draft-lender-notification-meridian.docx

1014-00005 · Optiwave Semiconductor Corp · Correspondence/External

draft-lender-notification-meridian.docx DOCUMENT IP / Technology

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DRAFT — PRIVILEGED & CONFIDENTIAL — PREPARED BY OUTSIDE COUNSEL Prepared by Calderwood & Harkness LLP for review and signature by Optiwave Semiconductor Corp. C&H Matter No. 1014-00005 This draft was prepared in connection with the lender covenant compliance analysis dated January 22, 2025.

OPTIWAVE SEMICONDUCTOR CORP. 4710 Ridgeview Parkway, Suite 300 Santa Clara, CA 95054

January 25, 2025

Brian Hartwell Relationship Manager Meridian National Bank, N.A. 600 Travis Street Houston, TX 77002

Re: Senior Secured Revolving Credit Facility dated September 30, 2020, as amended and restated March 15, 2022 (the "Credit Agreement"), by and between Optiwave Semiconductor Corp. ("Borrower") and Meridian National Bank, N.A. ("Administrative Agent and Lender") — Notice Regarding intellectual Property Prosecution Status

Dear Mr. Hartwell:

1. Purpose of This Letter

Optiwave Semiconductor Corp. ("OWS" or the "Borrower") writes to provide voluntary, good-faith notice to Meridian National Bank, N.A. ("Meridian" or the "Lender") regarding the current status of certain pending patent applications that may fall within the scope of the Borrower's intellectual property covenants under the Credit Agreement referenced above. OWS has long valued the financing relationship it maintains with Meridian, and the Borrower is committed to transparency and proactive communication with its Lender regarding developments that may affect the collateral base underlying the Credit Agreement or the Borrower's covenant compliance thereunder.

This notice is being provided voluntarily, in advance of any formal request by the Lender, and is motivated by OWS's desire to preserve an open and constructive dialogue concerning the matters described herein. This notice is provided voluntarily and does not constitute, nor should it be construed as, an admission of any existing default, Event of Default, or breach of any covenant or obligation under the Credit Agreement. OWS provides this letter in the interest of good-faith cooperation and in recognition of the importance of the intellectual property assets that secure the Borrower's obligations to Meridian.

2. Background — The Credit Facility

As you are aware, OWS and Meridian entered into that certain $55,000,000 Senior Secured Revolving Credit Facility (the "Credit Facility"), originally dated as of September 30, 2020, and subsequently amended and restated as of March 15, 2022 (as so amended and restated, the "Credit Agreement"). The Credit Agreement governs the terms and conditions under which Meridian, as Administrative Agent and Lender, has extended revolving credit availability to OWS, and sets forth the Borrower's representations, warranties, and affirmative and negative covenants in connection therewith.

In connection with the Credit Agreement, OWS executed and delivered the Security Agreement, which is attached to the Credit Agreement as Exhibit C (the "Security Agreement"). Pursuant to the Security Agreement, OWS granted Meridian a first-priority security interest in all "Intellectual Property Collateral," which term is defined in the Security Agreement to include, among other things, "all patents, patent applications, and patent rights, whether now existing or hereafter acquired." Appropriate filings were made with the United States Patent and Trademark Office to perfect Meridian's security interest in OWS's patent assets.

As of December 31, 2024, the outstanding principal balance drawn under the Credit Facility was approximately $32,500,000, with approximately $22,500,000 remaining undrawn and available under the revolving commitment (subject to applicable borrowing base limitations and conditions precedent to borrowing).

Of particular relevance to this notice, we draw your attention to the following provisions of the Credit Agreement:

Section 5.15 (Intellectual Property Covenants): The Borrower covenants that it shall "maintain, preserve, and protect all Material intellectual Property, including by timely prosecuting all pending patent applications and paying all required maintenance fees, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect."

Section 1.01 (Definitions — "Material intellectual Property"): The Credit Agreement defines "Material intellectual Property" to include "all patents and patent applications listed on Schedule 5.15(a), as updated from time to time, together with all intellectual property rights that are material to the business, operations, financial condition, or prospects of the Borrower."

Schedule 5.15(a): This schedule, which was last updated as of the amendment and restatement date of March 15, 2022, lists all thirty-one (31) issued U.S. utility patents then held by the Borrower, together with the then-pending provisional patent application (U.S. Provisional Application No. 63/297,841, filed January 10, 2022). Schedule 5.15(a) has not been formally updated since March 15, 2022.

3. Description of OWS's Current Patent Portfolio

OWS currently maintains a patent portfolio consisting of thirty-one (31) issued U.S. utility patents and twelve (12) pending patent applications. The pending applications comprise a mixture of U.S. non-provisional utility applications, continuation applications, continuation-in-part applications, PCT international applications, European regional-phase applications, and Japanese national-phase applications. Collectively, the twelve pending applications were filed between January 9, 2023, and January 29, 2024. All twelve pending applications ultimately claim priority, either directly or through the chain of priority, to U.S. Provisional Application No. 63/297,841, which was filed on January 10, 2022, and which is listed on Schedule 5.15(a) to the Credit Agreement.

The pending applications cover OWS's next-generation silicon-photonics modulator architecture designed for 800G and 1.6T data-center optical transceivers. The technology described and claimed in these pending applications spans three distinct but interrelated technology sub-families:

(a) Core Modulator Architecture — covering the novel Mach-Zehnder interferometer design, traveling-wave electrode geometry, and optical waveguide configurations that form the basis of OWS's next-generation transceiver platform;

(b) Electrode Fabrication Process — covering proprietary semiconductor fabrication methods, including specialized lithographic patterning and metallization sequences, that enable the manufacture of the core modulator at commercial scale with target yield rates; and

(c) Packaging and Thermal Management — covering advanced chip-scale packaging designs and integrated thermal dissipation structures that permit stable operation of the modulator at the elevated power levels required for 800G and 1.6T data rates.

