OPTIWAVE SEMICONDUCTOR CORP. 2775 Augustine Drive, Suite 400 San Jose, California 95054 Telephone: (408) 555-7200
Drafted by Calderwood & Harkness LLP, One Embarcadero Center, 34th Floor, San Francisco, California 94111
April 21, 2023
VIA CERTIFIED MAIL AND ELECTRONIC TRANSMISSION
First Pacific Commerce Bank, N.A.
Attention: Credit Administration Department / Loan Officer of Record
345 Montgomery Street San Francisco, California 94104
Re: Notification of Resolution of Material Litigation — Optiwave Semiconductor Corp. v. Lumos Photonics, Inc., Case No. 5:22-cv-03417-EJD (United States District Court for the Northern District of California)
Reference: Revolving Credit Facility Agreement dated as of March 15, 2021 (as amended), $40,000,000 Revolving Credit Facility (the "Credit Agreement")
Dear Sir or Madam:
I write in my capacity as General Counsel of Optiwave Semiconductor Corp. ("OWS" or the "Company"), a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 2775 Augustine Drive, Suite 400, San Jose, California 95054 (EIN: 47-3918264). This letter is directed to the applicable loan officer of record and the Credit Administration Department of First Pacific Commerce Bank, N.A. ("FPCB") with respect to the above-referenced revolving credit facility.
As you may recall, by letter dated June 6, 2022, OWS notified FPCB of the filing of material litigation, as required under the material litigation reporting covenants set forth in Article VII, Section 7.02(d) of the Credit Agreement governing OWS's $40,000,000 revolving credit facility. That prior notification letter disclosed the filing of a patent infringement action captioned Optiwave Semiconductor Corp. v. Lumos Photonics, Inc., Case No. 5:22-cv-03417-EJD, in the United States District Court for the Northern District of California, San Jose Division, assigned to the Honorable Edward J. Torvelis. The purpose of this present letter is to notify FPCB that the above-referenced litigation has been fully and finally resolved, and that the case has been dismissed with prejudice by Order of the Court. OWS provides the following summary of the proceedings and the terms of resolution for FPCB's records and review.
Summary of the Litigation. OWS filed its Complaint in the above-captioned action on June 3, 2022, asserting claims of patent infringement under 35 U.S.C. § 271 with respect to four United States utility patents owned by OWS: U.S. Patent No. 10,234,567 ("Integrated Waveguide Coupling Structures for Silicon Photonic Devices"); U.S. Patent No. 10,891,234 ("Germanium-on-Silicon Photodetector with Enhanced Responsivity and Bandwidth"); U.S. Patent No. 11,045,678 ("Multi-Channel Optical Transceiver with Wavelength Division Multiplexing Integration"); and U.S. Patent No. 11,312,890 ("Driver Circuit Architecture for High-Speed Silicon Photonic Modulators"). These patents cover core technologies in integrated waveguide coupling, germanium-on-silicon photodetectors, multi-channel optical transceiver WDM integration, and driver circuit architectures for silicon photonic modulators — each of which is central to OWS's product portfolio and competitive position in the silicon photonics market. The defendant in the action was Lumos Photonics, Inc. ("Lumos"), a corporation organized under the laws of the State of Delaware, with its principal place of business in Austin, Texas, and publicly traded on the Nasdaq Stock Market under the ticker symbol "LMPH." OWS alleged that Lumos's LumosBridge™ 800G Optical Engine and LumosEdge™ 400ZR+ Pluggable Transceiver products infringed one or more claims of each of the four asserted OWS patents. Throughout the litigation, OWS was represented by Calderwood & Harkness LLP of San Francisco, California, and Lumos was represented by Brannick Howell & Stein LLP of Palo Alto, California.
Resolution of the Litigation. Following the completion of fact discovery, the exchange of expert reports, and a Markman hearing on claim construction held before the Court on January 30, 2023, the Court issued its Markman Order (Claim Construction Order) on February 17, 2023, construing certain disputed claim terms of the asserted patents. Subsequent to the issuance of the Court's Markman Order, the parties engaged in arm's-length settlement negotiations, facilitated in part by a private mediation session. Those discussions culminated in the execution by both parties of a comprehensive Settlement Agreement and Mutual Release, dated as of April 5, 2023 (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the parties filed a Joint Stipulation of Dismissal with Prejudice with the Court on April 10, 2023, requesting dismissal of all claims and counterclaims asserted in the action, with prejudice to their re-filing, and with each party to bear its own attorneys' fees and costs. On April 18, 2023, the Court entered its Order of Dismissal with Prejudice, thereby closing the case in its entirety. A copy of the Court's Order of Dismissal with Prejudice is enclosed with this letter.
Key Settlement Terms Relevant to FPCB's Interests. OWS believes it is important to bring to FPCB's attention the following material terms of the Settlement Agreement, each of which is relevant to FPCB's interests as a secured creditor of OWS under the Credit Agreement:
(a) No Monetary Consideration. No payment was made by OWS to Lumos, nor by Lumos to OWS, in connection with the settlement. The resolution constitutes a "walk-away" settlement with zero monetary consideration passing in either direction.
