1032-00005 · Whitfield, Prager & Loomis LLP · Diligence/IP

ip-due-diligence-memo.docx DOCUMENT M&A / Corporate

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Oliver Mackenzie, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP Dr. Luisa Hartmann, General Counsel, Halcyon Semiconductor Aktiengesellschaft

FROM: Tiffany Rosenthal, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP

DATE: July 21, 2023

RE: intellectual Property Due Diligence — Vectris Photonics, Inc. Patent Portfolio and License Agreements

ENGAGEMENT: 1032-00005 (Halcyon Semiconductor AG — Proposed Acquisition of Vectris Photonics, Inc.)

I. Executive Summary

The purpose of this memorandum is to present the findings of our intellectual property due diligence review of Vectris Photonics, Inc. ("Vectris" or the "Company") in connection with the proposed all-cash acquisition of Vectris by Halcyon Semiconductor Aktiengesellschaft ("Halcyon" or the "Buyer") for a total enterprise value of Eight Hundred Million Dollars ($800,000,000) (the "Transaction"). This memorandum is intended to inform the deal team's assessment of the intellectual property assets that are central to the Transaction's value proposition and to identify risk areas that should be addressed in the definitive Merger Agreement and related transaction documents.

Scope of Review. Our review encompassed the following categories of intellectual property and related matters: (i) the Company's issued patent portfolio and pending patent applications; (ii) trademark registrations and related brand assets; (iii) trade secret protections and related policies; (iv) key license-in agreements pursuant to which Vectris holds rights to third-party intellectual property; (v) license-out agreements pursuant to which Vectris has granted rights in its own intellectual property to third parties; (vi) freedom-to-operate considerations with respect to the Company's principal product lines; (vii) IP-related litigation, inter partes review proceedings, and reexamination proceedings; (viii) employee invention assignment and confidentiality matters; (ix) IP encumbrances and security interests; and (x) recommended intellectual property representations and warranties for inclusion in the Merger Agreement.

Company Overview. Vectris Photonics, Inc. is a Delaware C-corporation (Delaware Secretary of State File No. 5918437) headquartered at 4750 Ridgepoint Drive, Suite 300, San Jose, California 95134. The Company operates as a fabless designer and supplier of silicon photonics transceivers and co-packaged optics ("CPO") chiplets primarily serving the hyperscale data center interconnect market. Vectris's customer base includes three of the top five U.S. hyperscale cloud operators, and the Company has established itself as a leading innovator in optical interconnect technologies for high-bandwidth data center applications. For fiscal year 2022, Vectris reported revenue of approximately $312 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $74 million. The Company employs approximately 1,450 persons.

Key Finding — Patent Portfolio. Vectris holds a substantial and strategically significant patent portfolio consisting of one hundred eighty-seven (187) issued U.S. patents and forty-three (43) pending U.S. patent applications, concentrated in silicon photonics transceiver and co-packaged optics technologies. The portfolio is a core driver of the Transaction's value proposition. At the proposed acquisition price of $800 million, the Transaction implies an enterprise value-to-revenue multiple of approximately 2.6x and an enterprise value-to-EBITDA multiple of approximately 10.8x. These multiples reflect, in significant part, the strategic value of the Company's intellectual property assets, which underpin Vectris's competitive position with its hyperscale cloud operator customer base and provide barriers to entry against competing silicon photonics platforms.

Key Risk Areas. Our review has identified the following principal risk areas requiring attention:

• Change-of-Control Provisions in License-In Agreements. Two of the Company's five material license-in agreements contain change-of-control provisions that could be triggered by the Transaction. One of these agreements (License-In No. 2, covering serializer/deserializer circuit design blocks) requires the licensor's prior written consent for assignment, and the other (License-In No. 5, covering optical testing methodology) grants the licensor a discretionary right to terminate on ninety (90) days' notice following a change of control. These provisions require proactive engagement with the respective licensors prior to signing or closing of the Transaction.

• Pending Reexamination and Inter Partes Review Proceedings. Two inter partes review ("IPR") petitions are currently pending before the Patent Trial and Appeal Board ("PTAB"), and one patent is subject to ex parte reexamination at the U.S. Patent and Trademark Office ("USPTO"). The patents under challenge represent a small fraction of the overall portfolio, and even adverse outcomes on all three proceedings would not, in our assessment, materially diminish the portfolio's strategic value. These proceedings should, however, be disclosed in the Disclosure Schedules and monitored through closing.

• Freedom-to-Operate Exposure. Our freedom-to-operate analysis has identified one patent family held by a competitor covering certain co-packaged optics assembly methods that may overlap with Vectris's latest-generation CPO product. While Vectris's internal analysis concludes the claims are distinguishable, this conclusion has not been tested in litigation. Further technical analysis by patent litigation specialists is recommended.

Materials Reviewed. In preparing this memorandum, we reviewed the following categories of materials: (i) documents uploaded to the virtual data room (the "VDR") opened on June 26, 2023, and maintained on the Thackeray Solutions platform; (ii) responses to the intellectual property diligence request list submitted by Calderwood & Harkness LLP ("C&H") on June 30, 2023; and (iii) supplemental information provided by Vectris's outside counsel, Whitfield, Prager & Loomis LLP (Catherine Whitfield), and Vectris's General Counsel, Rebecca Lau, during telephone conferences and in written correspondence through July 18, 2023.

II. Patent Portfolio Overview

A. Issued U.S. Patents

Portfolio Size. Vectris currently holds one hundred eighty-seven (187) issued U.S. patents. This is a substantial portfolio for a company of Vectris's size and vintage, reflecting the Company's sustained investment in research and development since its founding in 2012.

Ownership. All 187 issued U.S. patents are owned directly by Vectris Photonics, Inc. No patents are held by subsidiaries, affiliates, holding companies, or any other entity. The Company does not maintain any special-purpose IP holding company structures, and all patents are recorded in the name of Vectris Photonics, Inc. at the USPTO.

Technology Clusters. The patent portfolio spans several distinct but interrelated technology areas, reflecting the Company's vertically integrated design capabilities across the silicon photonics stack. The following table summarizes the approximate breakdown of issued patents by subject matter area:

The largest concentration of patents — approximately 78, or 41.7% of the portfolio — covers silicon photonics transceiver module technologies. These patents protect the Company's core product designs, including proprietary optical modulator architectures (Mach-Zehnder interferometer-based modulators and ring resonator-based modulators), germanium photodetector integration schemes, and novel waveguide structures that enable high-bandwidth optical signal transmission. This cluster of patents represents the foundation of Vectris's competitive advantage in the transceiver market and is directly relevant to the Company's revenue-generating product lines.

The second-largest cluster — approximately 52 patents, or 27.8% of the portfolio — covers co-packaged optics chiplet technologies. These patents address chip-to-chip optical interconnect architectures, advanced packaging methods for integrating photonic and electronic dies, and assembly techniques for CPO modules. This cluster is of particular strategic importance given the anticipated industry transition toward co-packaged optics in next-generation data center switches, a transition that Vectris is well-positioned to capitalize on and that is a key component of Halcyon's strategic rationale for the acquisition.

The Signal processing and electronic-photonic interface cluster — approximately 31 patents — covers the electronic components that interface with the photonic elements in Vectris's transceiver and CPO products, including driver circuit designs, transimpedance amplifier ("TIA") architectures, and clock-data recovery ("CDR") circuit topologies. Although Vectris is a fabless company and does not fabricate these circuits in-house, the Company's proprietary circuit designs are manufactured by contract foundries under Vectris's specifications and are protected by these patents.

The manufacturing and testing cluster — approximately 18 patents — covers wafer-level testing methodologies and optical alignment techniques developed by Vectris for use in its contract manufacturing processes. These patents, while smaller in number, provide meaningful competitive protection by enabling Vectris to achieve higher manufacturing yields and lower costs relative to competitors.

Priority Dates and Remaining Patent Life. The earliest priority dates in the portfolio trace to 2012, corresponding to foundational inventions made by Dr. Anand Raghavan (the Company's co-founder and Chief Technology Officer) and the Company's early engineering team at the time of Vectris's founding. The most recent patents in the portfolio were issued as recently as the second quarter of 2023. The majority of the patents in the portfolio were filed after 2015, resulting in an average remaining patent life of approximately twelve to fourteen (12–14) years. This is a favorable profile for an acquirer, as it ensures that the core patent protections will remain in force for the better part of the next decade and beyond, covering multiple product generation cycles.

Assignment Chain. We have reviewed the assignment chain for the issued patents in the portfolio. All patents were assigned from the individual inventors (employees of Vectris) to Vectris Photonics, Inc. pursuant to the Company's standard Confidentiality, Invention Assignment, and Non-Competition Agreements (discussed further in Section VI below). We confirmed the recording of these assignments in the USPTO assignment database. Based on our review, the chain of title from inventors to the Company appears complete and unbroken for all 187 issued patents. We did not identify any instances of missing assignments, defective assignment instruments, or disputes regarding inventorship.

Maintenance Fees. The Vectris IP department, through Rebecca Lau and the Company's patent prosecution firm (Whitfield, Prager & Loomis LLP), has confirmed that all required maintenance fees for the 187 issued U.S. patents are current through the most recent maintenance fee window. No patents in the portfolio have lapsed due to failure to pay maintenance fees. The Company utilizes an automated docketing system to track maintenance fee deadlines, and we have reviewed a summary of the maintenance fee status for the portfolio without identifying any deficiencies.

B. Pending U.S. Patent Applications

Application Count. Vectris currently has forty-three (43) pending U.S. patent applications at the USPTO. The following table summarizes the status breakdown of these applications:

The majority of pending applications (approximately 28) are in active prosecution before the USPTO, either awaiting an initial Office Action or responding to an outstanding Office Action. Four applications are at the appeal stage before the PTAB following final rejections, and Vectris's prosecution counsel has advised that these appeals present reasonable prospects for favorable outcomes based on the prosecution histories reviewed. Six provisional applications remain within their twelve-month priority window, and the Company intends to convert all six to non-provisional applications prior to expiration of the priority period.