It should be noted that all twelve pending applications post-date the last update to Schedule 5.15(a), which occurred on March 15, 2022. None of the twelve pending applications is individually or specifically listed on Schedule 5.15(a) in its current form. However, as discussed in greater detail in Section 6 below, OWS acknowledges that these applications may fall within the general covenant language of Section 5.15 and the "Material intellectual Property" definition in Section 1.01 (which encompasses intellectual property "material to the business, operations, financial condition, or prospects of the Borrower"), as well as the "hereafter acquired" Intellectual property collateral provisions of the Security Agreement.

In this regard, OWS notes that Graystone Valuation Advisors, LLC ("Graystone") was engaged by OWS to prepare an independent valuation of OWS's patent portfolio. Graystone's portfolio valuation report, dated April 28, 2023 (the "Graystone Report"), estimated the fair market value of OWS's total patent portfolio at approximately $38,500,000. Of this amount, approximately $12,200,000 — representing roughly 31.7% of the total portfolio value — was attributed to the pending application family, reflecting the anticipated commercial significance of the next-generation silicon-photonics modulator technology to OWS's future revenue streams and competitive positioning. OWS can make the Graystone Report available to Meridian upon request, subject to appropriate confidentiality protections.

4. Current Budget Constraints Affecting Patent Prosecution

OWS wishes to bring to Meridian's attention certain internal budgetary constraints that have affected, and continue to affect, the Borrower's ability to actively prosecute the twelve pending patent applications described above.

In August 2023, OWS's majority equity sponsor, Harborview Partners ("Veltrano"), implemented a company-wide cost-reduction initiative across its portfolio companies. As part of this initiative, Veltrano directed OWS to impose a cap on discretionary outside-counsel intellectual property spending of $25,000 per quarter. This spending cap applies to all patent prosecution, patent counseling, freedom-to-operate analysis, and related intellectual property legal services performed by outside counsel.

To provide context for the magnitude of this constraint, OWS's average quarterly patent prosecution spending with outside counsel in the four quarters preceding the implementation of the spending cap (i.e., the period from August 2022 through July 2023) was approximately $87,400. The $25,000 quarterly cap therefore represents a reduction of approximately $62,400 per quarter, or a reduction of approximately 71.4% from historical spending levels. Given the complexity and geographic breadth of the pending application portfolio — which includes filings in the United States, Europe, and Japan — the $25,000 quarterly cap is insufficient to support active prosecution of all twelve pending applications on a concurrent basis.

As a direct result of these budgetary constraints, active prosecution of the twelve pending patent applications has been substantially curtailed since August 2023. OWS has been compelled to defer responses to patent office actions, postpone the preparation and filing of substantive amendments and arguments, and delay strategic prosecution decisions that would otherwise have been made on a timely basis.

Notwithstanding the foregoing, OWS has continued to monitor all statutory deadlines associated with the pending applications and has taken certain emergency protective actions where feasible, including the filing of extensions of time in those jurisdictions where extensions are available under applicable patent office rules. These protective measures have, to date, prevented the irrevocable loss of any pending patent applications, but the window for further extensions is narrowing, as described in detail in the following section.

5. Upcoming Statutory Deadlines and Potential Consequences

Several of the pending patent applications face upcoming statutory deadlines that, if missed, would result in the irrevocable abandonment of applications or the permanent loss of patent rights in certain jurisdictions. OWS has identified the following key deadlines, listed in chronological order, as the most time-sensitive matters requiring attention:

(a) March 9, 2025 — U.S. Application No. 17/672,204 (Core Modulator Architecture). This is the absolute deadline to file a response to a non-final Office Action issued by the United States Patent and Trademark Office in U.S. Application No. 17/672,204, which is the foundational non-provisional application covering the core modulator architecture. OWS has already utilized the maximum number of extensions of time permitted under 37 C.F.R. § 1.136(a), and no further extensions are available. Failure to file a substantive response to the outstanding Office Action by March 9, 2025, will result in the automatic and irrevocable abandonment of this application under 35 U.S.C. § 133. OWS notes that this application covers the core design-around features that differentiate OWS's next-generation silicon-photonics modulator technology from competitor patent claims, and its loss would significantly impair OWS's freedom to operate and competitive positioning in the 800G/1.6T transceiver market.

(b) April 21, 2025 — U.S. Application No. 17/814,057 (Electrode Fabrication Process). This is the deadline to respond to a Restriction Requirement issued by the USPTO in U.S. Application No. 17/814,057, which covers the proprietary electrode fabrication process. An extension of time was previously obtained, and April 21, 2025, represents the extended deadline. Failure to respond to the Restriction Requirement by this date would result in abandonment of the application.

(c) May 17, 2025 — European Application EP 23 741 682.3 (Core Modulator Architecture — European Regional Phase). This is the deadline to respond to the Extended European Search Report issued by the European Patent Office in European Application EP 23 741 682.3. Under the rules of the European Patent Convention, failure to respond to the Extended European Search Report within the prescribed period may result in the application being deemed withdrawn, thereby permanently foreclosing patent protection for the core modulator architecture in the European market.

(d) July 9, 2025 — PCT International Applications PCT/US2023/010584 and PCT/US2023/010612 (National-Phase Entry Deadline). July 9, 2025, represents the expiration of the thirty-month period from the January 10, 2022 priority date for national-phase entry of PCT International Applications PCT/US2023/010584 and PCT/US2023/010612, which cover the electrode fabrication process and the packaging/thermal management technology sub-families, respectively. Failure to enter desired national phases in individual countries or regions by this date will permanently foreclose patent protection in any unselected jurisdictions. National-phase entry requires the payment of filing fees and, in many jurisdictions, the preparation and filing of certified translations, all of which represent significant expenditures.

