1032-00001 · Client 1032 · Correspondence

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CALDERWOOD & HARKNESS LLP

1301 Avenue of the Americas, 35th Floor New York, New York 10019

Telephone: (212) 758-4400 Facsimile: (212) 758-4401

555 California Street, Suite 2800 San Francisco, California 94104

Telephone: (415) 392-7700 Facsimile: (415) 392-7701

www.calderwoodharkness.com

October 27, 2023

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION

Priya Nagarajan, Esq. U.S. Deputy General Counsel Halcyon Semiconductor Americas Inc. 4500 Great America Parkway, Suite 300 Santa Clara, California 95054

Katrin Schreiber, Esq. General Counsel Halcyon Semiconductor AG Ludwigstraße 27 80539 Munich, Bavaria, Germany

Re: State of Oregon v. Halcyon Semiconductor Americas Inc., Case No. 23CV-18274, Circuit Court of the State of Oregon for the County of Multnomah

C&H Matter No. 1032-00001

Recommendation to Execute Proposed Consent Decree

Dear Priya and Katrin:

I. Purpose and Recommendation

The purpose of this letter is to formally recommend that Halcyon Semiconductor AG ("HSAG") and Halcyon Semiconductor Americas Inc. ("HSA" and, together with HSAG, "Halcyon" or the "Company") authorize the execution of the proposed Final Judgment and Consent Decree (the "Consent Decree" or the "Decree") negotiated with the Office of the Attorney General of the State of Oregon (the "AG" or the "Oregon AG") in the above-referenced matter. As you are aware, the term sheet embodying the material terms of the Consent Decree was agreed to in principle on October 20, 2023, following court-ordered mediation before the Honorable Patricia Loomis (Ret.), which commenced on October 6, 2023 and spanned three in-person sessions in Portland, Oregon.

After extensive deliberation and careful analysis of the litigation risks, financial exposure, strategic considerations, and the specific terms that have been negotiated, it is the considered judgment of Calderwood & Harkness LLP ("C&H") that the proposed Consent Decree represents a favorable resolution of this matter for Halcyon. We recommend prompt execution. The terms negotiated during the mediation process preserve the core strategic rationale underlying Halcyon's acquisition of Meridian Photonics Inc. ("Meridian"), avoid any divestiture requirement, and impose only time-limited behavioral remedies that are largely consistent with Halcyon's existing commercial practices and product roadmap.

If Halcyon authorizes execution, C&H, together with our local counsel Grantham Davis & Kowalski LLP ("GDK") and lead local partner Thomas Kowalski, will finalize the text of the Decree, coordinate with the AG's office and its outside counsel Ashworth & Pendleton LLP, and submit the executed Consent Decree to the Circuit Court of the State of Oregon for the County of Multnomah for entry as a Final Judgment by the presiding judge, the Honorable Robert Castañeda.

This letter sets forth the procedural background of this litigation, a detailed summary of the proposed Consent Decree terms, our assessment of the litigation risk Halcyon would face if the matter proceeds to trial, an explanation of why we believe the proposed terms are favorable, and the specific authorizations we are requesting.

II. Procedural Background

To provide context for our recommendation, we briefly summarize the key procedural history of this matter below.

The Acquisition. HSAG, through its wholly owned U.S. subsidiary HSA, acquired 100% of the outstanding shares of Meridian Photonics Inc., a Delaware corporation headquartered in Beaverton, Oregon, for $2.15 billion in an all-cash transaction. The transaction closed on January 31, 2023. Meridian is a leading designer and manufacturer of co-packaged optics ("CPO") transceiver modules used in high-performance data-center networking applications.

Federal HSR Act Review. Halcyon made the required pre-merger notification filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a, on October 3, 2022 (HSR File No. 20221003-1847). The Federal Trade Commission granted early termination of the waiting period on November 14, 2022, and neither the FTC nor the Antitrust Division of the U.S. Department of Justice issued a second request for additional information. No federal enforcement action was initiated with respect to the acquisition.

State-Level Review. No state-level antitrust pre-notification was required under the laws of Oregon or any other U.S. state, and no such notification was made. At the time of closing, no state attorney general had expressed any interest in reviewing the transaction.

Oregon AG Investigation and Complaint. On April 10, 2023, the Oregon AG issued a Civil Investigative Demand ("CID") to HSA, seeking extensive documents and data relating to the acquisition, Meridian's competitive position in the CPO transceiver market, and Halcyon's post-merger integration plans. One week later, on April 17, 2023, the AG filed a civil complaint in the Circuit Court of the State of Oregon for the County of Multnomah, captioned State of Oregon v. Halcyon Semiconductor Americas Inc., Case No. 23CV-18274. The complaint was brought under ORS 646.730 (Oregon's merger control statute, prohibiting acquisitions that may substantially lessen competition) and ORS 646.775 (authorizing the AG to seek injunctive relief and civil penalties). The AG alleged that the acquisition substantially lessens competition in the relevant market for co-packaged optics transceiver modules for data-center applications in the United States.

AG's Litigation Team. The AG retained the law firm of Ashworth & Pendleton LLP as special outside counsel for this matter, with Constance Yee serving as lead partner. The AG also retained Dr. Evelyn Ng of Ridgeline Economic Consulting LLC as its expert economist. Dr. Ng has submitted a preliminary expert report opining on market definition, market concentration, and the competitive effects of the acquisition.

Halcyon's Responsive Pleadings. HSA, through C&H and GDK, filed its Answer to the complaint on May 5, 2023. On May 19, 2023, HSA filed a Motion to Dismiss the complaint on multiple grounds, including federal preemption (arguing that the AG's state-law challenge to a consummated merger that had received HSR Act clearance was preempted by the federal antitrust scheme) and failure to adequately allege a relevant product market. On July 7, 2023, Judge Castañeda denied the Motion to Dismiss, holding that the AG's claims survive threshold scrutiny. The court found the federal preemption argument unavailing under current Oregon law, noting that ORS 646.730 is not expressly preempted by the Clayton Act and that early termination of the HSR waiting period does not constitute affirmative federal approval of a transaction. The court further found that the complaint adequately alleged a relevant product market of CPO transceiver modules for data-center applications.

discovery. Following the denial of the Motion to Dismiss, discovery commenced on July 21, 2023 pursuant to the court's case management order. Document production has been substantial, and several depositions have been scheduled but not yet completed.

Preliminary Injunction Proceedings. On August 15, 2023, the AG moved for a preliminary injunction seeking to impose interim behavioral restrictions on Halcyon's integration of Meridian pending trial. HSA filed its opposition brief on September 8, 2023, supported by the Declaration of Dr. Franklin Morrow of Stonebridge Analytics LLC, Halcyon's retained expert economist. Dr. Morrow's declaration presented evidence of procompetitive efficiencies generated by the acquisition and the dynamic competitive conditions in the CPO transceiver market.

PI Hearing and Settlement Discussions. The court held a hearing on the AG's motion for a preliminary injunction on September 22, 2023. At the hearing, Judge Castañeda heard argument from both sides and, while not ruling on the merits of the PI motion, strongly encouraged the parties to engage in settlement discussions. The court expressed the view that the case presented complex economic questions that might be more efficiently and effectively resolved through negotiation than through contested proceedings. The PI motion remains pending and has not been ruled upon.

Mediation. Consistent with the court's encouragement, the parties agreed to participate in mediation before the Honorable Patricia Loomis (Ret.), a retired Multnomah County Circuit Court judge with extensive experience in complex commercial and antitrust matters. Mediation sessions were held on October 6, October 13, and October 19–20, 2023. The mediation resulted in agreement on a term sheet embodying the material terms of the proposed Consent Decree on October 20, 2023.