Technology Coverage. The pending applications are concentrated in the Company's next-generation technology platforms, including: (i) next-generation co-packaged optics architectures (referred to internally as "CPO 2.0") designed for 51.2T switch ASIC integration; (ii) 1.6-terabit-per-second (1.6T) transceiver module architectures; and (iii) advanced photonic integration platform technologies that expand the Company's design capabilities to new modulation formats and wavelength-division multiplexing configurations.

Strategic Significance. The pending applications are of considerable strategic significance to the Transaction. These applications cover technologies expected to be critical for Vectris's upcoming product generations, which are currently in the development pipeline and anticipated to reach commercial production in 2025 and 2026. The conversion of these pending applications into issued patents will extend the Company's patent protection forward to cover the products that will drive revenue growth in the years following the Transaction's closing. We recommend that Halcyon monitor the prosecution status of these applications through closing and confirm that the Company continues to diligently prosecute all pending applications in the ordinary course.

C. Foreign Patents and Applications

Our review focused primarily on the Company's U.S. patent portfolio, as the U.S. market represents the Company's primary revenue-generating geography and the jurisdiction in which the majority of its customers operate. However, Vectris also holds corresponding patent families in several key international jurisdictions, including: the European Patent Office ("EPO"); Japan; South Korea; the People's Republic of China; and Taiwan (Republic of China).

Based on the data room index and summary information provided by Whitfield, Prager & Loomis LLP, the Company holds approximately ninety-five (95) issued foreign patents and approximately thirty (30) pending foreign patent applications across these jurisdictions. We have not yet performed a detailed claim-by-claim analysis of the foreign portfolio, and a supplemental memorandum addressing the foreign patent assets can be prepared if requested by the deal team.

We note that the foreign patent portfolio — and in particular the European patent coverage — is relevant to the Transaction for an additional reason beyond the standard valuation analysis. Halcyon's combined market share in the European Economic Area ("EEA") in the co-packaged optics chiplet market is estimated at approximately 38% following the acquisition. The European patent coverage held by Vectris may be a factor in assessing the combined entity's competitive position in the EEA and may also be relevant to the European Commission's review of the Transaction under the EU Merger Regulation, should such a review be initiated. We defer to the antitrust analysis prepared by Howard Bellamy on these matters (see the Antitrust Risk Assessment Memorandum dated July 10, 2023, Engagement 1032-00005).

D. Patent Prosecution and Reexamination Proceedings

Our review identified three active patent office proceedings affecting the Vectris portfolio: two inter partes review ("IPR") petitions pending before the PTAB and one ex parte reexamination proceeding at the USPTO. Each is summarized below.

IPR Proceeding No. 1 — Transceiver Module Patent. A competitor in the silicon photonics transceiver space filed a petition for inter partes review challenging certain claims of one of Vectris's issued transceiver module patents. The petition challenges the validity of claims directed to a specific optical modulator design feature used in Vectris's 400G transceiver product. As of the date of this memorandum, the PTAB has not yet issued an institution decision, and it remains possible that the petition will be denied. Vectris's patent prosecution counsel at Whitfield, Prager & Loomis LLP has filed a preliminary response opposing institution and has advised that the prior art cited in the petition does not, in their view, present a strong case for invalidity. We will continue to monitor this proceeding.

IPR Proceeding No. 2 — Waveguide Structure Patent. A second IPR petition, filed by a different party, challenges claims of one of Vectris's issued patents directed to a novel waveguide structure. In this proceeding, the PTAB has issued an institution decision and the trial has been instituted. A final written decision is expected in the first quarter of 2024. Vectris's counsel has indicated that the Company is actively defending the challenged claims and believes it has strong arguments for patentability over the cited prior art. However, given that the trial has been instituted, there is a non-trivial risk that some or all of the challenged claims could be found unpatentable in the final written decision.

Ex Parte Reexamination. One Vectris patent is subject to ex parte reexamination at the USPTO. The USPTO has issued a non-final Office Action in the reexamination, and Vectris has filed a response. The reexamination relates to a manufacturing process patent, and the examiner has raised questions regarding the novelty of certain claims in light of prior art not considered during original prosecution. Vectris's prosecution counsel has advised that they believe the Company's response adequately distinguishes the cited prior art and that the claims should be confirmed.

Risk Assessment. The three patents subject to the above proceedings represent a small fraction of the overall 187-patent portfolio. Even in the worst-case scenario — adverse outcomes in all three proceedings resulting in the cancellation or narrowing of the challenged claims — the impact on the portfolio's overall strategic value would be limited. None of the three patents are considered by the Company or its counsel to be "crown jewel" patents essential to the Company's core product lines, although they do provide supplementary protection in their respective technology areas. We recommend that these proceedings be disclosed in the Disclosure Schedules to the Merger Agreement and that the Merger Agreement include appropriate representations regarding the status and potential impact of these proceedings. We further recommend that Halcyon continue to receive periodic status updates on these proceedings through the closing of the Transaction.

III. Trademark and Trade Secret Considerations

A. Trademarks. Vectris owns registered United States trademarks for the following marks: "VECTRIS" (U.S. Reg. No. [registered with the USPTO in International Class 9 for semiconductor devices and optical transceivers]); "VECTRIS PHOTONICS" (U.S. Reg. No. [registered in International Classes 9 and 42]); and several product-line marks associated with specific transceiver and CPO product families marketed by the Company. We reviewed the registration certificates and maintenance filings for each of these marks. All registrations are current, and all required Sections 8 and 15 affidavits and Section 9 renewal applications have been timely filed with the USPTO as applicable.

We conducted a search of the Trademark Trial and Appeal Board ("TTAB") records and did not identify any pending opposition proceedings, cancellation proceedings, or other adversarial actions affecting any of the Company's registered trademarks. Similarly, no cease-and-desist letters or other third-party claims challenging the Company's use of its marks were identified in the data room materials or disclosed by the Company.

The Company also owns the domain names vectris.com and vectrisphotonics.com, both of which are registered in the name of Vectris Photonics, Inc. and are current through their respective renewal dates. No domain name disputes (including UDRP proceedings) are pending or have been identified.

The trademark portfolio, while not a primary driver of deal value relative to the patent portfolio, supports the Company's brand identity and market recognition in the silicon photonics industry and should be included in the intellectual property representations in the Merger Agreement.

B. Trade Secrets

Vectris maintains trade secret protections for range proprietary information that is not covered by its patent portfolio, including: (i) proprietary design methodologies for silicon photonics transceiver and CPO products; (ii) process recipes for silicon photonics fabrication, which are shared with the Company's contract foundry partners under strict confidentiality obligations; (iii) customer-specific performance specifications developed in collaboration with the Company's hyperscale cloud operator customers; and (iv) internal test algorithms and quality control methodologies used in the Company's wafer-level testing processes.

The Company has implemented a multi-layered trade secret protection framework consisting of the following elements:

• Employee Confidentiality and Invention Assignment Agreements. All employees of the Company are required to execute the Company's standard Confidentiality, Invention Assignment, and Non-Competition Agreement upon commencement of employment. These agreements include broad confidentiality obligations covering all proprietary information of the Company, including trade secrets. We have reviewed the template form of agreement and a sample of executed agreements for key technical personnel (see Section VI below for further discussion).

• Non-Disclosure Agreement Framework with Foundry Partners and Customers. The Company maintains a comprehensive non-disclosure agreement ("NDA") framework with its contract foundry partners, customers, and other third parties who receive access to confidential or proprietary information. We have reviewed the template NDA forms and a sample of executed NDAs and found them to contain standard and commercially reasonable confidentiality provisions, including obligations of non-use, non-disclosure, and return or destruction of confidential information upon termination.

• Physical and Electronic Access Controls. The Company maintains physical access controls (badge-entry systems, restricted areas for sensitive R&D activities) and electronic access controls (role-based access permissions, encryption of sensitive design files, monitoring of file access and downloads) to protect its trade secrets and proprietary information. While we did not conduct an independent audit of these controls, we reviewed the Company's information security policy documents provided in the data room and found them to be consistent with industry standards for a fabless semiconductor company of Vectris's size.

Key Risk — Foundry Relationships. As a fabless company, Vectris necessarily shares certain design files, process specifications, and fabrication recipes with its third-party contract foundry partners. This sharing creates an inherent risk that trade secrets could be misappropriated or inadvertently disclosed by foundry partners. Our review of the foundry agreements (discussed further in Section IV.B below in the context of the packaging technology cross-license) confirms that the Company has negotiated robust intellectual property ownership and confidentiality provisions in its foundry relationships, including: (i) clear provisions vesting ownership of all foreground IP in Vectris; (ii) limitations on the foundry's use of Vectris's confidential information solely for the purpose of manufacturing products on Vectris's behalf; and (iii) audit rights and breach remedies. While the risk of foundry-related trade secret misappropriation cannot be entirely eliminated, the contractual protections in place are commercially reasonable and consistent with market practice.

IV. License Agreements

A. License-In Agreements (Vectris as Licensee)

Vectris is a licensee under five material license-in agreements pursuant to which the Company holds rights to third-party intellectual property used in its products and business operations. Each agreement is summarized below.

License Agreement No. 1 — Core Photonic Platform License.

Vectris holds an exclusive field-of-use license from a university technology transfer office (the identity of which is subject to confidentiality restrictions but which is identified in the data room) for foundational silicon photonics waveguide technology. This license covers a suite of patents and know-how originating from university research conducted prior to the Company's founding and relates to fundamental waveguide structures and fabrication techniques that form the technological foundation of Vectris's silicon photonics platform.

The license is perpetual and fully paid-up, meaning no ongoing royalty or license fee obligations are owed by Vectris. The license is exclusive within the field of data center optical interconnects, which encompasses all of the Company's current and planned product lines. The university retains the right to license the same technology for uses outside the data center optical interconnect field (e.g., biomedical sensing, telecommunications outside data center environments).