(e) January 9, 2026 — Japanese National-Phase Applications JP 2024-542197 and JP 2024-542305 (Examination Request Deadline). Under Japanese Patent Law, a request for examination must be filed within three years of the international filing date. The deadline for filing examination requests in these two Japanese national-phase applications is January 9, 2026. Failure to file the examination requests by this date would result in the applications being deemed withdrawn.

OWS notes that the most critical near-term deadline is March 9, 2025, for U.S. Application No. 17/672,204. This application is of particular strategic and commercial importance because it covers the foundational architecture of OWS's next-generation modulator platform. Loss of this application would not only diminish the value of the intellectual property collateral base, but would also eliminate an important barrier to entry that protects OWS's competitive position in the rapidly growing 800G and 1.6T data-center optical transceiver market. The remaining eleven pending applications derive substantial value from the priority chain and claim scope established by Application No. 17/672,204, and the loss of this foundational application could impair the prosecution and enforceability of the remaining family members.

6. Impact on intellectual Property Collateral

OWS recognizes that the pending patent applications described herein form part of the intellectual property collateral securing Meridian's revolving credit facility. Under the Security Agreement, Meridian holds a first-priority security interest in all of OWS's "patents, patent applications, and patent rights, whether now existing or hereafter acquired." The twelve pending applications, having been filed after the execution of the Security Agreement, are encompassed by the "hereafter acquired" language and are therefore subject to Meridian's security interest.

The Borrower acknowledges that the abandonment of any of the pending patent applications would reduce the scope and value of the intellectual property collateral base that secures the Credit Facility. Based on the Graystone Report, the pending application family represents approximately $12,200,000 in estimated fair market value, constituting a material portion of the total portfolio value. The loss of one or more applications — and particularly the loss of the foundational U.S. Application No. 17/672,204 — could result in a meaningful diminution of collateral value and could also adversely affect the value of the remaining portfolio by removing the cornerstone claims upon which the broader technology family is built.

OWS further recognizes the potential applicability of Section 5.15 of the Credit Agreement, which requires the Borrower to "maintain, preserve, and protect all Material intellectual Property, including by timely prosecuting all pending patent applications and paying all required maintenance fees." While Schedule 5.15(a) has not been updated to specifically list the twelve pending applications by their individual application numbers, OWS acknowledges that these applications may be encompassed by the general language of the IP covenants — particularly the reference to "all pending patent applications" in Section 5.15 — and by the broad definition of "Material intellectual Property" in Section 1.01, which includes intellectual property rights that are "material to the business, operations, financial condition, or prospects of the Borrower." Given the commercial significance and estimated value of the pending application family, OWS believes it is prudent and appropriate to bring these matters to Meridian's attention at this time rather than to rely solely on the argument that the pending applications fall outside the literal scope of Schedule 5.15(a).

7. OWS's Remedial Actions and Plans

OWS has not been passive in the face of the budgetary constraints described herein and is actively pursuing multiple avenues to address the situation. Specifically:

(a) Budget Authorization. OWS is actively working to obtain the necessary budget authorization from its Board of Directors and its majority equity sponsor, Harborview Partners, to resume prosecution of the highest-priority applications. OWS's immediate focus is on securing authorization and funding for a substantive response to the outstanding Office Action in U.S. Application No. 17/672,204 (March 9, 2025 deadline) and the Restriction Requirement response in U.S. Application No. 17/814,057 (April 21, 2025 deadline). OWS anticipates that the estimated cost of responding to these two immediate deadlines is approximately $35,000 to $45,000 in aggregate outside counsel fees and filing costs.

(b) Docket Reactivation Plan. OWS has engaged its outside patent counsel, Calderwood & Harkness LLP, to prepare a prioritized docket reactivation plan that evaluates the full scope of the pending portfolio and presents multiple scenarios for management and Board consideration. These scenarios include: (i) full reactivation of prosecution across all twelve pending applications in all jurisdictions; (ii) selective prosecution of the most commercially and strategically critical applications, with voluntary abandonment of lower-priority filings; and (iii) a minimum-deadline-preservation approach designed to maintain the viability of all applications at the lowest feasible cost while deferring substantive prosecution decisions. Calderwood & Harkness expects to deliver the docket reactivation plan to OWS management by February 7, 2025.

(c) Discussions with Equity Sponsor. OWS is in active discussions with Harborview Partners regarding modification of the current spending constraints to permit targeted prosecution expenditures that are necessary to preserve critical patent rights and to maintain compliance with the Credit Agreement's covenants. OWS's General Counsel and Chief Financial Officer have presented Veltrano with a summary of the upcoming deadlines and the potential consequences of inaction, including the implications for OWS's lender relationships and covenant compliance. OWS is cautiously optimistic that a resolution regarding the spending constraints can be reached, although the timing and scope of any modification remain subject to Veltrano's approval process.

(d) Maintenance of Issued Patents. Separately and in all events, OWS continues to maintain and pay all required maintenance fees on its thirty-one (31) issued U.S. utility patents. These maintenance payments are administered through Trident intellectual Property Services, LLC, a third-party patent annuity and maintenance fee service provider. No issued patents are at risk of lapse due to non-payment of maintenance fees.

8. Request for Dialogue and Proposed Next Steps

In light of the foregoing, OWS respectfully requests an opportunity to discuss this matter with Meridian at the Lender's earliest convenience. OWS believes that an open dialogue will be beneficial to both parties and will facilitate a collaborative approach to addressing the budgetary constraints and their potential impact on the intellectual property collateral base and covenant compliance.

