors with expanding product lines. Luminos Systems Corp., with an approximately 22% market share, is a well-funded company with significant R&D investment in CPO technology and a growing product portfolio. Crestwave Optical Technologies Ltd., with an approximately 11% market share, is a major Chinese p

5. No Evidence of Actual Anticompetitive Conduct Post-Merger. Since the acquisition closed on January 31, 2023, Halcyon Americas has not engaged in any of the anticompetitive conduct that the AG's complaint theorizes. Halcyon has not degraded interoperability between Meridian CPO modules and third-party switch ASICs. Halcyon has not raised prices to Oregon-based or other customers. Halcyon has not discriminated again

6. Halcyon's Commitment to Open Standards. Halcyon Americas has publicly committed to compliance with the Optical Internetworking Forum ("OIF") 400ZR and 800ZR interoperability standards. These industry-standard specifications govern the interoperability of optical transceiver modules with switch and routing equipment, and they are maintained by a multi-stakeholder industry body that includes data-center operators, e

V. DISCOVERY PLAN A. Initial Disclosures Initial disclosures under the Oregon Rules of Civil Procedure are due July 21, 2023, pursuant to the court's scheduling order. Aaron Liu will coordinate with Priya Nagarajan and the Company's litigation support team to identify key custodians at Halcyon Americas and Meridian whose files are likely to contain relevant documents and information. The initial disclosures should id

1. Dr. Samuel Ashford, Founder and Former CEO, Meridian Photonics Inc. Dr. Ashford is a critical fact witness with deep knowledge of Meridian's competitive position in the CPO market, the market dynamics and growth trajectory of the CPO industry, the reasons why Meridian's board and shareholders chose to accept Halcyon's acquisition offer, and his assessment of the procompetitive benefits of the transaction (includin

2. Linnea Johansson, Former CFO, Meridian Photonics Inc. Ms. Johansson is a key fact witness on Meridian's financial condition prior to the acquisition, the company's revenue composition and growth trends, its customer relationships (particularly with Cascadia and Northstar), pricing practices and competitive pricing dynamics, and the financial rationale for the sale to Halcyon. As the former CFO, she will have direc

3. AG Staff Witnesses. We should depose Senior Assistant Attorney General Marcus Trujillo and/or other AG staff witnesses who were involved in the investigation and the decision to bring the enforcement action. These depositions will explore the factual basis for the AG's claims, the investigation process, the information obtained through the CID, and the AG's contacts with federal agencies, Oregon-based customers, a

4. Dr. Evelyn Ng, AG's Expert Economist. Dr. Ng's deposition will be taken after expert reports are exchanged, in accordance with the scheduling order. The deposition will challenge her market definition methodology, her market-share calculations, her HHI analysis, and the assumptions and economic models underlying her competitive effects and vertical foreclosure opinions. Dr. Morrow should participate in preparing t

VI. EXPERT RETENTION — DR. FRANKLIN MORROW / STONEBRIDGE ANALYTICS LLC A. Recommendation to Retain We strongly recommend the immediate retention of Dr. Franklin Morrow, Principal of Stonebridge Analytics LLC (1700 K Street NW, Suite 850, Washington, DC 20006), as Halcyon Americas's expert economist in this matter. Dr. Morrow holds a Ph.D. in Economics from the Massachusetts Institute of Technology and has spent more

1. Market Definition Analysis. Dr. Morrow will develop and present an economic analysis supporting a broader relevant product market definition than the AG's proposed "co-packaged optics transceiver modules for data-center applications." Specifically, Dr. Morrow will analyze demand-side substitutability (the degree to which data-center operators can and do substitute between CPO modules and traditional pluggable tran

2. Competitive Effects Analysis. Dr. Morrow will analyze the competitive effects of the Halcyon-Meridian transaction and demonstrate that the combined entity's post-merger market share of approximately 58% in the AG's narrow market does not reflect actual competitive dynamics in the optical transceiver industry. His analysis will address the limitations of the AG's HHI analysis (post-merger HHI of 4,050, delta of 1,2

3. Efficiencies Analysis. Dr. Morrow will quantify the procompetitive efficiencies arising from the vertical integration of Halcyon's analog and mixed-signal IC capabilities with Meridian's silicon photonics and CPO manufacturing capabilities. This analysis will estimate cost savings from vertical integration (elimination of third-party component costs, reduction in manufacturing complexity and supply chain friction)

4. Vertical Foreclosure Rebuttal. Dr. Morrow will develop an economic model demonstrating that Halcyon lacks both the ability and the incentive to engage in vertical foreclosure through degradation of interoperability between Meridian's CPO modules and third-party switch ASICs. His analysis will demonstrate that: (a) Halcyon's power management ICs are commodity components with numerous substitutes, and Halcyon lacks

5. Rebuttal of Dr. Evelyn Ng's Analysis. Once Dr. Ng's expert report is served, Dr. Morrow will prepare a comprehensive rebuttal report addressing methodological flaws, unsupported assumptions, and errors in her market definition analysis, market-share calculations, HHI analysis, competitive effects opinions, and vertical foreclosure theory. The rebuttal will include independent analysis where appropriate and will id

VII. ASSESSMENT OF SETTLEMENT POSTURE A. Litigation Risk Assessment A candid assessment of the strengths and weaknesses of our litigation position is essential to inform both our defense strategy and our evaluation of settlement alternatives. Strengths of Our Position: • Strong procompetitive efficiencies story. The vertical integration of Halcyon's analog IC capabilities with Meridian's silicon photonics and CPO tec