Critically, this license agreement does not contain a change-of-control provision. The license is assignable by Vectris in connection with a merger, acquisition, or sale of substantially all of the Company's assets without the licensor's prior consent. This is a favorable feature for the Transaction, as it means that this foundational license will pass through the Transaction without any consent requirement.

We have confirmed that the license is in full force and effect, that all conditions to the grant of the license have been satisfied, and that Vectris is not in breach of any provision of the agreement.

License Agreement No. 2 — Electronic-Photonic Interface IP.

Vectris holds a non-exclusive license from a semiconductor intellectual property licensing company for certain serializer/deserializer ("SerDes") circuit design blocks used in the electronic-photonic interface components of Vectris's transceiver products. The licensed IP includes specific high-speed SerDes macro designs that Vectris incorporates into its transceiver ASICs.

This license is royalty-bearing, with a royalty rate in the low single-digit percentage range calculated on the net sales of Vectris products that incorporate the licensed SerDes design blocks. The license is for a defined term with automatic renewal provisions, and the Company has been making royalty payments under the agreement in the ordinary course.

Change-of-Control Provision. This agreement contains a change-of-control clause that is the most significant IP license risk identified in our review. The agreement provides that the license may not be assigned by the licensee (Vectris) without the prior written consent of the licensor, and further provides that a "change of control" of the licensee — defined to include a merger, consolidation, or acquisition of a majority of the licensee's voting securities — shall be deemed an "assignment" for purposes of the anti-assignment provision.

This provision presents a direct risk to the Transaction. In a forward triangular merger structure, where Vectris would merge into a Halcyon subsidiary and cease to exist, the assignment of the license to the surviving Halcyon subsidiary would clearly trigger the consent requirement. The Transaction is currently contemplated as a reverse triangular merger, in which a Halcyon acquisition subsidiary would merge with and into Vectris, with Vectris surviving as a wholly-owned subsidiary of Halcyon. Under this structure, Vectris would remain the licensee entity, which may provide an argument that no "assignment" has occurred. However, the contractual definition of "change of control" in the agreement is broad enough to encompass a change in the ownership of Vectris's voting securities — which will occur when Halcyon acquires 100% of Vectris's outstanding shares — regardless of whether the license itself is formally "assigned."

We recommend that Halcyon and Vectris initiate discussions with the licensor at the earliest practicable time to obtain the licensor's written consent to the Transaction. The loss of this license would require Vectris to either redesign its transceiver products to replace the licensed SerDes IP (a costly and time-consuming undertaking) or negotiate a new license on potentially less favorable terms. Coordination with Catherine Whitfield at Whitfield, Prager & Loomis LLP and Rebecca Lau at Vectris will be necessary to manage these discussions.

License Agreement No. 3 — Packaging Technology License.

Vectris is a party to a cross-license agreement with one of its major contract foundry partners covering advanced packaging methods used in the assembly and integration of photonic and electronic dies. Under this agreement, each party grants the other a non-exclusive, royalty-free license to use certain of the other party's patented packaging technologies in the manufacture and assembly of products.

The cross-license includes mutual grant-back provisions for improvements developed by either party during the term of the agreement. These grant-back provisions are limited to non-exclusive, royalty-free licenses, meaning that any improvements developed by Vectris remain the property of Vectris but are licensed back to the foundry partner for use in its own business.

We did not identify any change-of-control restriction in this agreement. The agreement is in full force and effect, and Vectris is not in breach of any provision.

License Agreement No. 4 — Standards-Essential Patents (SEPs).

Vectris is a licensee under fair, reasonable, and non-discriminatory ("FRAND") terms for certain standards-essential patents relating to Ethernet and optical networking standards (including relevant IEEE 802.3 and Optical Internetworking Forum specifications). These licenses are administered through a patent pool administrator and are available to all industry participants on non-exclusive, non-discriminatory terms.

The FRAND license is non-exclusive and non-transferable by its terms. However, because the license is available on FRAND terms to any willing licensee, the post-closing entity should be able to obtain a replacement or continuation of the FRAND license on equivalent terms. This is a standard industry arrangement and does not present a material risk to the Transaction.

License Agreement No. 5 — Testing and Measurement IP.

Vectris holds a non-exclusive license from a test equipment manufacturer for proprietary optical testing methodology used in the Company's wafer-level testing and quality assurance processes. The license is royalty-bearing, with a fixed annual fee payable by Vectris.

Change-of-Control Provision. This agreement contains a limited change-of-control provision granting the licensor a discretionary right to terminate the license on ninety (90) days' written notice following a "change of control" of the licensee. Unlike License Agreement No. 2, which requires affirmative consent, this provision gives the licensor a unilateral termination right that it may or may not choose to exercise.

The risk presented by this provision is lower than that presented by License Agreement No. 2 for several reasons. First, the scope of the licensed technology is narrower, relating specifically to testing methodology rather than core product design IP. Second, the Company has advised that alternative testing methodologies are available in the market, and the loss of this license, while inconvenient, would not prevent the Company from conducting its testing operations. Third, the licensor's exercise of its termination right is discretionary, and there may be commercial incentives for the licensor to maintain the relationship with the combined Halcyon/Vectris entity.

Nevertheless, this provision should be flagged in the Disclosure Schedules, and the deal team should assess whether to seek a waiver or standstill commitment from the licensor prior to closing.

B. License-Out Agreements (Vectris as Licensor)

Vectris has entered into three material license-out agreements pursuant to which the Company has granted rights in its own intellectual property to third parties. Each is summarized below.

License-Out Agreement No. 1 — Japanese Semiconductor Manufacturer (Automotive LiDAR).

Vectris has granted a non-exclusive license to a Japanese semiconductor manufacturer for certain Vectris transceiver module patents, restricted to the field of use of automotive light detection and ranging ("LiDAR") applications. The licensed field of use is outside Vectris's core data center market, and the license does not grant the licensee any rights to use the licensed patents in data center transceiver or CPO products.

The license is royalty-bearing, with a royalty rate in the mid-single-digit percentage range calculated on the licensee's net sales of products incorporating the licensed Vectris patents. The license has a five-year term with a renewal option exercisable by the licensee. This agreement generates a modest but recurring revenue stream for Vectris.

License-Out Agreement No. 2 — European Photonics Research Consortium.

Vectris has granted a limited, non-exclusive license to a European photonics research consortium for research and development purposes only. The license is royalty-free and does not grant the licensee any rights to commercial use, manufacture, sale, or distribution of products based on the licensed technology. This license was granted as part of the Company's participation in a collaborative research initiative and is not commercially significant.

License-Out Agreement No. 3 — Cross-License with Major U.S. Semiconductor Company.

Vectris is a party to a cross-license agreement with a major U.S. semiconductor company covering overlapping patent claims in optical modulator designs. Under this agreement, each party grants the other a non-exclusive, royalty-free license to practice certain of the other party's patents in the optical modulator space. The cross-license was entered into to resolve potential mutual infringement exposure and to allow both companies to operate freely in the overlapping technology area.

The cross-license includes a defensive termination clause, pursuant to which the license granted to either party automatically terminates if that party initiates patent infringement litigation against the other. This clause is designed to maintain the mutual non-aggression posture that underlies the cross-license and to deter either party from engaging in patent assertion activities against the other. This defensive termination feature is relevant to the freedom-to-operate analysis discussed in Section V below, as it may constrain the combined Halcyon/Vectris entity's ability to assert patents against the cross-license counterparty.

Revenue Impact. Total revenue from license-out agreements is immaterial relative to the Company's total revenue, estimated at less than $5 million annually. The license-out portfolio is not a significant revenue driver but does provide strategic benefits, including access to cross-licensed technology and goodwill with research and industry partners.

C. Change-of-Control Risk Summary

The following table summarizes the change-of-control provisions identified in the Company's license agreements:

Recommended Actions. With respect to License-In No. 2 (SerDes IP), we recommend that Halcyon and Vectris seek the licensor's pre-signing or pre-closing written consent to the Transaction. In the alternative, if consent cannot be obtained prior to signing, the Merger Agreement should include the licensor's consent as a closing condition. The deal team should also analyze whether the reverse triangular merger structure — under which Vectris survives as the licensee entity — constitutes an "assignment" under the specific contractual language, and whether this argument could be used as a fallback position.

With respect to License-In No. 5 (Testing IP), we recommend that the deal team assess the materiality of the license and determine whether to seek a licensor waiver or accept the risk. Given the lower risk profile and the availability of alternative testing methodologies, a decision to accept the risk may be appropriate, provided the risk is properly disclosed and reflected in the Merger Agreement's representations and Disclosure Schedules.

No license-out agreements contain material change-of-control restrictions that would impair post-closing operations of the combined entity.

V. Freedom-to-Operate Analysis

A. Scope and Methodology

Calderwood & Harkness coordinated with Vectris's outside patent counsel at Whitfield, Prager & Loomis LLP and reviewed the Company's internal freedom-to-operate ("FTO") studies conducted within the last eighteen (18) months. These studies were prepared by the Company's IP department under the direction of Rebecca Lau and the Company's Vice President of intellectual Property, in coordination with outside patent counsel.

The FTO analysis focused on the Company's principal revenue-generating product lines: (i) the 400-gigabit-per-second (400G) and 800-gigabit-per-second (800G) silicon photonics transceiver modules; and (ii) the Company's first-generation co-packaged optics chiplets. The analysis involved a comprehensive search of relevant patent databases — including the USPTO full-text and image databases, the European Patent Register, and the WIPO PatentScope database — for third-party patents that may be implicated by the design, manufacture, use, sale, or importation of Vectris's current and planned products. The search was supplemented by a review of patent portfolios held by known competitors in the silicon photonics and co-packaged optics spaces.

We note that a freedom-to-operate analysis is inherently limited in its scope and cannot guarantee the absence of infringement risk. The analysis is based on publicly available patent information as of the date of the review and does not account for unpublished patent applications, future patent grants, or changes in claim interpretation that may arise through litigation or patent office proceedings. Subject to these limitations, the FTO analysis provides a reasonable assessment of the Company's infringement risk profile as of the date of this memorandum.