OWS is prepared to provide Meridian with additional information regarding the patent portfolio, including detailed information about specific applications, their commercial importance to OWS's business, the estimated costs associated with resuming prosecution, and any other information that Meridian may reasonably request in connection with its evaluation of the matters described herein. OWS's outside patent counsel at Calderwood & Harkness LLP and its in-house IP Manager, Sandra Koh, are available to participate in any discussions or to respond to technical questions regarding the patent portfolio.

In addition, OWS proposes the following next steps for Meridian's consideration:

(i) Initial Discussion. OWS proposes a telephone or video conference call at a mutually convenient time during the week of February 3, 2025, to discuss the matters set forth in this letter and to answer any preliminary questions that Meridian may have.

(ii) Periodic Updates. OWS proposes to provide Meridian with periodic written updates — on a bi-weekly or monthly basis, as Meridian may prefer — on the status of its prosecution efforts, any developments regarding the upcoming statutory deadlines, and the progress of its discussions with Veltrano Capital Partners regarding modification of the spending constraints.

(iii) Potential Credit Agreement Amendments or Waivers. OWS would welcome a discussion regarding whether any amendments to the Credit Agreement or limited waivers may be appropriate in light of the circumstances described herein. Among other things, the parties may wish to consider whether an update to Schedule 5.15(a) is warranted to clarify the scope of the "Material intellectual Property" definition as it applies to the twelve pending applications, and whether a limited waiver or forbearance with respect to Section 5.15's prosecution obligations may be appropriate for a defined period while OWS works to resolve the budgetary constraints. OWS recognizes that any such amendments or waivers would be subject to Meridian's sole discretion and approval, and OWS does not presume to dictate the terms of any accommodation.

9. Reservation of Rights and Disclaimers

This letter is provided on a voluntary basis in the spirit of good-faith cooperation between the Borrower and the Lender. It is not intended to constitute, and shall not be construed as, a formal notice of default, Event of Default, or breach of any covenant, representation, or warranty under the Credit Agreement. OWS is providing this notice proactively and in advance of any determination that a default or Event of Default has occurred, in order to facilitate constructive dialogue and to demonstrate the Borrower's commitment to transparency and good-faith dealing.

OWS expressly reserves all rights and defenses available to it under the Credit Agreement, applicable law, and equity, including without limitation the right to argue that one or more of the pending patent applications does not constitute "Material intellectual Property" as defined in Section 1.01 of the Credit Agreement by virtue of such application's absence from Schedule 5.15(a). OWS further reserves the right to argue that the covenant set forth in Section 5.15 is subject to the materiality qualifier contained therein (i.e., the "except where the failure to do so could not reasonably be expected to have a Material Adverse Effect" language) and to present evidence and argument regarding the applicability of such qualifier to the specific circumstances described in this letter.

Nothing in this letter shall be construed as a waiver of any rights of the Borrower under the Credit Agreement, the Security Agreement, or applicable law, whether such rights relate to the matters described herein or otherwise. Similarly, OWS acknowledges that nothing in this letter is intended to constitute, or shall be construed as constituting, a waiver of any rights of the Lender under the Credit Agreement, the Security Agreement, or applicable law.

10. Confidentiality

OWS requests that the contents of this letter and any related discussions between the parties be treated as confidential in accordance with the confidentiality provisions set forth in Section 10.08 of the Credit Agreement. The information contained herein regarding pending patent applications, prosecution strategy, budgetary constraints, and internal discussions with OWS's equity sponsor constitutes proprietary and competitively sensitive information. Disclosure of this information to third parties — including competitors, customers, or other market participants — could cause significant competitive harm to OWS and could impair the value of the intellectual property assets that serve as collateral for the Credit Facility.

OWS respectfully requests that Meridian limit the internal distribution of this letter to those individuals within Meridian's organization who have a need to know in connection with the administration of the Credit Facility and the evaluation of the matters described herein. To the extent that Meridian determines it is necessary or appropriate to share the contents of this letter with its outside counsel or other advisors, OWS requests that such advisors be made aware of the confidential nature of the information and be bound by appropriate confidentiality obligations.

We appreciate Meridian's continued partnership and support of OWS's business. OWS values the relationship it has built with Meridian over the past several years and is committed to working collaboratively to address the matters described in this letter in a manner that protects the interests of both parties. We are confident that, with open communication and good-faith dialogue, OWS and Meridian can arrive at a constructive path forward.

Please do not hesitate to contact me directly to schedule a discussion at your earliest convenience. I can be reached at the address set forth below, by telephone at (408) 555-2740, or by email at mwhitfield@optiwavesemi.com.

Marcus Whitfield General Counsel Optiwave Semiconductor Corp. 4710 Ridgeview Parkway, Suite 300 Santa Clara, CA 95054

Very truly yours,

OPTIWAVE SEMICONDUCTOR CORP.

By: ________

Name: Marcus Whitfield

Title: General Counsel

Date: January 25, 2025

cc:

Sandra Koh, IP Manager / In-House Patent Counsel, Optiwave Semiconductor Corp. Daniel Everhart, Chief Financial Officer, Optiwave Semiconductor Corp. Catherine Bloom, Esq., Calderwood & Harkness LLP (outside patent counsel)

Enclosures:

To Be Determined — OWS may enclose a summary table of the twelve pending patent applications and their statutory deadlines, subject to confidentiality considerations. If enclosed, the summary table will be a redacted version of the master docket sheet showing application numbers, filing jurisdictions, and deadline dates only, without claim details, prosecution history summaries, or substantive descriptions of the claimed inventions.