(b) Mutual General Releases. The parties exchanged mutual general releases of all claims, counterclaims, demands, causes of action, and liabilities of any nature arising from, related to, or in connection with the facts and circumstances alleged in the litigation. These releases are final and binding upon the parties and their respective successors and assigns.
(c) No License Granted. No license, covenant not to sue, or other grant of rights was made by either party to the other under the other party's intellectual property, whether arising from the patents at issue in the litigation or otherwise.
(d) Each Party Bears Its Own Fees and Costs. Each party shall bear its own attorneys' fees, expert fees, costs, and disbursements incurred in connection with the litigation. No fee-shifting order or agreement was entered into.
(e) No Admissions. Neither party made any admission of infringement, non-infringement, validity, invalidity, enforceability, or unenforceability with respect to any patent or claim at issue.
(f) No Encumbrance on OWS intellectual Property. Critically, no lien, encumbrance, security interest, pledge, assignment, or other transfer of any OWS intellectual property asset — including any issued patent, pending patent application, trade secret, copyright, trademark, mask work, or other proprietary right — was made, granted, or agreed to in connection with the Settlement Agreement or the resolution of the litigation. OWS's patent portfolio, which currently comprises eighty-seven (87) issued United States utility patents and fourteen (14) pending United States utility patent applications, remains wholly owned by OWS, free and clear of any encumbrance arising from or related to this litigation. Accordingly, FPCB's existing security interest in OWS's intellectual property assets, as granted under the Credit Agreement and related security documents, is entirely unaffected by the settlement and remains in full force and effect.
No Continuing Obligations or Contingent Liabilities. Because the Court's Order of Dismissal was entered with prejudice, neither OWS nor Lumos may re-file, re-assert, or re-litigate the claims or counterclaims that were asserted or could have been asserted in this action. There are no continuing obligations of any kind arising from the Settlement Agreement, including no contingent liabilities, indemnification commitments, earn-out provisions, royalty obligations, milestone payments, or other future payment obligations of OWS to Lumos (or vice versa). No injunction, consent decree, or other form of equitable relief was imposed on OWS by the Court or agreed to by OWS in the Settlement Agreement. Furthermore, OWS confirms that it remains in full compliance with all affirmative and negative covenants, reporting obligations, and financial covenants under the Credit Agreement, including without limitation the minimum liquidity covenant, the maximum leverage ratio covenant, and the intellectual property maintenance and protection covenants set forth therein.
Financial Impact Summary. For FPCB's reference, OWS reports that the total litigation expenditures incurred by the Company in connection with this matter were approximately $2,549,568, comprising legal fees of outside counsel, costs and disbursements (including court filing fees, deposition transcript costs, and e-discovery vendor expenses), and fees of technical and damages experts retained for the action. All such expenditures were funded entirely from OWS's operating cash flow generated in the ordinary course of business and did not require any draw on the $40,000,000 revolving credit facility. As context, OWS's total revenue for its fiscal year ended December 31, 2022 was $187.4 million, and the Company's overall financial position remains sound. OWS does not anticipate any material adverse impact on its financial condition, results of operations, or liquidity as a result of the litigation expenditures or the settlement.
Availability for Questions and Document Provision. OWS considers this notification letter to fully satisfy its obligations under the material litigation reporting covenant of the Credit Agreement with respect to the resolution and final disposition of the above-referenced matter. To the extent that FPCB requires additional information, OWS is prepared to provide copies of the Court's Order of Dismissal with Prejudice (a copy of which is enclosed herewith), the Joint Stipulation of Dismissal, the Court's Markman Order, or other non-privileged case documents upon FPCB's written request. Please note that the Settlement Agreement itself contains mutual confidentiality provisions; however, OWS will endeavor to provide such information as may be reasonably requested by FPCB in connection with its administration of the Credit Agreement, subject to the terms of such confidentiality provisions and applicable privileges.
Should you have any questions regarding this notification, or should you wish to discuss any aspect of the litigation resolution in greater detail, please do not hesitate to contact me directly at (408) 555-7215 or sandra.ellison@optiwavesemi.com. You may also contact OWS's outside counsel, Alan Ngo, Responsible Partner, Calderwood & Harkness LLP, at One Embarcadero Center, 34th Floor, San Francisco, California 94111, telephone (415) 555-9400, email alan.ngo@calderwoodharkness.com.
We appreciate FPCB's continued support and its valued banking relationship with Optiwave Semiconductor Corp.
Sincerely,
________________________________________
Sandra Ellison General Counsel Optiwave Semiconductor Corp. 2775 Augustine Drive, Suite 400 San Jose, California 95054 Telephone: (408) 555-7215
Email: sandra.ellison@optiwavesemi.com
cc:
Alan Ngo, Esq., Partner, Calderwood & Harkness LLP Marcus Delgado, Esq., Counsel, Calderwood & Harkness LLP Dr. Priya Ramanathan, Chief Executive Officer, Optiwave Semiconductor Corp. Theodore "Ted" Marchetti, Vice President of intellectual Property, Optiwave Semiconductor Corp.
Encl.: Copy of Court's Order of Dismissal with Prejudice dated April 18, 2023, Optiwave Semiconductor Corp. v. Lumos Photonics, Inc., Case No. 5:22-cv-03417-EJD (U.S. District Court for the Northern District of California)