III. Summary of Proposed Consent Decree Terms

Set forth below is a detailed summary of the principal terms of the proposed Consent Decree as reflected in the October 20, 2023 term sheet. A redline draft of the proposed Final Judgment and Consent Decree, reflecting the agreed-upon term sheet language, is enclosed with this letter for your review.

A. No Divestiture

The proposed Consent Decree does not require divestiture of Meridian Photonics Inc. or any Halcyon business unit, division, product line, or asset. Meridian will continue to operate as a wholly owned subsidiary of Halcyon Semiconductor Americas Inc., and Halcyon will retain full ownership of Meridian's assets, intellectual property portfolio, workforce, customer relationships, and manufacturing facilities.

This is, in our view, the single most significant outcome of the negotiation. The AG's original complaint sought broad injunctive relief under ORS 646.775, which expressly authorizes Oregon courts to order divestiture of shares or assets in appropriate cases. Through the course of the litigation and the mediation, the AG's office has agreed to forego any divestiture remedy entirely. The preservation of the Meridian acquisition intact was Halcyon's paramount objective in this litigation, and the proposed Decree achieves that objective in full.

B. FRAND Licensing Commitment

Under the proposed Decree, Halcyon must offer Fair, Reasonable, and Non-Discriminatory ("FRAND") licenses for Meridian's portfolio of forty-seven (47) U.S. patents related to co-packaged optics technology (collectively, the "CPO Patents") to any person or entity that requests such a license. The FRAND licensing commitment encompasses all CPO Patents held by Meridian as of the date of entry of the Decree, as well as any continuation, divisional, or reissue patents derived therefrom during the term of the obligation.

The duration of this commitment is five (5) years from the date of entry of the Consent Decree. Based on the anticipated timeline for execution, submission, and entry, we expect the Decree to be entered in early November 2023, which would result in the FRAND licensing obligation expiring on or about November 8, 2028.

Importantly, the FRAND licensing commitment is not limited to existing customers or competitors of Halcyon or Meridian. Any party, including new market entrants, academic institutions, or entities in adjacent technology markets, may request a FRAND license for the CPO Patents.

From a practical standpoint, we note that this obligation largely codifies Meridian's pre-acquisition voluntary licensing practices. Prior to the acquisition, Meridian maintained an open licensing program for its CPO patent portfolio and had entered into license agreements with multiple third parties on commercially reasonable terms. Accordingly, the FRAND licensing commitment imposes limited incremental burden on Halcyon and should not materially affect Halcyon's anticipated revenue from the Meridian patent portfolio. The primary change is that the commitment is now legally enforceable and subject to compliance monitoring for the five-year term, whereas Meridian's pre-acquisition licensing program was a voluntary commercial practice.

C. Interoperability Obligation

The proposed Decree requires 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 standards. In practical terms, this means that Halcyon may not make product design changes to Meridian's CPO modules that would degrade or eliminate interoperability with third-party switch ASICs that comply with the OIF 400ZR and 800ZR specifications.

The duration of this interoperability obligation is five (5) years, coterminous with the FRAND licensing commitment described above (i.e., through approximately November 8, 2028).

We note that Halcyon's current product roadmap for Meridian's CPO transceiver line already targets full compliance with the OIF 400ZR and 800ZR standards. Halcyon's engineering and product management teams have confirmed that maintaining interoperability with these industry-standard specifications is consistent with Halcyon's existing business plans and technology strategy. Accordingly, this obligation should not require Halcyon to alter its planned product development trajectory or incur material additional engineering costs.

D. Non-Discrimination in Supply

The Consent Decree prohibits Halcyon from conditioning the supply of Meridian CPO modules on a customer's purchase of Halcyon power-management integrated circuits or other Halcyon-manufactured components. Specifically, Halcyon may not (i) require a customer to purchase Halcyon-manufactured analog, mixed-signal, or power-management ICs as a condition of purchasing Meridian CPO modules, (ii) offer preferential pricing or delivery terms for Meridian CPO modules contingent upon a customer's purchase of other Halcyon products, or (iii) refuse to sell or unreasonably delay the supply of Meridian CPO modules to a customer that elects to source analog, mixed-signal, or power-management ICs from a Halcyon competitor.

This provision directly addresses the AG's vertical foreclosure theory—namely, the AG's contention that Halcyon could leverage its newly acquired dominant position in CPO transceivers to foreclose competition in the adjacent market for analog and mixed-signal semiconductor components by bundling or tying Halcyon's power-management ICs with Meridian's photonics products. By prohibiting such tying or bundling conduct, the Decree neutralizes this theory of harm without requiring structural relief.

The duration of this non-discrimination obligation is five (5) years (through approximately November 8, 2028), consistent with the other behavioral remedies in the Decree.

E. Independent Compliance Monitor

The Consent Decree provides for the appointment of an independent compliance monitor to oversee and verify Halcyon's compliance with the FRAND licensing, interoperability, and non-discrimination obligations described above. The parties have agreed that Kirkdale Compliance Group LLC, a Chicago, Illinois-based compliance monitoring firm with experience in antitrust consent decree administration, will serve as the independent compliance monitor for the full five-year term of the Decree.

The compliance monitor will issue semi-annual reports to the Oregon Attorney General's office summarizing its findings regarding Halcyon's compliance with each of the Decree's substantive provisions. The monitor will have access to relevant Halcyon and Meridian records, documents, and personnel as reasonably necessary to verify compliance. Halcyon will be required to designate an internal compliance liaison to coordinate with the monitor and facilitate the monitor's access to information and personnel.

The estimated cost of the compliance monitor is $175,000 per year, or approximately $875,000 over the full five-year term. This cost is to be paid entirely by Halcyon. While this is a non-trivial expense, we believe it is reasonable in the context of this matter and is significantly less costly than the alternative of continued litigation or court-imposed monitoring with less predictable terms and costs.

F. Civil Penalty

The proposed Consent Decree requires Halcyon to pay a civil penalty of $1,500,000 to the State of Oregon. This payment is due within thirty (30) calendar days of the date of entry of the Decree by the court. The penalty is payable by wire transfer to an account designated by the Oregon Department of Justice.

We note that this amount is modest by any relevant measure. It represents less than 0.07% of the $2.15 billion acquisition price for Meridian, and less than 0.02% of HSAG's consolidated annual revenue of €9.3 billion for the fiscal year ended December 31, 2022. The civil penalty is a one-time payment that resolves any and all claims asserted by the AG in this action, and Halcyon will not be required to make any admission of wrongdoing in connection with the Decree. In our experience, the AG's agreement to a penalty at this level reflects a pragmatic recognition that the behavioral remedies in the Decree are the primary relief, and the monetary component is principally symbolic.

G. Dispute Resolution and Modification

The Consent Decree includes provisions governing dispute resolution and modification. If a dispute arises between Halcyon and the AG regarding interpretation or compliance, the parties are required first to attempt resolution through good-faith negotiation. If negotiation is unsuccessful, either party may refer the dispute to the Multnomah County Circuit Court for resolution. The court will retain jurisdiction over the Decree for the full five-year term for purposes of enforcement and dispute resolution.

Additionally, either party may seek to modify the terms of the Decree upon a demonstration of a material change in market conditions. For example, if significant new entry into the CPO transceiver market were to occur during the five-year term, Halcyon could petition the court to relax or terminate the behavioral obligations on the ground that the competitive concerns underlying the Decree have been substantially ameliorated. This modification provision provides Halcyon with a meaningful safety valve in the event that market developments render the Decree's behavioral remedies unnecessary or unduly burdensome.