B. Key Findings

Low-Risk Areas. The FTO analysis found that Vectris's core waveguide and optical modulator designs present a low risk of third-party infringement claims. This finding is supported by two factors. First, the Company's own patent portfolio provides strong coverage of its proprietary waveguide and modulator architectures, indicating that the Company has been the innovator in these technology areas and has secured patent protection for its own designs. Second, the exclusive field-of-use license from the university technology transfer office (License-In No. 1) provides a solid foundation of licensed rights for the Company's use of the foundational waveguide technologies that underpin its product designs. Together, the Company's owned patents and the university license create a robust freedom-to-operate position in the core transceiver technology area.

Moderate-Risk Area — Competitor CPO Patent Family. The FTO analysis identified one area of moderate risk. A competitor in the co-packaged optics space holds a patent family consisting of approximately six (6) patents covering certain co-packaged optics assembly methods. The claims in this patent family may overlap with assembly techniques used in Vectris's latest-generation CPO product, which employs a novel die-bonding and optical alignment process for integrating photonic and electronic chiplets.

Vectris's internal FTO analysis, prepared by the Company's IP department with the assistance of outside counsel, concludes that the claims of the competitor's patents are distinguishable from Vectris's CPO assembly process based on structural differences in the packaging architecture and the specific alignment methodology employed. However, this conclusion has not been tested in litigation, and there is inherent uncertainty in any pre-litigation claim comparison.

Several factors mitigate the risk presented by this patent family:

(a) Counter-Assertion Leverage. Vectris holds its own substantial patent portfolio in the co-packaged optics space (approximately 52 patents), which could be used as counter-assertion leverage in the event the competitor were to initiate patent infringement litigation against Vectris. The availability of counter-assertion patents significantly increases the cost and risk to the competitor of pursuing litigation and creates incentives for a negotiated resolution.

(b) Partial Coverage Under Cross-License. The cross-license agreement with the major U.S. semiconductor company (License-Out No. 3) may provide partial coverage for the identified risk, depending on the scope of the cross-licensed claims and whether the competitor's patents fall within the scope of the cross-license. This requires further analysis.

(c) Design-Around Potential. Vectris's engineering team has advised that alternative assembly methods exist that could be employed in future product generations to avoid the claims of the competitor's patents, if necessary. While a design-around would entail some engineering cost and schedule impact, it would not fundamentally impair the Company's ability to compete in the CPO market.

Recommendation. We recommend that Halcyon engage patent litigation specialists to perform a detailed claim-by-claim analysis of the competitor's patent family against the specific features of Vectris's CPO assembly process. This analysis should assess both the risk of infringement and the validity of the competitor's patents (including potential invalidity arguments based on prior art). The findings of this analysis should inform the indemnification provisions in the Merger Agreement and the scope of any specific indemnity for FTO-related claims.

Standards Compliance. Vectris's products comply with relevant industry standards, including IEEE 802.3 (Ethernet) and Optical Internetworking Forum ("OIF") specifications for optical transceivers. The Company's FRAND-licensed standards-essential patents (License-In No. 4) provide coverage for standards-related functionality, and the Company has not received any assertions from SEP holders alleging that the Company's FRAND license is insufficient or that the Company is practicing unlicensed standards-essential patents.

Prior Litigation. Vectris is not currently a defendant in any pending patent infringement litigation. The Company was previously named as a defendant in one patent infringement suit filed in 2019 by a non-practicing entity ("NPE") in the United States District Court for the Eastern District of Texas. The suit alleged infringement of two patents relating to optical modulator control circuits. The matter was settled in 2021 on mutually favorable terms. The settlement included a non-exclusive, royalty-bearing cross-license between the parties, and all financial obligations under the settlement have been satisfied. There are no ongoing financial obligations, and the settlement agreement does not contain any provisions that would restrict Vectris's business operations or technology development activities.

C. Post-Acquisition FTO Considerations

Following the closing of the Transaction, the combined Halcyon/Vectris entity will hold a substantially larger patent portfolio and will benefit from a significantly stronger defensive patent position. Halcyon's existing patent holdings in the broader semiconductor space, combined with Vectris's focused silicon photonics portfolio, will create a combined portfolio that enhances the entity's ability to deter patent assertions by competitors and to negotiate favorable cross-license arrangements.

However, we note that the post-acquisition FTO analysis must also account for Halcyon's existing IP obligations. Halcyon's existing silicon photonics product line — which, according to the U.S. Department of Justice's preliminary competitive analysis, contributes to approximately 19% U.S. market share in the relevant product market — may already be subject to certain third-party license obligations, including field-of-use restrictions, royalty obligations, or non-assertion covenants. We recommend that the deal team coordinate with Halcyon's internal IP team and Halcyon's auditors at Thornbury Wight LLP (Gavin Ashmore) to cross-check Halcyon's existing IP obligations against Vectris's license agreements. The purpose of this cross-check is to identify any conflicts or overlapping obligations that could arise when the two companies' IP portfolios and license agreements are combined under common ownership.

We note that this memorandum does not address the antitrust implications of the combined patent portfolio. Antitrust considerations, including the potential for the combined entity's patent portfolio to create barriers to entry or to be perceived as anti-competitive by regulatory authorities, are addressed separately in the Antitrust Risk Assessment Memorandum prepared by Howard Bellamy and dated July 10, 2023 (Engagement 1032-00005).

VI. IP Assignment and Employee Invention Matters

A secure chain of title from the individual inventors who created the Company's intellectual property to the Company itself is a foundational requirement for any IP-intensive acquisition. We have reviewed the Company's practices and documentation in this area and summarize our findings below.

Standard Employee Agreements. Vectris uses a standard form Confidentiality, Invention Assignment, and Non-Competition Agreement (the "CIAA") for all employees. The CIAA requires employees to: (i) maintain the confidentiality of all Company proprietary information during and after their employment; (ii) assign to the Company all inventions, discoveries, improvements, and other intellectual property conceived or reduced to practice during the course of employment or using Company resources; and (iii) refrain from competing with the Company during employment and for a specified period following termination.

We reviewed the template CIAA and confirmed that the invention assignment provisions are broadly drafted to cover all intellectual property created by employees in connection with their employment, including patentable inventions, trade secrets, copyrightable works, and other proprietary information. The assignment provisions include a present-tense assignment (i.e., an assignment that operates to vest ownership in the Company at the time the intellectual property is created, rather than requiring a subsequent assignment instrument) and a power-of-attorney provision authorizing the Company to execute assignment documents on the employee's behalf.

Key Personnel Agreements. We reviewed executed CIAAs for the following key technical personnel:

• Dr. Anand Raghavan, Co-Founder and Chief Technology Officer. Dr. Raghavan, who holds a Ph.D. in Electrical Engineering from Stanford University, is the Company's principal inventor and a named inventor on a substantial majority of the Company's earliest patents. Dr. Raghavan's original invention assignment agreement was executed at the time of the Company's founding in 2012. We have confirmed that the agreement assigns all of Dr. Raghavan's intellectual property to Vectris without any retained rights, carve-outs, or limitations. There are no provisions in the agreement reserving any pre-existing IP to Dr. Raghavan, and Dr. Raghavan has not claimed any exclusions on the agreement's scheduled list of prior inventions.

• Margaret Sørensen, Vice President of Engineering. Ms. Sørensen is a named inventor on multiple patents in the co-packaged optics portfolio and leads the Company's CPO product development team. Her CIAA was executed upon her hiring and contains standard terms without modification.

• Senior Engineering Leads. We reviewed executed CIAAs for approximately fifteen additional senior engineering leads across the Company's transceiver, CPO, signal processing, and manufacturing engineering teams. All agreements were found to be in standard form and properly executed.

California Labor Code Considerations. We note that California Labor Code Section 2870 limits the enforceability of employee invention assignment agreements to the extent they purport to require assignment of inventions that were developed entirely on the employee's own time, without the use of Company resources, and that do not relate to the Company's business or anticipated research and development. Vectris's CIAA contains a carve-out acknowledging this statutory limitation, which is consistent with California law requirements. Additionally, the non-competition provisions in the CIAA may not be enforceable under California Business and Professions Code Section 16600, which generally prohibits non-competition covenants in the employment context. However, the invention assignment and confidentiality provisions of the CIAA remain generally enforceable under California law and are not affected by the non-competition limitations.

Post-Closing Non-Competition. The deal terms currently contemplate a three-year post-closing non-competition and non-solicitation covenant for the Vectris founders (including Dr. Raghavan). These covenants, entered into in connection with the sale of a business (as distinct from employment-related non-competes), are generally enforceable under California law pursuant to Business and Professions Code Section 16601, provided they are reasonable in scope and duration and are entered into in connection with the sale of the goodwill of a business. We recommend that the non-competition covenants be drafted to comply with the requirements of Section 16601 and any applicable case law.

Consultant and Contractor Agreements. The Company has engaged independent contractors and consultants from time to time to supplement its engineering capabilities. We reviewed a sample of the Company's independent contractor and consulting agreements and confirmed that all such agreements include intellectual property assignment provisions that vest ownership of all work product and inventions created by the contractor in Vectris. The assignment provisions are broadly drafted and include present-tense assignment language and power-of-attorney provisions consistent with the employee CIAA.

Chain of Title. Based on our review of the employee CIAAs, contractor agreements, and USPTO assignment records, we have not identified any gaps in the chain of title from inventors and contractors to Vectris Photonics, Inc. for the 187 issued U.S. patents in the portfolio. All assignments appear to have been properly executed, recorded, and documented.

VII. IP Encumbrances and Security Interests

An essential component of IP due diligence is confirming that the target's intellectual property assets are free and clear of liens, security interests, pledges, and other encumbrances that could impair the buyer's post-closing rights.

UCC-1 Search. We conducted Uniform Commercial Code ("UCC") lien searches against Vectris Photonics, Inc. in both the State of Delaware (the Company's state of incorporation) and the State of California (the Company's principal place of business). The searches did not identify any UCC-1 financing statements or other filings reflecting security interests against the Company's intellectual property assets.