DRAFT — PRIVILEGED & CONFIDENTIAL — PREPARED BY OUTSIDE COUNSEL Prepared by Calderwood & Harkness LLP for review and signature by Optiwave Semiconductor Corp. C&H Matter No. 1014-00005 This draft was prepared in connection with the lender covenant compliance analysis dated January 22, 2025.
OPTIWAVE SEMICONDUCTOR CORP. 4710 Ridgeview Parkway, Suite 300 Santa Clara, CA 95054
January 25, 2025
Brian Hartwell Relationship Manager Meridian National Bank, N.A. 600 Travis Street Houston, TX 77002
Re: Senior Secured Revolving Credit Facility dated September 30, 2020, as amended and restated March 15, 2022 (the "Credit Agreement"), by and between Optiwave Semiconductor Corp. ("Borrower") and Meridian National Bank, N.A. ("Administrative Agent and Lender") — Notice Regarding intellectual Property Prosecution Status
Dear Mr. Hartwell:
1. Purpose of This Letter
Optiwave Semiconductor Corp. ("OWS" or the "Borrower") writes to provide voluntary, good-faith notice to Meridian National Bank, N.A. ("Meridian" or the "Lender") regarding the current status of certain pending patent applications that may fall within the scope of the Borrower's intellectual property covenants under the Credit Agreement referenced above. OWS has long valued the financing relationship it maintains with Meridian, and the Borrower is committed to transparency and proactive communication with its Lender regarding developments that may affect the collateral base underlying the Credit Agreement or the Borrower's covenant compliance thereunder.
This notice is being provided voluntarily, in advance of any formal request by the Lender, and is motivated by OWS's desire to preserve an open and constructive dialogue concerning the matters described herein. This notice is provided voluntarily and does not constitute, nor should it be construed as, an admission of any existing default, Event of Default, or breach of any covenant or obligation under the Credit Agreement. OWS provides this letter in the interest of good-faith cooperation and in recognition of the importance of the intellectual property assets that secure the Borrower's obligations to Meridian.
2. Background — The Credit Facility
As you are aware, OWS and Meridian entered into that certain $55,000,000 Senior Secured Revolving Credit Facility (the "Credit Facility"), originally dated as of September 30, 2020, and subsequently amended and restated as of March 15, 2022 (as so amended and restated, the "Credit Agreement"). The Credit Agreement governs the terms and conditions under which Meridian, as Administrative Agent and Lender, has extended revolving credit availability to OWS, and sets forth the Borrower's representations, warranties, and affirmative and negative covenants in connection therewith.
In connection with the Credit Agreement, OWS executed and delivered the Security Agreement, which is attached to the Credit Agreement as Exhibit C (the "Security Agreement"). Pursuant to the Security Agreement, OWS granted Meridian a first-priority security interest in all "Intellectual Property Collateral," which term is defined in the Security Agreement to include, among other things, "all patents, patent applications, and patent rights, whether now existing or hereafter acquired." Appropriate filings were made with the United States Patent and Trademark Office to perfect Meridian's security interest in OWS's patent assets.
As of December 31, 2024, the outstanding principal balance drawn under the Credit Facility was approximately $32,500,000, with approximately $22,500,000 remaining undrawn and available under the revolving commitment (subject to applicable borrowing base limitations and conditions precedent to borrowing).
Of particular relevance to this notice, we draw your attention to the following provisions of the Credit Agreement:
Section 5.15 (Intellectual Property Covenants): The Borrower covenants that it shall "maintain, preserve, and protect all Material intellectual Property, including by timely prosecuting all pending patent applications and paying all required maintenance fees, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect."
Section 1.01 (Definitions — "Material intellectual Property"): The Credit Agreement defines "Material intellectual Property" to include "all patents and patent applications listed on Schedule 5.15(a), as updated from time to time, together with all intellectual property rights that are material to the business, operations, financial condition, or prospects of the Borrower."
Schedule 5.15(a): This schedule, which was last updated as of the amendment and restatement date of March 15, 2022, lists all thirty-one (31) issued U.S. utility patents then held by the Borrower, together with the then-pending provisional patent application (U.S. Provisional Application No. 63/297,841, filed January 10, 2022). Schedule 5.15(a) has not been formally updated since March 15, 2022.
3. Description of OWS's Current Patent Portfolio
OWS currently maintains a patent portfolio consisting of thirty-one (31) issued U.S. utility patents and twelve (12) pending patent applications. The pending applications comprise a mixture of U.S. non-provisional utility applications, continuation applications, continuation-in-part applications, PCT international applications, European regional-phase applications, and Japanese national-phase applications. Collectively, the twelve pending applications were filed between January 9, 2023, and January 29, 2024. All twelve pending applications ultimately claim priority, either directly or through the chain of priority, to U.S. Provisional Application No. 63/297,841, which was filed on January 10, 2022, and which is listed on Schedule 5.15(a) to the Credit Agreement.
The pending applications cover OWS's next-generation silicon-photonics modulator architecture designed for 800G and 1.6T data-center optical transceivers. The technology described and claimed in these pending applications spans three distinct but interrelated technology sub-families:
(a) Core Modulator Architecture — covering the novel Mach-Zehnder interferometer design, traveling-wave electrode geometry, and optical waveguide configurations that form the basis of OWS's next-generation transceiver platform;
(b) Electrode Fabrication Process — covering proprietary semiconductor fabrication methods, including specialized lithographic patterning and metallization sequences, that enable the manufacture of the core modulator at commercial scale with target yield rates; and
(c) Packaging and Thermal Management — covering advanced chip-scale packaging designs and integrated thermal dissipation structures that permit stable operation of the modulator at the elevated power levels required for 800G and 1.6T data rates.