IV. Assessment of Litigation Risk

While we believe that Halcyon has a defensible position on the merits, our recommendation to execute the Consent Decree is informed by a frank assessment of the litigation risks that Halcyon would face if this matter were to proceed to trial. We summarize those risks below.

A. Merits Exposure

As noted above, Judge Castañeda's July 7, 2023 order denying Halcyon's Motion to Dismiss confirmed that the AG's claims survive threshold scrutiny. The court's ruling on the federal preemption argument is particularly significant: the court held that early termination of the HSR Act waiting period does not constitute affirmative federal approval of a transaction and does not preempt state-law antitrust challenges to consummated mergers. While we continue to believe that there are strong arguments in favor of federal preemption in this context, the court's ruling means that this argument is unavailable as a basis for dismissal and would need to be preserved for appeal following an adverse trial outcome—an uncertain and costly path.

The AG's market-share allegations present a facially strong case on market concentration. Based on the data produced in discovery and analyzed by the AG's expert, Dr. Evelyn Ng, the post-merger combined Halcyon/Meridian share of U.S. CPO transceiver module sales is approximately 58%, representing approximately $507.5 million of an estimated $875 million total market. The Herfindahl-Hirschman Index ("HHI") for the relevant market increased from 2,818 pre-merger to 4,050 post-merger, a delta of 1,232 points. These concentration figures are well above the thresholds established by the U.S. Department of Justice and Federal Trade Commission's Horizontal Merger Guidelines that typically trigger a presumption of anticompetitive effects. While the Oregon AG is not bound by the federal Merger Guidelines, Oregon courts routinely look to federal antitrust jurisprudence and the Guidelines as persuasive authority.

The AG has identified two key Oregon-based customers whose testimony could be particularly compelling to the court. Cascadia Cloud Services Inc. ("Cascadia"), a major Oregon-headquartered hyperscale data-center operator, purchased approximately $62 million in Meridian CPO modules in fiscal year 2022. Northstar Digital Infrastructure LLC ("Northstar"), another Oregon-based data-center operator, purchased approximately $28 million in Meridian CPO modules during the same period. Both companies have cooperated with the AG's investigation, and we understand that their representatives are prepared to testify regarding buyer dependence on Meridian's CPO products and concerns about the competitive effects of the acquisition. Testimony from Oregon-based customers before an Oregon court would carry significant weight.

The AG's theory of harm is coherent and well-supported. In summary, the AG contends that the acquisition eliminates Meridian as an independent innovator and competitive force in the CPO transceiver market, and that Halcyon could engage in vertical foreclosure by degrading the interoperability of Meridian's CPO modules with third-party switch ASICs or by tying the supply of Meridian CPO modules to the purchase of Halcyon's analog and mixed-signal ICs. Dr. Ng's preliminary expert report provides economic support for these theories, and the AG's factual record—including internal Halcyon documents discussing the competitive significance of Meridian and the post-merger integration strategy—provides documentary corroboration.

Halcyon's defense is not without substantial merit. Dr. Franklin Morrow's analysis of procompetitive efficiencies, including estimated annual cost savings of approximately $90 million resulting from the integration of Meridian's photonics capabilities with Halcyon's analog and mixed-signal semiconductor platform, presents a credible efficiencies defense. Additionally, Dr. Morrow's analysis of dynamic market conditions—including the projected 28% compound annual growth rate ("CAGR") for the CPO transceiver market through 2027—supports the argument that the market is rapidly growing and that existing concentration metrics overstate the competitive significance of the merger. However, efficiencies defenses in merger cases are notoriously difficult to sustain, and courts have historically viewed such arguments with skepticism, particularly where market concentration is as high as it is here. We cannot provide assurance that these defenses would prevail at trial.

In summary, while we believe Halcyon's position is defensible, the outcome at trial is genuinely uncertain, and there is a meaningful risk of an adverse judgment.

B. Preliminary Injunction Risk

The AG's motion for a preliminary injunction remains pending before Judge Castañeda. As noted above, the court did not rule on the PI motion at the September 22, 2023 hearing and instead encouraged the parties to pursue settlement. However, if settlement negotiations fail and the Consent Decree is not executed, the court would be expected to rule on the PI motion promptly.

There is a meaningful risk that the court could grant the PI motion and impose interim behavioral restrictions on Halcyon's integration of Meridian pending trial. Court-imposed preliminary injunctive relief could be broader, less tailored to Halcyon's business operations, and more disruptive than the negotiated behavioral remedies in the proposed Consent Decree. For example, the court could impose restrictions on Halcyon's ability to integrate Meridian's operations, technology, or personnel that go beyond the specific FRAND licensing, interoperability, and non-discrimination obligations contained in the Decree. The uncertainty associated with court-imposed relief is itself a significant risk factor.

C. Cost of Continued Litigation

The financial cost of continued litigation is a relevant consideration. To date, defense costs in this matter are as follows:

• C&H legal fees: approximately $2,740,000

• GDK local counsel fees: approximately $385,000

• Stonebridge Analytics LLC expert fees (Dr. Morrow): approximately $620,000

• Total defense costs to date: approximately $3,745,000

These costs are approaching the $3,800,000 aggregate fee cap previously approved by the Halcyon legal department. If the matter were to proceed through trial, the fee cap would need to be renegotiated, and we estimate that continued litigation would add approximately $2 million to $4 million in additional defense costs, including expanded expert economic analysis, completion of fact and expert depositions, pre-trial briefing, and trial preparation and presentation.

Additionally, discovery costs and unpredictability would increase as the case progresses. The AG has identified Luminos Systems Corp. (holding an estimated 22% share of the U.S. CPO transceiver market) and Crestwave Optical Technologies Ltd. (holding an estimated 11% share) as potential third-party deponents. Third-party discovery is inherently unpredictable—we cannot control the testimony or documents that these competitors would provide, and their testimony could either support or undermine Halcyon's competitive-effects arguments. The cost and logistical burden of third-party depositions would be substantial.

In total, we estimate that the all-in cost of defending this matter through trial could reach $6 million to $8 million, exclusive of any judgment or court-imposed remedy.

V. Why the Proposed Terms Are Favorable

Drawing on our assessment of the litigation risk, the specific terms negotiated, and the strategic context of the Meridian acquisition, we believe the proposed Consent Decree is a favorable outcome for Halcyon for the following reasons:

No Divestiture. The avoidance of any divestiture requirement is the most important aspect of this settlement. Divestiture was a realistic possibility if this matter had proceeded to trial and the AG had prevailed. The Consent Decree preserves the strategic rationale for the $2.15 billion acquisition and allows Halcyon to proceed with full integration of Meridian's 47 CPO patents and associated technology, personnel, and customer relationships with Halcyon's analog and mixed-signal semiconductor platform. The long-term value creation opportunity that motivated the acquisition remains intact.

Time-Limited Behavioral Remedies. All substantive obligations imposed by the Consent Decree—the FRAND licensing commitment, the interoperability obligation, and the non-discrimination in supply requirement—expire after five (5) years, on or about November 8, 2028. After expiration, Halcyon will have full commercial freedom regarding the licensing of Meridian's CPO patents, the design and interoperability specifications of Meridian's products, and the terms on which Meridian CPO modules are sold, including the ability to bundle or cross-sell with other Halcyon products. The five-year duration is reasonable and provides Halcyon with a clear and predictable path to unrestricted commercial operation.