Absence of Liens and Encumbrances. Based on our review of the data room documents, the UCC searches, and the Company's representations, we have not identified any liens, pledges, mortgages, security interests, or other encumbrances on the Company's patent portfolio, trademark registrations, trade secrets, or other intellectual property assets.

Equity Investor IP Rights. Vectris's principal institutional equity investors — Granite Peak Ventures Fund IV, L.P. (holding approximately 22.7% of the Company's outstanding common stock) and Nordhaven Capital Partners III, L.P. (holding approximately 14.5% of the Company's outstanding common stock) — do not hold any security interests in the Company's intellectual property. We reviewed the relevant equity investment documents (including the Series B and Series C preferred stock purchase agreements, the investors' rights agreement, and the right of first refusal and co-sale agreement) and confirmed that none of these documents grant the investors any security interest, lien, or other encumbrance on the Company's IP assets. The investors' rights agreement includes customary information rights, registration rights, and board observer rights, but does not include any IP-related covenants or restrictions that would affect the Transaction.

Post-Closing Buyer Protections. The Transaction contemplates the following buyer-side protections against potential IP-related breaches of representations and warranties:

(a) Escrow Arrangement. Forty Million Dollars ($40,000,000) of the total purchase price will be deposited into an escrow account held by Ironclad National Bank, N.A. (escrow officer: Thomas Hargreaves) for a period of eighteen (18) months following the closing of the Transaction. The escrowed funds will be available to satisfy indemnification claims by Halcyon arising from breaches of the seller's representations and warranties, including IP-related representations.

(b) Indemnification Cap. The Merger Agreement will include a general indemnification cap of One Hundred Twenty Million Dollars ($120,000,000), representing 15% of the $800,000,000 deal value. IP-related breaches of representations will be covered by this general cap.

(c) R&W Insurance. A representations and warranties insurance policy (the "R&W Policy") has been quoted by Pinnacle Specialty Underwriters, Ltd. through Atlas Transactional Insurance Group, Inc. (broker contact: Martin Cavallo). The R&W Policy will provide a policy limit of One Hundred Twenty Million Dollars ($120,000,000) and has been quoted at a premium of Three Million Three Hundred Sixty Thousand Dollars ($3,360,000). The R&W Policy is expected to provide additional buy-side protection for IP representation breaches, subject to the policy's terms, conditions, and exclusions.

These protections, taken together, provide Halcyon with a robust framework for addressing IP-related risks that may materialize after closing.

VIII. Recommended IP Representations and Warranties for the Merger Agreement

Based on the findings of our due diligence review, we set forth below our recommended intellectual property representations and warranties for inclusion in the Merger Agreement, together with recommended qualifications and carveouts and indemnification coverage.

A. Proposed Representations by Vectris

We recommend that the following representations be made by the Company in the Merger Agreement:

1. Ownership. The Company is the sole and exclusive owner of all Company intellectual Property (as defined in the Merger Agreement), free and clear of all liens, encumbrances, pledges, security interests, claims, licenses, and other restrictions (other than Permitted Encumbrances, as defined in the Merger Agreement, and the license-out agreements disclosed on Schedule 3.10). The Company has good and valid title to all Company-owned patents, patent applications, trademark registrations, and other registered intellectual property.

2. Validity and Enforceability. To the Knowledge of the Company, all issued patents included in the Company intellectual Property are valid and enforceable. Except as set forth on Schedule 3.10 (which shall disclose the two IPR proceedings and one ex parte reexamination proceeding described in this memorandum), there are no pending or, to the Knowledge of the Company, threatened proceedings before any court, arbitral tribunal, administrative agency, or patent office challenging the validity, enforceability, or patentability of any Company-owned patent or patent application.

3. Non-Infringement (Outbound). The conduct of the Company's business as currently conducted and as currently proposed to be conducted does not infringe, misappropriate, or otherwise violate any intellectual property rights of any third party in any material respect. No claim or action alleging such infringement, misappropriation, or violation is pending against the Company, and no such claim or action has been threatened in writing against the Company, except as set forth on Schedule 3.10.

4. Non-Infringement (Inbound). To the Knowledge of the Company, no third party is currently infringing, misappropriating, or otherwise violating any Company intellectual Property in any material respect. The Company has not asserted or threatened in writing any claim against any third party alleging infringement, misappropriation, or violation of any Company intellectual Property, except as set forth on Schedule 3.10.

5. License Agreements. Schedule 3.10 sets forth a complete and accurate list of all material license-in and license-out agreements to which the Company is a party. Each such agreement is in full force and effect and constitutes a legal, valid, and binding obligation of the Company and, to the Knowledge of the Company, of each other party thereto. The Company is not in material breach or default of any such agreement, and no event has occurred that, with the giving of notice or the lapse of time, would constitute such a breach or default.

6. Change-of-Control Consents. Schedule 3.10 identifies all license agreements and other contracts relating to Company intellectual Property that require the consent or approval of, or the delivery of notice to, any third party in connection with the consummation of the transactions contemplated by the Merger Agreement. Without limiting the foregoing, License-In Agreement No. 2 (Electronic-Photonic Interface IP) and License-In Agreement No. 5 (Testing and Measurement IP) are identified as requiring such consent or notice.

7. Employee IP Assignments. All current and former employees, independent contractors, and consultants of the Company who have contributed to the conception, creation, development, or reduction to practice of any Company intellectual Property have executed valid and enforceable written agreements assigning to the Company all right, title, and interest in and to such intellectual property. No such person has any claim, right, or interest in or to any Company intellectual Property, except as set forth in such assignment agreements.

8. No Pending Claims. Except as set forth on Schedule 3.10 (which shall disclose the prior 2019 patent infringement litigation settled in 2021, the two pending IPR proceedings, and the pending ex parte reexamination), there is no action, suit, proceeding, investigation, or claim pending or, to the Knowledge of the Company, threatened against the Company relating to the Company intellectual Property, including any claim of infringement, misappropriation, or violation of any third-party intellectual property rights.

9. Maintenance. All required maintenance fees, annuity payments, renewal fees, and other payments necessary to maintain the Company's issued patents, pending patent applications, and trademark registrations in full force and effect have been timely paid, and no patent, patent application, or trademark registration has lapsed, been abandoned, or been cancelled due to the Company's failure to make such payments.