It should be noted that all twelve pending applications post-date the last update to Schedule 5.15(a), which occurred on March 15, 2022. None of the twelve pending applications is individually or specifically listed on Schedule 5.15(a) in its current form. However, as discussed in greater detail in Section 6 below, OWS acknowledges that these applications may fall within the general covenant language of Section 5.15 and the "Material intellectual Property" definition in Section 1.01 (which encompasses intellectual property "material to the business, operations, financial condition, or prospects of the Borrower"), as well as the "hereafter acquired" Intellectual property collateral provisions of the Security Agreement.
In this regard, OWS notes that Graystone Valuation Advisors, LLC ("Graystone") was engaged by OWS to prepare an independent valuation of OWS's patent portfolio. Graystone's portfolio valuation report, dated April 28, 2023 (the "Graystone Report"), estimated the fair market value of OWS's total patent portfolio at approximately $38,500,000. Of this amount, approximately $12,200,000 — representing roughly 31.7% of the total portfolio value — was attributed to the pending application family, reflecting the anticipated commercial significance of the next-generation silicon-photonics modulator technology to OWS's future revenue streams and competitive positioning. OWS can make the Graystone Report available to Meridian upon request, subject to appropriate confidentiality protections.
4. Current Budget Constraints Affecting Patent Prosecution
OWS wishes to bring to Meridian's attention certain internal budgetary constraints that have affected, and continue to affect, the Borrower's ability to actively prosecute the twelve pending patent applications described above.
In August 2023, OWS's majority equity sponsor, Harborview Partners ("Veltrano"), implemented a company-wide cost-reduction initiative across its portfolio companies. As part of this initiative, Veltrano directed OWS to impose a cap on discretionary outside-counsel intellectual property spending of $25,000 per quarter. This spending cap applies to all patent prosecution, patent counseling, freedom-to-operate analysis, and related intellectual property legal services performed by outside counsel.
To provide context for the magnitude of this constraint, OWS's average quarterly patent prosecution spending with outside counsel in the four quarters preceding the implementation of the spending cap (i.e., the period from August 2022 through July 2023) was approximately $87,400. The $25,000 quarterly cap therefore represents a reduction of approximately $62,400 per quarter, or a reduction of approximately 71.4% from historical spending levels. Given the complexity and geographic breadth of the pending application portfolio — which includes filings in the United States, Europe, and Japan — the $25,000 quarterly cap is insufficient to support active prosecution of all twelve pending applications on a concurrent basis.
As a direct result of these budgetary constraints, active prosecution of the twelve pending patent applications has been substantially curtailed since August 2023. OWS has been compelled to defer responses to patent office actions, postpone the preparation and filing of substantive amendments and arguments, and delay strategic prosecution decisions that would otherwise have been made on a timely basis.
Notwithstanding the foregoing, OWS has continued to monitor all statutory deadlines associated with the pending applications and has taken certain emergency protective actions where feasible, including the filing of extensions of time in those jurisdictions where extensions are available under applicable patent office rules. These protective measures have, to date, prevented the irrevocable loss of any pending patent applications, but the window for further extensions is narrowing, as described in detail in the following section.
5. Upcoming Statutory Deadlines and Potential Consequences
Several of the pending patent applications face upcoming statutory deadlines that, if missed, would result in the irrevocable abandonment of applications or the permanent loss of patent rights in certain jurisdictions. OWS has identified the following key deadlines, listed in chronological order, as the most time-sensitive matters requiring attention:
(a) March 9, 2025 — U.S. Application No. 17/672,204 (Core Modulator Architecture). This is the absolute deadline to file a response to a non-final Office Action issued by the United States Patent and Trademark Office in U.S. Application No. 17/672,204, which is the foundational non-provisional application covering the core modulator architecture. OWS has already utilized the maximum number of extensions of time permitted under 37 C.F.R. § 1.136(a), and no further extensions are available. Failure to file a substantive response to the outstanding Office Action by March 9, 2025, will result in the automatic and irrevocable abandonment of this application under 35 U.S.C. § 133. OWS notes that this application covers the core design-around features that differentiate OWS's next-generation silicon-photonics modulator technology from competitor patent claims, and its loss would significantly impair OWS's freedom to operate and competitive positioning in the 800G/1.6T transceiver market.
(b) April 21, 2025 — U.S. Application No. 17/814,057 (Electrode Fabrication Process). This is the deadline to respond to a Restriction Requirement issued by the USPTO in U.S. Application No. 17/814,057, which covers the proprietary electrode fabrication process. An extension of time was previously obtained, and April 21, 2025, represents the extended deadline. Failure to respond to the Restriction Requirement by this date would result in abandonment of the application.
(c) May 17, 2025 — European Application EP 23 741 682.3 (Core Modulator Architecture — European Regional Phase). This is the deadline to respond to the Extended European Search Report issued by the European Patent Office in European Application EP 23 741 682.3. Under the rules of the European Patent Convention, failure to respond to the Extended European Search Report within the prescribed period may result in the application being deemed withdrawn, thereby permanently foreclosing patent protection for the core modulator architecture in the European market.
(d) July 9, 2025 — PCT International Applications PCT/US2023/010584 and PCT/US2023/010612 (National-Phase Entry Deadline). July 9, 2025, represents the expiration of the thirty-month period from the January 10, 2022 priority date for national-phase entry of PCT International Applications PCT/US2023/010584 and PCT/US2023/010612, which cover the electrode fabrication process and the packaging/thermal management technology sub-families, respectively. Failure to enter desired national phases in individual countries or regions by this date will permanently foreclose patent protection in any unselected jurisdictions. National-phase entry requires the payment of filing fees and, in many jurisdictions, the preparation and filing of certified translations, all of which represent significant expenditures.
(e) January 9, 2026 — Japanese National-Phase Applications JP 2024-542197 and JP 2024-542305 (Examination Request Deadline). Under Japanese Patent Law, a request for examination must be filed within three years of the international filing date. The deadline for filing examination requests in these two Japanese national-phase applications is January 9, 2026. Failure to file the examination requests by this date would result in the applications being deemed withdrawn.