Modest Financial Outlay. The total financial cost of the settlement—comprising the $1.5 million civil penalty and the estimated $875,000 in compliance monitor fees over five years, for a total of approximately $2.375 million—is de minimis in the context of a $2.15 billion acquisition and Halcyon Semiconductor AG's consolidated annual revenue of €9.3 billion. By comparison, continued litigation through trial could cost an additional $2 million to $4 million in defense costs alone, with no certainty of outcome, and an adverse judgment could result in far more costly relief, including potential divestiture.

Certainty and Finality. Entry of the Consent Decree as a Final Judgment will close this case and definitively resolve the AG's claims. This provides Halcyon with certainty and removes the overhang of ongoing litigation, which has implications for multiple aspects of Halcyon's business:

• Public disclosures: HSAG is publicly traded on the Frankfurt Stock Exchange (FSE: HLC). Resolution of this matter will simplify Halcyon's litigation disclosure obligations and remove a source of potential investor concern.

• Integration planning: The certainty provided by the Consent Decree will allow Halcyon's integration team to proceed with confidence, knowing that the behavioral parameters governing the integration of Meridian's operations are fixed and predictable for the five-year term.

• Customer and partner relationships: Resolution of the litigation will provide stability and clarity for Halcyon's and Meridian's customers and business partners.

Behavioral Commitments Align with Existing Business Strategy. As discussed in Section III above, the behavioral obligations in the Consent Decree are largely consistent with Halcyon's existing commercial practices and stated business strategy. Halcyon already targets compliance with OIF 400ZR and 800ZR interoperability standards in its product roadmap. Meridian maintained an open licensing program for its CPO patents prior to the acquisition, and Halcyon has expressed willingness to continue licensing those patents on reasonable terms. The non-discrimination obligation formalizes current commercial practices under which Halcyon does not condition Meridian CPO module sales on purchases of other Halcyon products. In short, these obligations largely codify what Halcyon is already doing or planning to do, thereby minimizing the practical burden of compliance.

Avoids Adverse Precedent. A contested ruling on the merits of the AG's claims under ORS 646.730 in the context of a consummated merger could create unfavorable precedent for future Halcyon acquisitions or, more broadly, for the semiconductor industry's ability to consummate strategic transactions without state-level antitrust challenge. The Oregon AG's legal theory in this case—that a state attorney general may challenge a consummated merger that received early termination under the HSR Act—is relatively novel. An adverse ruling could embolden other state attorneys general to pursue similar challenges. Resolution by consent decree avoids the creation of any such adverse precedent and does not require Halcyon to make any admissions regarding liability.

VI. Requested Authorization

Based on the foregoing analysis, we respectfully request that Priya Nagarajan and Katrin Schreiber, on behalf of Halcyon Semiconductor Americas Inc. and Halcyon Semiconductor AG, respectively, confirm authorization for Calderwood & Harkness LLP, together with Grantham Davis & Kowalski LLP, to take the following actions:

1. Finalize the text of the proposed Consent Decree with the Office of the Attorney General of the State of Oregon and its outside counsel, Ashworth & Pendleton LLP, based on the October 20, 2023 term sheet, and substantially in the form of the redline draft enclosed with this letter;

2. Execute the Consent Decree on behalf of Halcyon Semiconductor Americas Inc., with C&H partner Elaine Forsythe and GDK partner Thomas Kowalski signing as counsel of record for HSA; and

3. Submit the executed Consent Decree to the Circuit Court of the State of Oregon for the County of Multnomah, Case No. 23CV-18274, for entry as a Final Judgment by the Honorable Robert Castañeda, together with such stipulations, motions, or proposed orders as may be required by the court's local rules and procedures.

In addition, we request that Dr. Tobias Wendt, Chief Executive Officer of Halcyon Semiconductor AG, be briefed on the terms of the proposed Consent Decree and that any requisite corporate approvals at the HSAG board level be obtained. Given the financial and strategic significance of this matter, we believe it is prudent to confirm that the HSAG board (or the appropriate board committee) has been informed of and has approved the settlement terms before execution.

We note that authorization should be provided no later than October 31, 2023, in order to meet the anticipated November 1, 2023 execution deadline that was discussed with the AG's office and Ms. Yee during the final mediation session. The AG's office has indicated that it expects prompt execution consistent with the agreed-upon timeline, and delay could jeopardize the settlement.

We are available to arrange a call or video conference at any time prior to October 31 to discuss any questions, concerns, or issues that you or Dr. Wendt may wish to raise before authorization is granted. Please do not hesitate to contact me or Howard Bellamy to schedule such a discussion.

VII. Next Steps Upon Authorization

Upon receipt of authorization from Halcyon, we will proceed as follows:

• Finalization of execution drafts. C&H and GDK will finalize the text of the Consent Decree and circulate execution drafts to the AG's office and Ashworth & Pendleton LLP for final review and approval. We anticipate that finalization of the text will require no more than one to two business days, as the October 20 term sheet is comprehensive and the remaining open drafting points are narrow.

• Execution. We are targeting November 1, 2023 as the execution date, consistent with the timeline discussed with the AG's office.

• Submission to the court. Promptly following execution by all parties, C&H and GDK will submit the executed Consent Decree to Judge Castañeda, together with a joint stipulation of the parties requesting entry of the Decree as a Final Judgment and requesting that the AG's pending motion for a preliminary injunction be withdrawn as moot.

• Anticipated entry. Based on our experience with the court's docket and procedures, and following consultation with Thomas Kowalski, we anticipate that the court will enter the Consent Decree as a Final Judgment within approximately one week of submission.

Following entry of the Consent Decree, C&H will prepare a comprehensive compliance advisory memorandum for distribution to the Halcyon and Meridian legal, compliance, and business teams. The memorandum will detail each of Halcyon's obligations under the Decree, recommend internal compliance protocols and procedures, identify key personnel responsible for compliance implementation, and outline the timeline for the compliance monitor's reporting obligations. We will coordinate with Halcyon's internal compliance function to ensure that the advisory memorandum is tailored to Halcyon's existing compliance infrastructure.

Additionally, C&H will coordinate with Kirkdale Compliance Group LLC regarding the compliance monitor's initial onboarding, including scheduling introductory meetings with relevant Halcyon and Meridian personnel, establishing protocols for document and information sharing, and agreeing on the format and timing of the semi-annual compliance reports to the Oregon AG's office.

We deeply appreciate the trust that you, Katrin, and the entire Halcyon legal team have placed in Calderwood & Harkness throughout this matter. This has been a hard-fought and well-managed defense, and we believe the proposed resolution reflects the strength of Halcyon's litigation position while prudently avoiding the substantial risks and costs of continued litigation.

We reiterate our firm recommendation that Halcyon authorize execution of the proposed Consent Decree. In our considered judgment, the terms negotiated in the mediation represent the best achievable outcome for Halcyon in this matter.