10. Trade Secrets. The Company has taken commercially reasonable steps to maintain the confidential

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Oliver Mackenzie, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP Dr. Luisa Hartmann, General Counsel, Halcyon Semiconductor Aktiengesellschaft
FROM: Tiffany Rosenthal, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
DATE: July 21, 2023
RE: intellectual Property Due Diligence — Vectris Photonics, Inc. Patent Portfolio and License Agreements
ENGAGEMENT: 1032-00005 (Halcyon Semiconductor AG — Proposed Acquisition of Vectris Photonics, Inc.)
I. Executive Summary
The purpose of this memorandum is to present the findings of our intellectual property due diligence review of Vectris Photonics, Inc. ("Vectris" or the "Company") in connection with the proposed all-cash acquisition of Vectris by Halcyon Semiconductor Aktiengesellschaft ("Halcyon" or the "Buyer") for a total enterprise value of Eight Hundred Million Dollars ($800,000,000) (the "Transaction"). This memorandum is intended to inform the deal team's assessment of the intellectual property assets that are central to the Transaction's value proposition and to identify risk areas that should be addressed in the definitive Merger Agreement and related transaction documents.
Scope of Review. Our review encompassed the following categories of intellectual property and related matters: (i) the Company's issued patent portfolio and pending patent applications; (ii) trademark registrations and related brand assets; (iii) trade secret protections and related policies; (iv) key license-in agreements pursuant to which Vectris holds rights to third-party intellectual property; (v) license-out agreements pursuant to which Vectris has granted rights in its own intellectual property to third parties; (vi) freedom-to-operate considerations with respect to the Company's principal product lines; (vii) IP-related litigation, inter partes review proceedings, and reexamination proceedings; (viii) employee invention assignment and confidentiality matters; (ix) IP encumbrances and security interests; and (x) recommended intellectual property representations and warranties for inclusion in the Merger Agreement.
Company Overview. Vectris Photonics, Inc. is a Delaware C-corporation (Delaware Secretary of State File No. 5918437) headquartered at 4750 Ridgepoint Drive, Suite 300, San Jose, California 95134. The Company operates as a fabless designer and supplier of silicon photonics transceivers and co-packaged optics ("CPO") chiplets primarily serving the hyperscale data center interconnect market. Vectris's customer base includes three of the top five U.S. hyperscale cloud operators, and the Company has established itself as a leading innovator in optical interconnect technologies for high-bandwidth data center applications. For fiscal year 2022, Vectris reported revenue of approximately $312 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $74 million. The Company employs approximately 1,450 persons.
Key Finding — Patent Portfolio. Vectris holds a substantial and strategically significant patent portfolio consisting of one hundred eighty-seven (187) issued U.S. patents and forty-three (43) pending U.S. patent applications, concentrated in silicon photonics transceiver and co-packaged optics technologies. The portfolio is a core driver of the Transaction's value proposition. At the proposed acquisition price of $800 million, the Transaction implies an enterprise value-to-revenue multiple of approximately 2.6x and an enterprise value-to-EBITDA multiple of approximately 10.8x. These multiples reflect, in significant part, the strategic value of the Company's intellectual property assets, which underpin Vectris's competitive position with its hyperscale cloud operator customer base and provide barriers to entry against competing silicon photonics platforms.
Key Risk Areas. Our review has identified the following principal risk areas requiring attention:
• Change-of-Control Provisions in License-In Agreements. Two of the Company's five material license-in agreements contain change-of-control provisions that could be triggered by the Transaction. One of these agreements (License-In No. 2, covering serializer/deserializer circuit design blocks) requires the licensor's prior written consent for assignment, and the other (License-In No. 5, covering optical testing methodology) grants the licensor a discretionary right to terminate on ninety (90) days' notice following a change of control. These provisions require proactive engagement with the respective licensors prior to signing or closing of the Transaction.
• Pending Reexamination and Inter Partes Review Proceedings. Two inter partes review ("IPR") petitions are currently pending before the Patent Trial and Appeal Board ("PTAB"), and one patent is subject to ex parte reexamination at the U.S. Patent and Trademark Office ("USPTO"). The patents under challenge represent a small fraction of the overall portfolio, and even adverse outcomes on all three proceedings would not, in our assessment, materially diminish the portfolio's strategic value. These proceedings should, however, be disclosed in the Disclosure Schedules and monitored through closing.
• Freedom-to-Operate Exposure. Our freedom-to-operate analysis has identified one patent family held by a competitor covering certain co-packaged optics assembly methods that may overlap with Vectris's latest-generation CPO product. While Vectris's internal analysis concludes the claims are distinguishable, this conclusion has not been tested in litigation. Further technical analysis by patent litigation specialists is recommended.
Materials Reviewed. In preparing this memorandum, we reviewed the following categories of materials: (i) documents uploaded to the virtual data room (the "VDR") opened on June 26, 2023, and maintained on the Thackeray Solutions platform; (ii) responses to the intellectual property diligence request list submitted by Calderwood & Harkness LLP ("C&H") on June 30, 2023; and (iii) supplemental information provided by Vectris's outside counsel, Whitfield, Prager & Loomis LLP (Catherine Whitfield), and Vectris's General Counsel, Rebecca Lau, during telephone conferences and in written correspondence through July 18, 2023.
II. Patent Portfolio Overview
A. Issued U.S. Patents
Portfolio Size. Vectris currently holds one hundred eighty-seven (187) issued U.S. patents. This is a substantial portfolio for a company of Vectris's size and vintage, reflecting the Company's sustained investment in research and development since its founding in 2012.
Ownership. All 187 issued U.S. patents are owned directly by Vectris Photonics, Inc. No patents are held by subsidiaries, affiliates, holding companies, or any other entity. The Company does not maintain any special-purpose IP holding company structures, and all patents are recorded in the name of Vectris Photonics, Inc. at the USPTO.
Technology Clusters. The patent portfolio spans several distinct but interrelated technology areas, reflecting the Company's vertically integrated design capabilities across the silicon photonics stack. The following table summarizes the approximate breakdown of issued patents by subject matter area:
The largest concentration of patents — approximately 78, or 41.7% of the portfolio — covers silicon photonics transceiver module technologies. These patents protect the Company's core product designs, including proprietary optical modulator architectures (Mach-Zehnder interferometer-based modulators and ring resonator-based modulators), germanium photodetector integration schemes, and novel waveguide structures that enable high-bandwidth optical signal transmission. This cluster of patents represents the foundation of Vectris's competitive advantage in the transceiver market and is directly relevant to the Company's revenue-generating product lines.
The second-largest cluster — approximately 52 patents, or 27.8% of the portfolio — covers co-packaged optics chiplet technologies. These patents address chip-to-chip optical interconnect architectures, advanced packaging methods for integrating photonic and electronic dies, and assembly techniques for CPO modules. This cluster is of particular strategic importance given the anticipated industry transition toward co-packaged optics in next-generation data center switches, a transition that Vectris is well-positioned to capitalize on and that is a key component of Halcyon's strategic rationale for the acquisition.
The Signal processing and electronic-photonic interface cluster — approximately 31 patents — covers the electronic components that interface with the photonic elements in Vectris's transceiver and CPO products, including driver circuit designs, transimpedance amplifier ("TIA") architectures, and clock-data recovery ("CDR") circuit topologies. Although Vectris is a fabless company and does not fabricate these circuits in-house, the Company's proprietary circuit designs are manufactured by contract foundries under Vectris's specifications and are protected by these patents.
The manufacturing and testing cluster — approximately 18 patents — covers wafer-level testing methodologies and optical alignment techniques developed by Vectris for use in its contract manufacturing processes. These patents, while smaller in number, provide meaningful competitive protection by enabling Vectris to achieve higher manufacturing yields and lower costs relative to competitors.
Priority Dates and Remaining Patent Life. The earliest priority dates in the portfolio trace to 2012, corresponding to foundational inventions made by Dr. Anand Raghavan (the Company's co-founder and Chief Technology Officer) and the Company's early engineering team at the time of Vectris's founding. The most recent patents in the portfolio were issued as recently as the second quarter of 2023. The majority of the patents in the portfolio were filed after 2015, resulting in an average remaining patent life of approximately twelve to fourteen (12–14) years. This is a favorable profile for an acquirer, as it ensures that the core patent protections will remain in force for the better part of the next decade and beyond, covering multiple product generation cycles.
Assignment Chain. We have reviewed the assignment chain for the issued patents in the portfolio. All patents were assigned from the individual inventors (employees of Vectris) to Vectris Photonics, Inc. pursuant to the Company's standard Confidentiality, Invention Assignment, and Non-Competition Agreements (discussed further in Section VI below). We confirmed the recording of these assignments in the USPTO assignment database. Based on our review, the chain of title from inventors to the Company appears complete and unbroken for all 187 issued patents. We did not identify any instances of missing assignments, defective assignment instruments, or disputes regarding inventorship.
Maintenance Fees. The Vectris IP department, through Rebecca Lau and the Company's patent prosecution firm (Whitfield, Prager & Loomis LLP), has confirmed that all required maintenance fees for the 187 issued U.S. patents are current through the most recent maintenance fee window. No patents in the portfolio have lapsed due to failure to pay maintenance fees. The Company utilizes an automated docketing system to track maintenance fee deadlines, and we have reviewed a summary of the maintenance fee status for the portfolio without identifying any deficiencies.
B. Pending U.S. Patent Applications
Application Count. Vectris currently has forty-three (43) pending U.S. patent applications at the USPTO. The following table summarizes the status breakdown of these applications:
The majority of pending applications (approximately 28) are in active prosecution before the USPTO, either awaiting an initial Office Action or responding to an outstanding Office Action. Four applications are at the appeal stage before the PTAB following final rejections, and Vectris's prosecution counsel has advised that these appeals present reasonable prospects for favorable outcomes based on the prosecution histories reviewed. Six provisional applications remain within their twelve-month priority window, and the Company intends to convert all six to non-provisional applications prior to expiration of the priority period.
Technology Coverage. The pending applications are concentrated in the Company's next-generation technology platforms, including: (i) next-generation co-packaged optics architectures (referred to internally as "CPO 2.0") designed for 51.2T switch ASIC integration; (ii) 1.6-terabit-per-second (1.6T) transceiver module architectures; and (iii) advanced photonic integration platform technologies that expand the Company's design capabilities to new modulation formats and wavelength-division multiplexing configurations.
Strategic Significance. The pending applications are of considerable strategic significance to the Transaction. These applications cover technologies expected to be critical for Vectris's upcoming product generations, which are currently in the development pipeline and anticipated to reach commercial production in 2025 and 2026. The conversion of these pending applications into issued patents will extend the Company's patent protection forward to cover the products that will drive revenue growth in the years following the Transaction's closing. We recommend that Halcyon monitor the prosecution status of these applications through closing and confirm that the Company continues to diligently prosecute all pending applications in the ordinary course.
C. Foreign Patents and Applications
Our review focused primarily on the Company's U.S. patent portfolio, as the U.S. market represents the Company's primary revenue-generating geography and the jurisdiction in which the majority of its customers operate. However, Vectris also holds corresponding patent families in several key international jurisdictions, including: the European Patent Office ("EPO"); Japan; South Korea; the People's Republic of China; and Taiwan (Republic of China).
Based on the data room index and summary information provided by Whitfield, Prager & Loomis LLP, the Company holds approximately ninety-five (95) issued foreign patents and approximately thirty (30) pending foreign patent applications across these jurisdictions. We have not yet performed a detailed claim-by-claim analysis of the foreign portfolio, and a supplemental memorandum addressing the foreign patent assets can be prepared if requested by the deal team.
