**PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION** **Matter Reference: 1014-00003
Dear Sandra,
Thank you for confirming that both the OWS Board of Directors and Vantage Point Capital Partners Fund IV, LP — through Douglas Fairbanks III and Rebecca Torres — have approved the walk-away settlement terms. We understand this approval follows the settlement discussions initially authorized at the February 24, 2023 Board meeting and the subsequent negotiation process with Lumos's counsel. With all necessary approvals now in hand, I wanted to memorialize where we stand and outline the path forward.
**Approved Settlement Terms**
For clarity, the following terms — communicated by Victoria Ashworth at Brannick Howell & Stein LLP on behalf of Lumos Photonics, Inc. on March 22, 2023, and now accepted by OWS — constitute the agreed framework for resolution of *Optiwave Semiconductor Corp. v. Lumos Photonics, Inc.*, Case No. 5:22-cv-03417-EJD:
- **No monetary payment** in either direction ($0 settlement amount); - **Mutual general releases** of all claims and counterclaims arising from or related to the litigation; - **No license granted** — neither party receives any license to the other's patents or other intellectual property; - **Each party bears its own attorneys' fees and costs** — no fee-shifting in either direction; - **No admission** of infringement, validity, or invalidity by either party; and - **Dismissal with prejudice** of all claims and counterclaims.
**Context**
These terms are consistent with the settlement authority previously granted by the Board and align with the analysis set forth in our walk-away cost-benefit memorandum. As we discussed in our post-Markman impact assessment dated February 21, 2023, the Court's February 17 Markman Order adopted claim constructions substantially aligned with Lumos's positions on eight of eleven disputed claim terms, which rendered OWS's infringement theories untenable as to three of the four patents-in-suit and materially weakened as to the fourth. OWS's initial cross-license proposal — which included a nominal $500,000 royalty payment — was rejected by Lumos on or around March 20, and Lumos counteroffered with the walk-away terms on March 22. Continued prosecution of the case would have required an estimated $1.65 million in additional spend against the remaining portion of the Board-approved $4.2 million budget, with a near-zero probability of meaningful recovery at trial. Under the circumstances, acceptance of these terms represents the most prudent course.
**Next Steps — Drafting and Execution**
Calderwood & Harkness will now proceed to prepare the following documents:
1. **Settlement Agreement and Mutual Release** — to be executed by you on behalf of Optiwave Semiconductor Corp. and by Richard Talbot, General Counsel, on behalf of Lumos Photonics, Inc.; 2. **Joint Stipulation of Dismissal with Prejudice** — to be filed with the Court (Hon. Edward J. Torvelis, N.D. Cal.), signed by me for Calderwood & Harkness and by Victoria Ashworth for Brannick Howell & Stein LLP; and 3. **Proposed Order of Dismissal with Prejudice** — for the Court's signature.
We are targeting circulation of initial drafts to you and to BHS within the next several business days. It would be helpful to know your preferred turnaround time for OWS's internal review of the Settlement Agreement before we send it across to Lumos's counsel — please let me know what works for your schedule.
**Additional Administrative Items**
Upon execution of the Settlement Agreement and entry of the dismissal order, we will attend to several housekeeping matters:
- **Lender Notification:** We will notify First Pacific Commerce Bank, N.A. of the litigation resolution, as required under the covenants of OWS's $40 million revolving credit facility. As you will recall, FPCB holds a lien on OWS's IP assets and was previously notified of the filing in June 2022. - **Protective Order Compliance:** We will initiate procedures for the return or destruction of all confidential materials received from Lumos under the Stipulated Protective Order, and will coordinate with BHS on the reciprocal process. - **Fee Reconciliation:** We will prepare the final fee reconciliation and arrange for the return of any remaining retainer balance.
In the interim, the stipulated discovery stay entered on March 10, 2023 will remain in effect until the dismissal is entered by the Court.
I am happy to schedule a call with you — and with Marcus, if helpful — to discuss any remaining questions or considerations before we begin the drafting process. Please let me know a time that works for you, and we will get something on the calendar.
Best regards,
**Alan Ngo** Partner, intellectual Property Group Calderwood & Harkness LLP One Embarcadero Center, 34th Floor San Francisco, CA 94111 T: (415) 772-4400 E: ango@calderwoodharkness.com
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