We are available to discuss this recommendation at any time, by telephone, video conference, or in person at your convenience. Please do not hesitate to reach out.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Elaine Forsythe Partner, Antitrust & Competition Practice Group Calderwood & Harkness LLP 1301 Avenue of the Americas, 35th Floor New York, New York 10019 Direct: (212) 758-4432 eforsythe@calderwoodharkness.com

cc: Dr. Tobias Wendt, Chief Executive Officer, Halcyon Semiconductor AG Howard Bellamy, Calderwood & Harkness LLP Aaron Liu, Calderwood & Harkness LLP Thomas Kowalski, Grantham Davis & Kowalski LLP

Enclosure: Draft Proposed Final Judgment and Consent Decree (redline reflecting October 20, 2023 term sheet)

CALDERWOOD & HARKNESS LLP
1301 Avenue of the Americas, 35th Floor New York, New York 10019
Telephone: (212) 758-4400 Facsimile: (212) 758-4401
555 California Street, Suite 2800 San Francisco, California 94104
Telephone: (415) 392-7700 Facsimile: (415) 392-7701
www.calderwoodharkness.com
October 27, 2023
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
Priya Nagarajan, Esq. U.S. Deputy General Counsel Halcyon Semiconductor Americas Inc. 4500 Great America Parkway, Suite 300 Santa Clara, California 95054
Katrin Schreiber, Esq. General Counsel Halcyon Semiconductor AG Ludwigstraße 27 80539 Munich, Bavaria, Germany
Re: State of Oregon v. Halcyon Semiconductor Americas Inc., Case No. 23CV-18274, Circuit Court of the State of Oregon for the County of Multnomah
C&H Matter No. 1032-00001
Recommendation to Execute Proposed Consent Decree
Dear Priya and Katrin:
I. Purpose and Recommendation
The purpose of this letter is to formally recommend that Halcyon Semiconductor AG ("HSAG") and Halcyon Semiconductor Americas Inc. ("HSA" and, together with HSAG, "Halcyon" or the "Company") authorize the execution of the proposed Final Judgment and Consent Decree (the "Consent Decree" or the "Decree") negotiated with the Office of the Attorney General of the State of Oregon (the "AG" or the "Oregon AG") in the above-referenced matter. As you are aware, the term sheet embodying the material terms of the Consent Decree was agreed to in principle on October 20, 2023, following court-ordered mediation before the Honorable Patricia Loomis (Ret.), which commenced on October 6, 2023 and spanned three in-person sessions in Portland, Oregon.
After extensive deliberation and careful analysis of the litigation risks, financial exposure, strategic considerations, and the specific terms that have been negotiated, it is the considered judgment of Calderwood & Harkness LLP ("C&H") that the proposed Consent Decree represents a favorable resolution of this matter for Halcyon. We recommend prompt execution. The terms negotiated during the mediation process preserve the core strategic rationale underlying Halcyon's acquisition of Meridian Photonics Inc. ("Meridian"), avoid any divestiture requirement, and impose only time-limited behavioral remedies that are largely consistent with Halcyon's existing commercial practices and product roadmap.
If Halcyon authorizes execution, C&H, together with our local counsel Grantham Davis & Kowalski LLP ("GDK") and lead local partner Thomas Kowalski, will finalize the text of the Decree, coordinate with the AG's office and its outside counsel Ashworth & Pendleton LLP, and submit the executed Consent Decree to the Circuit Court of the State of Oregon for the County of Multnomah for entry as a Final Judgment by the presiding judge, the Honorable Robert Castañeda.
This letter sets forth the procedural background of this litigation, a detailed summary of the proposed Consent Decree terms, our assessment of the litigation risk Halcyon would face if the matter proceeds to trial, an explanation of why we believe the proposed terms are favorable, and the specific authorizations we are requesting.
II. Procedural Background
To provide context for our recommendation, we briefly summarize the key procedural history of this matter below.
The Acquisition. HSAG, through its wholly owned U.S. subsidiary HSA, acquired 100% of the outstanding shares of Meridian Photonics Inc., a Delaware corporation headquartered in Beaverton, Oregon, for $2.15 billion in an all-cash transaction. The transaction closed on January 31, 2023. Meridian is a leading designer and manufacturer of co-packaged optics ("CPO") transceiver modules used in high-performance data-center networking applications.
Federal HSR Act Review. Halcyon made the required pre-merger notification filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a, on October 3, 2022 (HSR File No. 20221003-1847). The Federal Trade Commission granted early termination of the waiting period on November 14, 2022, and neither the FTC nor the Antitrust Division of the U.S. Department of Justice issued a second request for additional information. No federal enforcement action was initiated with respect to the acquisition.
State-Level Review. No state-level antitrust pre-notification was required under the laws of Oregon or any other U.S. state, and no such notification was made. At the time of closing, no state attorney general had expressed any interest in reviewing the transaction.
Oregon AG Investigation and Complaint. On April 10, 2023, the Oregon AG issued a Civil Investigative Demand ("CID") to HSA, seeking extensive documents and data relating to the acquisition, Meridian's competitive position in the CPO transceiver market, and Halcyon's post-merger integration plans. One week later, on April 17, 2023, the AG filed a civil complaint in the Circuit Court of the State of Oregon for the County of Multnomah, captioned State of Oregon v. Halcyon Semiconductor Americas Inc., Case No. 23CV-18274. The complaint was brought under ORS 646.730 (Oregon's merger control statute, prohibiting acquisitions that may substantially lessen competition) and ORS 646.775 (authorizing the AG to seek injunctive relief and civil penalties). The AG alleged that the acquisition substantially lessens competition in the relevant market for co-packaged optics transceiver modules for data-center applications in the United States.
AG's Litigation Team. The AG retained the law firm of Ashworth & Pendleton LLP as special outside counsel for this matter, with Constance Yee serving as lead partner. The AG also retained Dr. Evelyn Ng of Ridgeline Economic Consulting LLC as its expert economist. Dr. Ng has submitted a preliminary expert report opining on market definition, market concentration, and the competitive effects of the acquisition.
Halcyon's Responsive Pleadings. HSA, through C&H and GDK, filed its Answer to the complaint on May 5, 2023. On May 19, 2023, HSA filed a Motion to Dismiss the complaint on multiple grounds, including federal preemption (arguing that the AG's state-law challenge to a consummated merger that had received HSR Act clearance was preempted by the federal antitrust scheme) and failure to adequately allege a relevant product market. On July 7, 2023, Judge Castañeda denied the Motion to Dismiss, holding that the AG's claims survive threshold scrutiny. The court found the federal preemption argument unavailing under current Oregon law, noting that ORS 646.730 is not expressly preempted by the Clayton Act and that early termination of the HSR waiting period does not constitute affirmative federal approval of a transaction. The court further found that the complaint adequately alleged a relevant product market of CPO transceiver modules for data-center applications.
discovery. Following the denial of the Motion to Dismiss, discovery commenced on July 21, 2023 pursuant to the court's case management order. Document production has been substantial, and several depositions have been scheduled but not yet completed.
Preliminary Injunction Proceedings. On August 15, 2023, the AG moved for a preliminary injunction seeking to impose interim behavioral restrictions on Halcyon's integration of Meridian pending trial. HSA filed its opposition brief on September 8, 2023, supported by the Declaration of Dr. Franklin Morrow of Stonebridge Analytics LLC, Halcyon's retained expert economist. Dr. Morrow's declaration presented evidence of procompetitive efficiencies generated by the acquisition and the dynamic competitive conditions in the CPO transceiver market.
PI Hearing and Settlement Discussions. The court held a hearing on the AG's motion for a preliminary injunction on September 22, 2023. At the hearing, Judge Castañeda heard argument from both sides and, while not ruling on the merits of the PI motion, strongly encouraged the parties to engage in settlement discussions. The court expressed the view that the case presented complex economic questions that might be more efficiently and effectively resolved through negotiation than through contested proceedings. The PI motion remains pending and has not been ruled upon.
Mediation. Consistent with the court's encouragement, the parties agreed to participate in mediation before the Honorable Patricia Loomis (Ret.), a retired Multnomah County Circuit Court judge with extensive experience in complex commercial and antitrust matters. Mediation sessions were held on October 6, October 13, and October 19–20, 2023. The mediation resulted in agreement on a term sheet embodying the material terms of the proposed Consent Decree on October 20, 2023.