OWS notes that the most critical near-term deadline is March 9, 2025, for U.S. Application No. 17/672,204. This application is of particular strategic and commercial importance because it covers the foundational architecture of OWS's next-generation modulator platform. Loss of this application would not only diminish the value of the intellectual property collateral base, but would also eliminate an important barrier to entry that protects OWS's competitive position in the rapidly growing 800G and 1.6T data-center optical transceiver market. The remaining eleven pending applications derive substantial value from the priority chain and claim scope established by Application No. 17/672,204, and the loss of this foundational application could impair the prosecution and enforceability of the remaining family members.
6. Impact on intellectual Property Collateral
OWS recognizes that the pending patent applications described herein form part of the intellectual property collateral securing Meridian's revolving credit facility. Under the Security Agreement, Meridian holds a first-priority security interest in all of OWS's "patents, patent applications, and patent rights, whether now existing or hereafter acquired." The twelve pending applications, having been filed after the execution of the Security Agreement, are encompassed by the "hereafter acquired" language and are therefore subject to Meridian's security interest.
The Borrower acknowledges that the abandonment of any of the pending patent applications would reduce the scope and value of the intellectual property collateral base that secures the Credit Facility. Based on the Graystone Report, the pending application family represents approximately $12,200,000 in estimated fair market value, constituting a material portion of the total portfolio value. The loss of one or more applications — and particularly the loss of the foundational U.S. Application No. 17/672,204 — could result in a meaningful diminution of collateral value and could also adversely affect the value of the remaining portfolio by removing the cornerstone claims upon which the broader technology family is built.
OWS further recognizes the potential applicability of Section 5.15 of the Credit Agreement, which requires the Borrower to "maintain, preserve, and protect all Material intellectual Property, including by timely prosecuting all pending patent applications and paying all required maintenance fees." While Schedule 5.15(a) has not been updated to specifically list the twelve pending applications by their individual application numbers, OWS acknowledges that these applications may be encompassed by the general language of the IP covenants — particularly the reference to "all pending patent applications" in Section 5.15 — and by the broad definition of "Material intellectual Property" in Section 1.01, which includes intellectual property rights that are "material to the business, operations, financial condition, or prospects of the Borrower." Given the commercial significance and estimated value of the pending application family, OWS believes it is prudent and appropriate to bring these matters to Meridian's attention at this time rather than to rely solely on the argument that the pending applications fall outside the literal scope of Schedule 5.15(a).
7. OWS's Remedial Actions and Plans
OWS has not been passive in the face of the budgetary constraints described herein and is actively pursuing multiple avenues to address the situation. Specifically:
(a) Budget Authorization. OWS is actively working to obtain the necessary budget authorization from its Board of Directors and its majority equity sponsor, Harborview Partners, to resume prosecution of the highest-priority applications. OWS's immediate focus is on securing authorization and funding for a substantive response to the outstanding Office Action in U.S. Application No. 17/672,204 (March 9, 2025 deadline) and the Restriction Requirement response in U.S. Application No. 17/814,057 (April 21, 2025 deadline). OWS anticipates that the estimated cost of responding to these two immediate deadlines is approximately $35,000 to $45,000 in aggregate outside counsel fees and filing costs.
(b) Docket Reactivation Plan. OWS has engaged its outside patent counsel, Calderwood & Harkness LLP, to prepare a prioritized docket reactivation plan that evaluates the full scope of the pending portfolio and presents multiple scenarios for management and Board consideration. These scenarios include: (i) full reactivation of prosecution across all twelve pending applications in all jurisdictions; (ii) selective prosecution of the most commercially and strategically critical applications, with voluntary abandonment of lower-priority filings; and (iii) a minimum-deadline-preservation approach designed to maintain the viability of all applications at the lowest feasible cost while deferring substantive prosecution decisions. Calderwood & Harkness expects to deliver the docket reactivation plan to OWS management by February 7, 2025.
(c) Discussions with Equity Sponsor. OWS is in active discussions with Harborview Partners regarding modification of the current spending constraints to permit targeted prosecution expenditures that are necessary to preserve critical patent rights and to maintain compliance with the Credit Agreement's covenants. OWS's General Counsel and Chief Financial Officer have presented Veltrano with a summary of the upcoming deadlines and the potential consequences of inaction, including the implications for OWS's lender relationships and covenant compliance. OWS is cautiously optimistic that a resolution regarding the spending constraints can be reached, although the timing and scope of any modification remain subject to Veltrano's approval process.
(d) Maintenance of Issued Patents. Separately and in all events, OWS continues to maintain and pay all required maintenance fees on its thirty-one (31) issued U.S. utility patents. These maintenance payments are administered through Trident intellectual Property Services, LLC, a third-party patent annuity and maintenance fee service provider. No issued patents are at risk of lapse due to non-payment of maintenance fees.
8. Request for Dialogue and Proposed Next Steps
In light of the foregoing, OWS respectfully requests an opportunity to discuss this matter with Meridian at the Lender's earliest convenience. OWS believes that an open dialogue will be beneficial to both parties and will facilitate a collaborative approach to addressing the budgetary constraints and their potential impact on the intellectual property collateral base and covenant compliance.