We note that the foreign patent portfolio — and in particular the European patent coverage — is relevant to the Transaction for an additional reason beyond the standard valuation analysis. Halcyon's combined market share in the European Economic Area ("EEA") in the co-packaged optics chiplet market is estimated at approximately 38% following the acquisition. The European patent coverage held by Vectris may be a factor in assessing the combined entity's competitive position in the EEA and may also be relevant to the European Commission's review of the Transaction under the EU Merger Regulation, should such a review be initiated. We defer to the antitrust analysis prepared by Howard Bellamy on these matters (see the Antitrust Risk Assessment Memorandum dated July 10, 2023, Engagement 1032-00005).
D. Patent Prosecution and Reexamination Proceedings
Our review identified three active patent office proceedings affecting the Vectris portfolio: two inter partes review ("IPR") petitions pending before the PTAB and one ex parte reexamination proceeding at the USPTO. Each is summarized below.
IPR Proceeding No. 1 — Transceiver Module Patent. A competitor in the silicon photonics transceiver space filed a petition for inter partes review challenging certain claims of one of Vectris's issued transceiver module patents. The petition challenges the validity of claims directed to a specific optical modulator design feature used in Vectris's 400G transceiver product. As of the date of this memorandum, the PTAB has not yet issued an institution decision, and it remains possible that the petition will be denied. Vectris's patent prosecution counsel at Whitfield, Prager & Loomis LLP has filed a preliminary response opposing institution and has advised that the prior art cited in the petition does not, in their view, present a strong case for invalidity. We will continue to monitor this proceeding.
IPR Proceeding No. 2 — Waveguide Structure Patent. A second IPR petition, filed by a different party, challenges claims of one of Vectris's issued patents directed to a novel waveguide structure. In this proceeding, the PTAB has issued an institution decision and the trial has been instituted. A final written decision is expected in the first quarter of 2024. Vectris's counsel has indicated that the Company is actively defending the challenged claims and believes it has strong arguments for patentability over the cited prior art. However, given that the trial has been instituted, there is a non-trivial risk that some or all of the challenged claims could be found unpatentable in the final written decision.
Ex Parte Reexamination. One Vectris patent is subject to ex parte reexamination at the USPTO. The USPTO has issued a non-final Office Action in the reexamination, and Vectris has filed a response. The reexamination relates to a manufacturing process patent, and the examiner has raised questions regarding the novelty of certain claims in light of prior art not considered during original prosecution. Vectris's prosecution counsel has advised that they believe the Company's response adequately distinguishes the cited prior art and that the claims should be confirmed.
Risk Assessment. The three patents subject to the above proceedings represent a small fraction of the overall 187-patent portfolio. Even in the worst-case scenario — adverse outcomes in all three proceedings resulting in the cancellation or narrowing of the challenged claims — the impact on the portfolio's overall strategic value would be limited. None of the three patents are considered by the Company or its counsel to be "crown jewel" patents essential to the Company's core product lines, although they do provide supplementary protection in their respective technology areas. We recommend that these proceedings be disclosed in the Disclosure Schedules to the Merger Agreement and that the Merger Agreement include appropriate representations regarding the status and potential impact of these proceedings. We further recommend that Halcyon continue to receive periodic status updates on these proceedings through the closing of the Transaction.
III. Trademark and Trade Secret Considerations
A. Trademarks. Vectris owns registered United States trademarks for the following marks: "VECTRIS" (U.S. Reg. No. [registered with the USPTO in International Class 9 for semiconductor devices and optical transceivers]); "VECTRIS PHOTONICS" (U.S. Reg. No. [registered in International Classes 9 and 42]); and several product-line marks associated with specific transceiver and CPO product families marketed by the Company. We reviewed the registration certificates and maintenance filings for each of these marks. All registrations are current, and all required Sections 8 and 15 affidavits and Section 9 renewal applications have been timely filed with the USPTO as applicable.
We conducted a search of the Trademark Trial and Appeal Board ("TTAB") records and did not identify any pending opposition proceedings, cancellation proceedings, or other adversarial actions affecting any of the Company's registered trademarks. Similarly, no cease-and-desist letters or other third-party claims challenging the Company's use of its marks were identified in the data room materials or disclosed by the Company.
The Company also owns the domain names vectris.com and vectrisphotonics.com, both of which are registered in the name of Vectris Photonics, Inc. and are current through their respective renewal dates. No domain name disputes (including UDRP proceedings) are pending or have been identified.
The trademark portfolio, while not a primary driver of deal value relative to the patent portfolio, supports the Company's brand identity and market recognition in the silicon photonics industry and should be included in the intellectual property representations in the Merger Agreement.
B. Trade Secrets
Vectris maintains trade secret protections for range proprietary information that is not covered by its patent portfolio, including: (i) proprietary design methodologies for silicon photonics transceiver and CPO products; (ii) process recipes for silicon photonics fabrication, which are shared with the Company's contract foundry partners under strict confidentiality obligations; (iii) customer-specific performance specifications developed in collaboration with the Company's hyperscale cloud operator customers; and (iv) internal test algorithms and quality control methodologies used in the Company's wafer-level testing processes.
The Company has implemented a multi-layered trade secret protection framework consisting of the following elements:
• Employee Confidentiality and Invention Assignment Agreements. All employees of the Company are required to execute the Company's standard Confidentiality, Invention Assignment, and Non-Competition Agreement upon commencement of employment. These agreements include broad confidentiality obligations covering all proprietary information of the Company, including trade secrets. We have reviewed the template form of agreement and a sample of executed agreements for key technical personnel (see Section VI below for further discussion).
• Non-Disclosure Agreement Framework with Foundry Partners and Customers. The Company maintains a comprehensive non-disclosure agreement ("NDA") framework with its contract foundry partners, customers, and other third parties who receive access to confidential or proprietary information. We have reviewed the template NDA forms and a sample of executed NDAs and found them to contain standard and commercially reasonable confidentiality provisions, including obligations of non-use, non-disclosure, and return or destruction of confidential information upon termination.
• Physical and Electronic Access Controls. The Company maintains physical access controls (badge-entry systems, restricted areas for sensitive R&D activities) and electronic access controls (role-based access permissions, encryption of sensitive design files, monitoring of file access and downloads) to protect its trade secrets and proprietary information. While we did not conduct an independent audit of these controls, we reviewed the Company's information security policy documents provided in the data room and found them to be consistent with industry standards for a fabless semiconductor company of Vectris's size.
Key Risk — Foundry Relationships. As a fabless company, Vectris necessarily shares certain design files, process specifications, and fabrication recipes with its third-party contract foundry partners. This sharing creates an inherent risk that trade secrets could be misappropriated or inadvertently disclosed by foundry partners. Our review of the foundry agreements (discussed further in Section IV.B below in the context of the packaging technology cross-license) confirms that the Company has negotiated robust intellectual property ownership and confidentiality provisions in its foundry relationships, including: (i) clear provisions vesting ownership of all foreground IP in Vectris; (ii) limitations on the foundry's use of Vectris's confidential information solely for the purpose of manufacturing products on Vectris's behalf; and (iii) audit rights and breach remedies. While the risk of foundry-related trade secret misappropriation cannot be entirely eliminated, the contractual protections in place are commercially reasonable and consistent with market practice.
IV. License Agreements
A. License-In Agreements (Vectris as Licensee)
Vectris is a licensee under five material license-in agreements pursuant to which the Company holds rights to third-party intellectual property used in its products and business operations. Each agreement is summarized below.
License Agreement No. 1 — Core Photonic Platform License.
Vectris holds an exclusive field-of-use license from a university technology transfer office (the identity of which is subject to confidentiality restrictions but which is identified in the data room) for foundational silicon photonics waveguide technology. This license covers a suite of patents and know-how originating from university research conducted prior to the Company's founding and relates to fundamental waveguide structures and fabrication techniques that form the technological foundation of Vectris's silicon photonics platform.
The license is perpetual and fully paid-up, meaning no ongoing royalty or license fee obligations are owed by Vectris. The license is exclusive within the field of data center optical interconnects, which encompasses all of the Company's current and planned product lines. The university retains the right to license the same technology for uses outside the data center optical interconnect field (e.g., biomedical sensing, telecommunications outside data center environments).
Critically, this license agreement does not contain a change-of-control provision. The license is assignable by Vectris in connection with a merger, acquisition, or sale of substantially all of the Company's assets without the licensor's prior consent. This is a favorable feature for the Transaction, as it means that this foundational license will pass through the Transaction without any consent requirement.
We have confirmed that the license is in full force and effect, that all conditions to the grant of the license have been satisfied, and that Vectris is not in breach of any provision of the agreement.
License Agreement No. 2 — Electronic-Photonic Interface IP.
Vectris holds a non-exclusive license from a semiconductor intellectual property licensing company for certain serializer/deserializer ("SerDes") circuit design blocks used in the electronic-photonic interface components of Vectris's transceiver products. The licensed IP includes specific high-speed SerDes macro designs that Vectris incorporates into its transceiver ASICs.
This license is royalty-bearing, with a royalty rate in the low single-digit percentage range calculated on the net sales of Vectris products that incorporate the licensed SerDes design blocks. The license is for a defined term with automatic renewal provisions, and the Company has been making royalty payments under the agreement in the ordinary course.
Change-of-Control Provision. This agreement contains a change-of-control clause that is the most significant IP license risk identified in our review. The agreement provides that the license may not be assigned by the licensee (Vectris) without the prior written consent of the licensor, and further provides that a "change of control" of the licensee — defined to include a merger, consolidation, or acquisition of a majority of the licensee's voting securities — shall be deemed an "assignment" for purposes of the anti-assignment provision.
This provision presents a direct risk to the Transaction. In a forward triangular merger structure, where Vectris would merge into a Halcyon subsidiary and cease to exist, the assignment of the license to the surviving Halcyon subsidiary would clearly trigger the consent requirement. The Transaction is currently contemplated as a reverse triangular merger, in which a Halcyon acquisition subsidiary would merge with and into Vectris, with Vectris surviving as a wholly-owned subsidiary of Halcyon. Under this structure, Vectris would remain the licensee entity, which may provide an argument that no "assignment" has occurred. However, the contractual definition of "change of control" in the agreement is broad enough to encompass a change in the ownership of Vectris's voting securities — which will occur when Halcyon acquires 100% of Vectris's outstanding shares — regardless of whether the license itself is formally "assigned."
We recommend that Halcyon and Vectris initiate discussions with the licensor at the earliest practicable time to obtain the licensor's written consent to the Transaction. The loss of this license would require Vectris to either redesign its transceiver products to replace the licensed SerDes IP (a costly and time-consuming undertaking) or negotiate a new license on potentially less favorable terms. Coordination with Catherine Whitfield at Whitfield, Prager & Loomis LLP and Rebecca Lau at Vectris will be necessary to manage these discussions.
License Agreement No. 3 — Packaging Technology License.
Vectris is a party to a cross-license agreement with one of its major contract foundry partners covering advanced packaging methods used in the assembly and integration of photonic and electronic dies. Under this agreement, each party grants the other a non-exclusive, royalty-free license to use certain of the other party's patented packaging technologies in the manufacture and assembly of products.