III. Summary of Proposed Consent Decree Terms
Set forth below is a detailed summary of the principal terms of the proposed Consent Decree as reflected in the October 20, 2023 term sheet. A redline draft of the proposed Final Judgment and Consent Decree, reflecting the agreed-upon term sheet language, is enclosed with this letter for your review.
A. No Divestiture
The proposed Consent Decree does not require divestiture of Meridian Photonics Inc. or any Halcyon business unit, division, product line, or asset. Meridian will continue to operate as a wholly owned subsidiary of Halcyon Semiconductor Americas Inc., and Halcyon will retain full ownership of Meridian's assets, intellectual property portfolio, workforce, customer relationships, and manufacturing facilities.
This is, in our view, the single most significant outcome of the negotiation. The AG's original complaint sought broad injunctive relief under ORS 646.775, which expressly authorizes Oregon courts to order divestiture of shares or assets in appropriate cases. Through the course of the litigation and the mediation, the AG's office has agreed to forego any divestiture remedy entirely. The preservation of the Meridian acquisition intact was Halcyon's paramount objective in this litigation, and the proposed Decree achieves that objective in full.
B. FRAND Licensing Commitment
Under the proposed Decree, Halcyon must offer Fair, Reasonable, and Non-Discriminatory ("FRAND") licenses for Meridian's portfolio of forty-seven (47) U.S. patents related to co-packaged optics technology (collectively, the "CPO Patents") to any person or entity that requests such a license. The FRAND licensing commitment encompasses all CPO Patents held by Meridian as of the date of entry of the Decree, as well as any continuation, divisional, or reissue patents derived therefrom during the term of the obligation.
The duration of this commitment is five (5) years from the date of entry of the Consent Decree. Based on the anticipated timeline for execution, submission, and entry, we expect the Decree to be entered in early November 2023, which would result in the FRAND licensing obligation expiring on or about November 8, 2028.
Importantly, the FRAND licensing commitment is not limited to existing customers or competitors of Halcyon or Meridian. Any party, including new market entrants, academic institutions, or entities in adjacent technology markets, may request a FRAND license for the CPO Patents.
From a practical standpoint, we note that this obligation largely codifies Meridian's pre-acquisition voluntary licensing practices. Prior to the acquisition, Meridian maintained an open licensing program for its CPO patent portfolio and had entered into license agreements with multiple third parties on commercially reasonable terms. Accordingly, the FRAND licensing commitment imposes limited incremental burden on Halcyon and should not materially affect Halcyon's anticipated revenue from the Meridian patent portfolio. The primary change is that the commitment is now legally enforceable and subject to compliance monitoring for the five-year term, whereas Meridian's pre-acquisition licensing program was a voluntary commercial practice.
C. Interoperability Obligation
The proposed Decree requires 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 standards. In practical terms, this means that Halcyon may not make product design changes to Meridian's CPO modules that would degrade or eliminate interoperability with third-party switch ASICs that comply with the OIF 400ZR and 800ZR specifications.
The duration of this interoperability obligation is five (5) years, coterminous with the FRAND licensing commitment described above (i.e., through approximately November 8, 2028).
We note that Halcyon's current product roadmap for Meridian's CPO transceiver line already targets full compliance with the OIF 400ZR and 800ZR standards. Halcyon's engineering and product management teams have confirmed that maintaining interoperability with these industry-standard specifications is consistent with Halcyon's existing business plans and technology strategy. Accordingly, this obligation should not require Halcyon to alter its planned product development trajectory or incur material additional engineering costs.
D. Non-Discrimination in Supply
The Consent Decree prohibits Halcyon from conditioning the supply of Meridian CPO modules on a customer's purchase of Halcyon power-management integrated circuits or other Halcyon-manufactured components. Specifically, Halcyon may not (i) require a customer to purchase Halcyon-manufactured analog, mixed-signal, or power-management ICs as a condition of purchasing Meridian CPO modules, (ii) offer preferential pricing or delivery terms for Meridian CPO modules contingent upon a customer's purchase of other Halcyon products, or (iii) refuse to sell or unreasonably delay the supply of Meridian CPO modules to a customer that elects to source analog, mixed-signal, or power-management ICs from a Halcyon competitor.
This provision directly addresses the AG's vertical foreclosure theory—namely, the AG's contention that Halcyon could leverage its newly acquired dominant position in CPO transceivers to foreclose competition in the adjacent market for analog and mixed-signal semiconductor components by bundling or tying Halcyon's power-management ICs with Meridian's photonics products. By prohibiting such tying or bundling conduct, the Decree neutralizes this theory of harm without requiring structural relief.
The duration of this non-discrimination obligation is five (5) years (through approximately November 8, 2028), consistent with the other behavioral remedies in the Decree.
E. Independent Compliance Monitor
The Consent Decree provides for the appointment of an independent compliance monitor to oversee and verify Halcyon's compliance with the FRAND licensing, interoperability, and non-discrimination obligations described above. The parties have agreed that Kirkdale Compliance Group LLC, a Chicago, Illinois-based compliance monitoring firm with experience in antitrust consent decree administration, will serve as the independent compliance monitor for the full five-year term of the Decree.
The compliance monitor will issue semi-annual reports to the Oregon Attorney General's office summarizing its findings regarding Halcyon's compliance with each of the Decree's substantive provisions. The monitor will have access to relevant Halcyon and Meridian records, documents, and personnel as reasonably necessary to verify compliance. Halcyon will be required to designate an internal compliance liaison to coordinate with the monitor and facilitate the monitor's access to information and personnel.
The estimated cost of the compliance monitor is $175,000 per year, or approximately $875,000 over the full five-year term. This cost is to be paid entirely by Halcyon. While this is a non-trivial expense, we believe it is reasonable in the context of this matter and is significantly less costly than the alternative of continued litigation or court-imposed monitoring with less predictable terms and costs.
F. Civil Penalty
The proposed Consent Decree requires Halcyon to pay a civil penalty of $1,500,000 to the State of Oregon. This payment is due within thirty (30) calendar days of the date of entry of the Decree by the court. The penalty is payable by wire transfer to an account designated by the Oregon Department of Justice.
We note that this amount is modest by any relevant measure. It represents less than 0.07% of the $2.15 billion acquisition price for Meridian, and less than 0.02% of HSAG's consolidated annual revenue of €9.3 billion for the fiscal year ended December 31, 2022. The civil penalty is a one-time payment that resolves any and all claims asserted by the AG in this action, and Halcyon will not be required to make any admission of wrongdoing in connection with the Decree. In our experience, the AG's agreement to a penalty at this level reflects a pragmatic recognition that the behavioral remedies in the Decree are the primary relief, and the monetary component is principally symbolic.
G. Dispute Resolution and Modification
The Consent Decree includes provisions governing dispute resolution and modification. If a dispute arises between Halcyon and the AG regarding interpretation or compliance, the parties are required first to attempt resolution through good-faith negotiation. If negotiation is unsuccessful, either party may refer the dispute to the Multnomah County Circuit Court for resolution. The court will retain jurisdiction over the Decree for the full five-year term for purposes of enforcement and dispute resolution.
Additionally, either party may seek to modify the terms of the Decree upon a demonstration of a material change in market conditions. For example, if significant new entry into the CPO transceiver market were to occur during the five-year term, Halcyon could petition the court to relax or terminate the behavioral obligations on the ground that the competitive concerns underlying the Decree have been substantially ameliorated. This modification provision provides Halcyon with a meaningful safety valve in the event that market developments render the Decree's behavioral remedies unnecessary or unduly burdensome.