OWS is prepared to provide Meridian with additional information regarding the patent portfolio, including detailed information about specific applications, their commercial importance to OWS's business, the estimated costs associated with resuming prosecution, and any other information that Meridian may reasonably request in connection with its evaluation of the matters described herein. OWS's outside patent counsel at Calderwood & Harkness LLP and its in-house IP Manager, Sandra Koh, are available to participate in any discussions or to respond to technical questions regarding the patent portfolio.
In addition, OWS proposes the following next steps for Meridian's consideration:
(i) Initial Discussion. OWS proposes a telephone or video conference call at a mutually convenient time during the week of February 3, 2025, to discuss the matters set forth in this letter and to answer any preliminary questions that Meridian may have.
(ii) Periodic Updates. OWS proposes to provide Meridian with periodic written updates — on a bi-weekly or monthly basis, as Meridian may prefer — on the status of its prosecution efforts, any developments regarding the upcoming statutory deadlines, and the progress of its discussions with Veltrano Capital Partners regarding modification of the spending constraints.
(iii) Potential Credit Agreement Amendments or Waivers. OWS would welcome a discussion regarding whether any amendments to the Credit Agreement or limited waivers may be appropriate in light of the circumstances described herein. Among other things, the parties may wish to consider whether an update to Schedule 5.15(a) is warranted to clarify the scope of the "Material intellectual Property" definition as it applies to the twelve pending applications, and whether a limited waiver or forbearance with respect to Section 5.15's prosecution obligations may be appropriate for a defined period while OWS works to resolve the budgetary constraints. OWS recognizes that any such amendments or waivers would be subject to Meridian's sole discretion and approval, and OWS does not presume to dictate the terms of any accommodation.
9. Reservation of Rights and Disclaimers
This letter is provided on a voluntary basis in the spirit of good-faith cooperation between the Borrower and the Lender. It is not intended to constitute, and shall not be construed as, a formal notice of default, Event of Default, or breach of any covenant, representation, or warranty under the Credit Agreement. OWS is providing this notice proactively and in advance of any determination that a default or Event of Default has occurred, in order to facilitate constructive dialogue and to demonstrate the Borrower's commitment to transparency and good-faith dealing.
OWS expressly reserves all rights and defenses available to it under the Credit Agreement, applicable law, and equity, including without limitation the right to argue that one or more of the pending patent applications does not constitute "Material intellectual Property" as defined in Section 1.01 of the Credit Agreement by virtue of such application's absence from Schedule 5.15(a). OWS further reserves the right to argue that the covenant set forth in Section 5.15 is subject to the materiality qualifier contained therein (i.e., the "except where the failure to do so could not reasonably be expected to have a Material Adverse Effect" language) and to present evidence and argument regarding the applicability of such qualifier to the specific circumstances described in this letter.
Nothing in this letter shall be construed as a waiver of any rights of the Borrower under the Credit Agreement, the Security Agreement, or applicable law, whether such rights relate to the matters described herein or otherwise. Similarly, OWS acknowledges that nothing in this letter is intended to constitute, or shall be construed as constituting, a waiver of any rights of the Lender under the Credit Agreement, the Security Agreement, or applicable law.
10. Confidentiality
OWS requests that the contents of this letter and any related discussions between the parties be treated as confidential in accordance with the confidentiality provisions set forth in Section 10.08 of the Credit Agreement. The information contained herein regarding pending patent applications, prosecution strategy, budgetary constraints, and internal discussions with OWS's equity sponsor constitutes proprietary and competitively sensitive information. Disclosure of this information to third parties — including competitors, customers, or other market participants — could cause significant competitive harm to OWS and could impair the value of the intellectual property assets that serve as collateral for the Credit Facility.
OWS respectfully requests that Meridian limit the internal distribution of this letter to those individuals within Meridian's organization who have a need to know in connection with the administration of the Credit Facility and the evaluation of the matters described herein. To the extent that Meridian determines it is necessary or appropriate to share the contents of this letter with its outside counsel or other advisors, OWS requests that such advisors be made aware of the confidential nature of the information and be bound by appropriate confidentiality obligations.
We appreciate Meridian's continued partnership and support of OWS's business. OWS values the relationship it has built with Meridian over the past several years and is committed to working collaboratively to address the matters described in this letter in a manner that protects the interests of both parties. We are confident that, with open communication and good-faith dialogue, OWS and Meridian can arrive at a constructive path forward.
Please do not hesitate to contact me directly to schedule a discussion at your earliest convenience. I can be reached at the address set forth below, by telephone at (408) 555-2740, or by email at mwhitfield@optiwavesemi.com.
Marcus Whitfield General Counsel Optiwave Semiconductor Corp. 4710 Ridgeview Parkway, Suite 300 Santa Clara, CA 95054
Very truly yours,
OPTIWAVE SEMICONDUCTOR CORP.
By: ________
Name: Marcus Whitfield
Title: General Counsel
Date: January 25, 2025
cc:
Sandra Koh, IP Manager / In-House Patent Counsel, Optiwave Semiconductor Corp. Daniel Everhart, Chief Financial Officer, Optiwave Semiconductor Corp. Catherine Bloom, Esq., Calderwood & Harkness LLP (outside patent counsel)
Enclosures:
To Be Determined — OWS may enclose a summary table of the twelve pending patent applications and their statutory deadlines, subject to confidentiality considerations. If enclosed, the summary table will be a redacted version of the master docket sheet showing application numbers, filing jurisdictions, and deadline dates only, without claim details, prosecution history summaries, or substantive descriptions of the claimed inventions.
DRAFT — PRIVILEGED & CONFIDENTIAL — PREPARED BY OUTSIDE COUNSEL Prepared by Calderwood & Harkness LLP for review and signature by Optiwave Semiconductor Corp. C&H Matter No. 1014-00005 This draft was prepared in connection with the lender covenant compliance analysis dated January 22, 2025.

OPTIWAVE SEMICONDUCTOR CORP.

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