IV. Assessment of Litigation Risk
While we believe that Halcyon has a defensible position on the merits, our recommendation to execute the Consent Decree is informed by a frank assessment of the litigation risks that Halcyon would face if this matter were to proceed to trial. We summarize those risks below.
A. Merits Exposure
As noted above, Judge Castañeda's July 7, 2023 order denying Halcyon's Motion to Dismiss confirmed that the AG's claims survive threshold scrutiny. The court's ruling on the federal preemption argument is particularly significant: the court held that early termination of the HSR Act waiting period does not constitute affirmative federal approval of a transaction and does not preempt state-law antitrust challenges to consummated mergers. While we continue to believe that there are strong arguments in favor of federal preemption in this context, the court's ruling means that this argument is unavailable as a basis for dismissal and would need to be preserved for appeal following an adverse trial outcome—an uncertain and costly path.
The AG's market-share allegations present a facially strong case on market concentration. Based on the data produced in discovery and analyzed by the AG's expert, Dr. Evelyn Ng, the post-merger combined Halcyon/Meridian share of U.S. CPO transceiver module sales is approximately 58%, representing approximately $507.5 million of an estimated $875 million total market. The Herfindahl-Hirschman Index ("HHI") for the relevant market increased from 2,818 pre-merger to 4,050 post-merger, a delta of 1,232 points. These concentration figures are well above the thresholds established by the U.S. Department of Justice and Federal Trade Commission's Horizontal Merger Guidelines that typically trigger a presumption of anticompetitive effects. While the Oregon AG is not bound by the federal Merger Guidelines, Oregon courts routinely look to federal antitrust jurisprudence and the Guidelines as persuasive authority.
The AG has identified two key Oregon-based customers whose testimony could be particularly compelling to the court. Cascadia Cloud Services Inc. ("Cascadia"), a major Oregon-headquartered hyperscale data-center operator, purchased approximately $62 million in Meridian CPO modules in fiscal year 2022. Northstar Digital Infrastructure LLC ("Northstar"), another Oregon-based data-center operator, purchased approximately $28 million in Meridian CPO modules during the same period. Both companies have cooperated with the AG's investigation, and we understand that their representatives are prepared to testify regarding buyer dependence on Meridian's CPO products and concerns about the competitive effects of the acquisition. Testimony from Oregon-based customers before an Oregon court would carry significant weight.
The AG's theory of harm is coherent and well-supported. In summary, the AG contends that the acquisition eliminates Meridian as an independent innovator and competitive force in the CPO transceiver market, and that Halcyon could engage in vertical foreclosure by degrading the interoperability of Meridian's CPO modules with third-party switch ASICs or by tying the supply of Meridian CPO modules to the purchase of Halcyon's analog and mixed-signal ICs. Dr. Ng's preliminary expert report provides economic support for these theories, and the AG's factual record—including internal Halcyon documents discussing the competitive significance of Meridian and the post-merger integration strategy—provides documentary corroboration.
Halcyon's defense is not without substantial merit. Dr. Franklin Morrow's analysis of procompetitive efficiencies, including estimated annual cost savings of approximately $90 million resulting from the integration of Meridian's photonics capabilities with Halcyon's analog and mixed-signal semiconductor platform, presents a credible efficiencies defense. Additionally, Dr. Morrow's analysis of dynamic market conditions—including the projected 28% compound annual growth rate ("CAGR") for the CPO transceiver market through 2027—supports the argument that the market is rapidly growing and that existing concentration metrics overstate the competitive significance of the merger. However, efficiencies defenses in merger cases are notoriously difficult to sustain, and courts have historically viewed such arguments with skepticism, particularly where market concentration is as high as it is here. We cannot provide assurance that these defenses would prevail at trial.
In summary, while we believe Halcyon's position is defensible, the outcome at trial is genuinely uncertain, and there is a meaningful risk of an adverse judgment.
B. Preliminary Injunction Risk
The AG's motion for a preliminary injunction remains pending before Judge Castañeda. As noted above, the court did not rule on the PI motion at the September 22, 2023 hearing and instead encouraged the parties to pursue settlement. However, if settlement negotiations fail and the Consent Decree is not executed, the court would be expected to rule on the PI motion promptly.
There is a meaningful risk that the court could grant the PI motion and impose interim behavioral restrictions on Halcyon's integration of Meridian pending trial. Court-imposed preliminary injunctive relief could be broader, less tailored to Halcyon's business operations, and more disruptive than the negotiated behavioral remedies in the proposed Consent Decree. For example, the court could impose restrictions on Halcyon's ability to integrate Meridian's operations, technology, or personnel that go beyond the specific FRAND licensing, interoperability, and non-discrimination obligations contained in the Decree. The uncertainty associated with court-imposed relief is itself a significant risk factor.
C. Cost of Continued Litigation
The financial cost of continued litigation is a relevant consideration. To date, defense costs in this matter are as follows:
• C&H legal fees: approximately $2,740,000
• GDK local counsel fees: approximately $385,000
• Stonebridge Analytics LLC expert fees (Dr. Morrow): approximately $620,000
• Total defense costs to date: approximately $3,745,000
These costs are approaching the $3,800,000 aggregate fee cap previously approved by the Halcyon legal department. If the matter were to proceed through trial, the fee cap would need to be renegotiated, and we estimate that continued litigation would add approximately $2 million to $4 million in additional defense costs, including expanded expert economic analysis, completion of fact and expert depositions, pre-trial briefing, and trial preparation and presentation.
Additionally, discovery costs and unpredictability would increase as the case progresses. The AG has identified Luminos Systems Corp. (holding an estimated 22% share of the U.S. CPO transceiver market) and Crestwave Optical Technologies Ltd. (holding an estimated 11% share) as potential third-party deponents. Third-party discovery is inherently unpredictable—we cannot control the testimony or documents that these competitors would provide, and their testimony could either support or undermine Halcyon's competitive-effects arguments. The cost and logistical burden of third-party depositions would be substantial.
In total, we estimate that the all-in cost of defending this matter through trial could reach $6 million to $8 million, exclusive of any judgment or court-imposed remedy.
V. Why the Proposed Terms Are Favorable
Drawing on our assessment of the litigation risk, the specific terms negotiated, and the strategic context of the Meridian acquisition, we believe the proposed Consent Decree is a favorable outcome for Halcyon for the following reasons:
No Divestiture. The avoidance of any divestiture requirement is the most important aspect of this settlement. Divestiture was a realistic possibility if this matter had proceeded to trial and the AG had prevailed. The Consent Decree preserves the strategic rationale for the $2.15 billion acquisition and allows Halcyon to proceed with full integration of Meridian's 47 CPO patents and associated technology, personnel, and customer relationships with Halcyon's analog and mixed-signal semiconductor platform. The long-term value creation opportunity that motivated the acquisition remains intact.
Time-Limited Behavioral Remedies. All substantive obligations imposed by the Consent Decree—the FRAND licensing commitment, the interoperability obligation, and the non-discrimination in supply requirement—expire after five (5) years, on or about November 8, 2028. After expiration, Halcyon will have full commercial freedom regarding the licensing of Meridian's CPO patents, the design and interoperability specifications of Meridian's products, and the terms on which Meridian CPO modules are sold, including the ability to bundle or cross-sell with other Halcyon products. The five-year duration is reasonable and provides Halcyon with a clear and predictable path to unrestricted commercial operation.
Modest Financial Outlay. The total financial cost of the settlement—comprising the $1.5 million civil penalty and the estimated $875,000 in compliance monitor fees over five years, for a total of approximately $2.375 million—is de minimis in the context of a $2.15 billion acquisition and Halcyon Semiconductor AG's consolidated annual revenue of €9.3 billion. By comparison, continued litigation through trial could cost an additional $2 million to $4 million in defense costs alone, with no certainty of outcome, and an adverse judgment could result in far more costly relief, including potential divestiture.
Certainty and Finality. Entry of the Consent Decree as a Final Judgment will close this case and definitively resolve the AG's claims. This provides Halcyon with certainty and removes the overhang of ongoing litigation, which has implications for multiple aspects of Halcyon's business:
• Public disclosures: HSAG is publicly traded on the Frankfurt Stock Exchange (FSE: HLC). Resolution of this matter will simplify Halcyon's litigation disclosure obligations and remove a source of potential investor concern.
• Integration planning: The certainty provided by the Consent Decree will allow Halcyon's integration team to proceed with confidence, knowing that the behavioral parameters governing the integration of Meridian's operations are fixed and predictable for the five-year term.
• Customer and partner relationships: Resolution of the litigation will provide stability and clarity for Halcyon's and Meridian's customers and business partners.
Behavioral Commitments Align with Existing Business Strategy. As discussed in Section III above, the behavioral obligations in the Consent Decree are largely consistent with Halcyon's existing commercial practices and stated business strategy. Halcyon already targets compliance with OIF 400ZR and 800ZR interoperability standards in its product roadmap. Meridian maintained an open licensing program for its CPO patents prior to the acquisition, and Halcyon has expressed willingness to continue licensing those patents on reasonable terms. The non-discrimination obligation formalizes current commercial practices under which Halcyon does not condition Meridian CPO module sales on purchases of other Halcyon products. In short, these obligations largely codify what Halcyon is already doing or planning to do, thereby minimizing the practical burden of compliance.
Avoids Adverse Precedent. A contested ruling on the merits of the AG's claims under ORS 646.730 in the context of a consummated merger could create unfavorable precedent for future Halcyon acquisitions or, more broadly, for the semiconductor industry's ability to consummate strategic transactions without state-level antitrust challenge. The Oregon AG's legal theory in this case—that a state attorney general may challenge a consummated merger that received early termination under the HSR Act—is relatively novel. An adverse ruling could embolden other state attorneys general to pursue similar challenges. Resolution by consent decree avoids the creation of any such adverse precedent and does not require Halcyon to make any admissions regarding liability.
VI. Requested Authorization
Based on the foregoing analysis, we respectfully request that Priya Nagarajan and Katrin Schreiber, on behalf of Halcyon Semiconductor Americas Inc. and Halcyon Semiconductor AG, respectively, confirm authorization for Calderwood & Harkness LLP, together with Grantham Davis & Kowalski LLP, to take the following actions:
1. Finalize the text of the proposed Consent Decree with the Office of the Attorney General of the State of Oregon and its outside counsel, Ashworth & Pendleton LLP, based on the October 20, 2023 term sheet, and substantially in the form of the redline draft enclosed with this letter;
2. Execute the Consent Decree on behalf of Halcyon Semiconductor Americas Inc., with C&H partner Elaine Forsythe and GDK partner Thomas Kowalski signing as counsel of record for HSA; and
3. Submit the executed Consent Decree to the Circuit Court of the State of Oregon for the County of Multnomah, Case No. 23CV-18274, for entry as a Final Judgment by the Honorable Robert Castañeda, together with such stipulations, motions, or proposed orders as may be required by the court's local rules and procedures.
In addition, we request that Dr. Tobias Wendt, Chief Executive Officer of Halcyon Semiconductor AG, be briefed on the terms of the proposed Consent Decree and that any requisite corporate approvals at the HSAG board level be obtained. Given the financial and strategic significance of this matter, we believe it is prudent to confirm that the HSAG board (or the appropriate board committee) has been informed of and has approved the settlement terms before execution.
We note that authorization should be provided no later than October 31, 2023, in order to meet the anticipated November 1, 2023 execution deadline that was discussed with the AG's office and Ms. Yee during the final mediation session. The AG's office has indicated that it expects prompt execution consistent with the agreed-upon timeline, and delay could jeopardize the settlement.
We are available to arrange a call or video conference at any time prior to October 31 to discuss any questions, concerns, or issues that you or Dr. Wendt may wish to raise before authorization is granted. Please do not hesitate to contact me or Howard Bellamy to schedule such a discussion.
VII. Next Steps Upon Authorization
Upon receipt of authorization from Halcyon, we will proceed as follows:
• Finalization of execution drafts. C&H and GDK will finalize the text of the Consent Decree and circulate execution drafts to the AG's office and Ashworth & Pendleton LLP for final review and approval. We anticipate that finalization of the text will require no more than one to two business days, as the October 20 term sheet is comprehensive and the remaining open drafting points are narrow.
• Execution. We are targeting November 1, 2023 as the execution date, consistent with the timeline discussed with the AG's office.
• Submission to the court. Promptly following execution by all parties, C&H and GDK will submit the executed Consent Decree to Judge Castañeda, together with a joint stipulation of the parties requesting entry of the Decree as a Final Judgment and requesting that the AG's pending motion for a preliminary injunction be withdrawn as moot.
• Anticipated entry. Based on our experience with the court's docket and procedures, and following consultation with Thomas Kowalski, we anticipate that the court will enter the Consent Decree as a Final Judgment within approximately one week of submission.
Following entry of the Consent Decree, C&H will prepare a comprehensive compliance advisory memorandum for distribution to the Halcyon and Meridian legal, compliance, and business teams. The memorandum will detail each of Halcyon's obligations under the Decree, recommend internal compliance protocols and procedures, identify key personnel responsible for compliance implementation, and outline the timeline for the compliance monitor's reporting obligations. We will coordinate with Halcyon's internal compliance function to ensure that the advisory memorandum is tailored to Halcyon's existing compliance infrastructure.
Additionally, C&H will coordinate with Kirkdale Compliance Group LLC regarding the compliance monitor's initial onboarding, including scheduling introductory meetings with relevant Halcyon and Meridian personnel, establishing protocols for document and information sharing, and agreeing on the format and timing of the semi-annual compliance reports to the Oregon AG's office.
We deeply appreciate the trust that you, Katrin, and the entire Halcyon legal team have placed in Calderwood & Harkness throughout this matter. This has been a hard-fought and well-managed defense, and we believe the proposed resolution reflects the strength of Halcyon's litigation position while prudently avoiding the substantial risks and costs of continued litigation.
We reiterate our firm recommendation that Halcyon authorize execution of the proposed Consent Decree. In our considered judgment, the terms negotiated in the mediation represent the best achievable outcome for Halcyon in this matter.
We are available to discuss this recommendation at any time, by telephone, video conference, or in person at your convenience. Please do not hesitate to reach out.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner, Antitrust & Competition Practice Group Calderwood & Harkness LLP 1301 Avenue of the Americas, 35th Floor New York, New York 10019 Direct: (212) 758-4432 eforsythe@calderwoodharkness.com
cc: Dr. Tobias Wendt, Chief Executive Officer, Halcyon Semiconductor AG Howard Bellamy, Calderwood & Harkness LLP Aaron Liu, Calderwood & Harkness LLP Thomas Kowalski, Grantham Davis & Kowalski LLP
Enclosure: Draft Proposed Final Judgment and Consent Decree (redline reflecting October 20, 2023 term sheet)

CALDERWOOD & HARKNESS LLP

CALDERWOOD & HARKNESS LLP

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