The cross-license includes mutual grant-back provisions for improvements developed by either party during the term of the agreement. These grant-back provisions are limited to non-exclusive, royalty-free licenses, meaning that any improvements developed by Vectris remain the property of Vectris but are licensed back to the foundry partner for use in its own business.
We did not identify any change-of-control restriction in this agreement. The agreement is in full force and effect, and Vectris is not in breach of any provision.
License Agreement No. 4 — Standards-Essential Patents (SEPs).
Vectris is a licensee under fair, reasonable, and non-discriminatory ("FRAND") terms for certain standards-essential patents relating to Ethernet and optical networking standards (including relevant IEEE 802.3 and Optical Internetworking Forum specifications). These licenses are administered through a patent pool administrator and are available to all industry participants on non-exclusive, non-discriminatory terms.
The FRAND license is non-exclusive and non-transferable by its terms. However, because the license is available on FRAND terms to any willing licensee, the post-closing entity should be able to obtain a replacement or continuation of the FRAND license on equivalent terms. This is a standard industry arrangement and does not present a material risk to the Transaction.
License Agreement No. 5 — Testing and Measurement IP.
Vectris holds a non-exclusive license from a test equipment manufacturer for proprietary optical testing methodology used in the Company's wafer-level testing and quality assurance processes. The license is royalty-bearing, with a fixed annual fee payable by Vectris.
Change-of-Control Provision. This agreement contains a limited change-of-control provision granting the licensor a discretionary right to terminate the license on ninety (90) days' written notice following a "change of control" of the licensee. Unlike License Agreement No. 2, which requires affirmative consent, this provision gives the licensor a unilateral termination right that it may or may not choose to exercise.
The risk presented by this provision is lower than that presented by License Agreement No. 2 for several reasons. First, the scope of the licensed technology is narrower, relating specifically to testing methodology rather than core product design IP. Second, the Company has advised that alternative testing methodologies are available in the market, and the loss of this license, while inconvenient, would not prevent the Company from conducting its testing operations. Third, the licensor's exercise of its termination right is discretionary, and there may be commercial incentives for the licensor to maintain the relationship with the combined Halcyon/Vectris entity.
Nevertheless, this provision should be flagged in the Disclosure Schedules, and the deal team should assess whether to seek a waiver or standstill commitment from the licensor prior to closing.
B. License-Out Agreements (Vectris as Licensor)
Vectris has entered into three material license-out agreements pursuant to which the Company has granted rights in its own intellectual property to third parties. Each is summarized below.
License-Out Agreement No. 1 — Japanese Semiconductor Manufacturer (Automotive LiDAR).
Vectris has granted a non-exclusive license to a Japanese semiconductor manufacturer for certain Vectris transceiver module patents, restricted to the field of use of automotive light detection and ranging ("LiDAR") applications. The licensed field of use is outside Vectris's core data center market, and the license does not grant the licensee any rights to use the licensed patents in data center transceiver or CPO products.
The license is royalty-bearing, with a royalty rate in the mid-single-digit percentage range calculated on the licensee's net sales of products incorporating the licensed Vectris patents. The license has a five-year term with a renewal option exercisable by the licensee. This agreement generates a modest but recurring revenue stream for Vectris.
License-Out Agreement No. 2 — European Photonics Research Consortium.
Vectris has granted a limited, non-exclusive license to a European photonics research consortium for research and development purposes only. The license is royalty-free and does not grant the licensee any rights to commercial use, manufacture, sale, or distribution of products based on the licensed technology. This license was granted as part of the Company's participation in a collaborative research initiative and is not commercially significant.
License-Out Agreement No. 3 — Cross-License with Major U.S. Semiconductor Company.
Vectris is a party to a cross-license agreement with a major U.S. semiconductor company covering overlapping patent claims in optical modulator designs. Under this agreement, each party grants the other a non-exclusive, royalty-free license to practice certain of the other party's patents in the optical modulator space. The cross-license was entered into to resolve potential mutual infringement exposure and to allow both companies to operate freely in the overlapping technology area.
The cross-license includes a defensive termination clause, pursuant to which the license granted to either party automatically terminates if that party initiates patent infringement litigation against the other. This clause is designed to maintain the mutual non-aggression posture that underlies the cross-license and to deter either party from engaging in patent assertion activities against the other. This defensive termination feature is relevant to the freedom-to-operate analysis discussed in Section V below, as it may constrain the combined Halcyon/Vectris entity's ability to assert patents against the cross-license counterparty.
Revenue Impact. Total revenue from license-out agreements is immaterial relative to the Company's total revenue, estimated at less than $5 million annually. The license-out portfolio is not a significant revenue driver but does provide strategic benefits, including access to cross-licensed technology and goodwill with research and industry partners.
C. Change-of-Control Risk Summary
The following table summarizes the change-of-control provisions identified in the Company's license agreements:
Recommended Actions. With respect to License-In No. 2 (SerDes IP), we recommend that Halcyon and Vectris seek the licensor's pre-signing or pre-closing written consent to the Transaction. In the alternative, if consent cannot be obtained prior to signing, the Merger Agreement should include the licensor's consent as a closing condition. The deal team should also analyze whether the reverse triangular merger structure — under which Vectris survives as the licensee entity — constitutes an "assignment" under the specific contractual language, and whether this argument could be used as a fallback position.
With respect to License-In No. 5 (Testing IP), we recommend that the deal team assess the materiality of the license and determine whether to seek a licensor waiver or accept the risk. Given the lower risk profile and the availability of alternative testing methodologies, a decision to accept the risk may be appropriate, provided the risk is properly disclosed and reflected in the Merger Agreement's representations and Disclosure Schedules.
No license-out agreements contain material change-of-control restrictions that would impair post-closing operations of the combined entity.
V. Freedom-to-Operate Analysis
A. Scope and Methodology
Calderwood & Harkness coordinated with Vectris's outside patent counsel at Whitfield, Prager & Loomis LLP and reviewed the Company's internal freedom-to-operate ("FTO") studies conducted within the last eighteen (18) months. These studies were prepared by the Company's IP department under the direction of Rebecca Lau and the Company's Vice President of intellectual Property, in coordination with outside patent counsel.
The FTO analysis focused on the Company's principal revenue-generating product lines: (i) the 400-gigabit-per-second (400G) and 800-gigabit-per-second (800G) silicon photonics transceiver modules; and (ii) the Company's first-generation co-packaged optics chiplets. The analysis involved a comprehensive search of relevant patent databases — including the USPTO full-text and image databases, the European Patent Register, and the WIPO PatentScope database — for third-party patents that may be implicated by the design, manufacture, use, sale, or importation of Vectris's current and planned products. The search was supplemented by a review of patent portfolios held by known competitors in the silicon photonics and co-packaged optics spaces.
We note that a freedom-to-operate analysis is inherently limited in its scope and cannot guarantee the absence of infringement risk. The analysis is based on publicly available patent information as of the date of the review and does not account for unpublished patent applications, future patent grants, or changes in claim interpretation that may arise through litigation or patent office proceedings. Subject to these limitations, the FTO analysis provides a reasonable assessment of the Company's infringement risk profile as of the date of this memorandum.
B. Key Findings
Low-Risk Areas. The FTO analysis found that Vectris's core waveguide and optical modulator designs present a low risk of third-party infringement claims. This finding is supported by two factors. First, the Company's own patent portfolio provides strong coverage of its proprietary waveguide and modulator architectures, indicating that the Company has been the innovator in these technology areas and has secured patent protection for its own designs. Second, the exclusive field-of-use license from the university technology transfer office (License-In No. 1) provides a solid foundation of licensed rights for the Company's use of the foundational waveguide technologies that underpin its product designs. Together, the Company's owned patents and the university license create a robust freedom-to-operate position in the core transceiver technology area.
Moderate-Risk Area — Competitor CPO Patent Family. The FTO analysis identified one area of moderate risk. A competitor in the co-packaged optics space holds a patent family consisting of approximately six (6) patents covering certain co-packaged optics assembly methods. The claims in this patent family may overlap with assembly techniques used in Vectris's latest-generation CPO product, which employs a novel die-bonding and optical alignment process for integrating photonic and electronic chiplets.
Vectris's internal FTO analysis, prepared by the Company's IP department with the assistance of outside counsel, concludes that the claims of the competitor's patents are distinguishable from Vectris's CPO assembly process based on structural differences in the packaging architecture and the specific alignment methodology employed. However, this conclusion has not been tested in litigation, and there is inherent uncertainty in any pre-litigation claim comparison.
Several factors mitigate the risk presented by this patent family:
(a) Counter-Assertion Leverage. Vectris holds its own substantial patent portfolio in the co-packaged optics space (approximately 52 patents), which could be used as counter-assertion leverage in the event the competitor were to initiate patent infringement litigation against Vectris. The availability of counter-assertion patents significantly increases the cost and risk to the competitor of pursuing litigation and creates incentives for a negotiated resolution.
(b) Partial Coverage Under Cross-License. The cross-license agreement with the major U.S. semiconductor company (License-Out No. 3) may provide partial coverage for the identified risk, depending on the scope of the cross-licensed claims and whether the competitor's patents fall within the scope of the cross-license. This requires further analysis.
(c) Design-Around Potential. Vectris's engineering team has advised that alternative assembly methods exist that could be employed in future product generations to avoid the claims of the competitor's patents, if necessary. While a design-around would entail some engineering cost and schedule impact, it would not fundamentally impair the Company's ability to compete in the CPO market.
Recommendation. We recommend that Halcyon engage patent litigation specialists to perform a detailed claim-by-claim analysis of the competitor's patent family against the specific features of Vectris's CPO assembly process. This analysis should assess both the risk of infringement and the validity of the competitor's patents (including potential invalidity arguments based on prior art). The findings of this analysis should inform the indemnification provisions in the Merger Agreement and the scope of any specific indemnity for FTO-related claims.
Standards Compliance. Vectris's products comply with relevant industry standards, including IEEE 802.3 (Ethernet) and Optical Internetworking Forum ("OIF") specifications for optical transceivers. The Company's FRAND-licensed standards-essential patents (License-In No. 4) provide coverage for standards-related functionality, and the Company has not received any assertions from SEP holders alleging that the Company's FRAND license is insufficient or that the Company is practicing unlicensed standards-essential patents.
Prior Litigation. Vectris is not currently a defendant in any pending patent infringement litigation. The Company was previously named as a defendant in one patent infringement suit filed in 2019 by a non-practicing entity ("NPE") in the United States District Court for the Eastern District of Texas. The suit alleged infringement of two patents relating to optical modulator control circuits. The matter was settled in 2021 on mutually favorable terms. The settlement included a non-exclusive, royalty-bearing cross-license between the parties, and all financial obligations under the settlement have been satisfied. There are no ongoing financial obligations, and the settlement agreement does not contain any provisions that would restrict Vectris's business operations or technology development activities.
C. Post-Acquisition FTO Considerations
Following the closing of the Transaction, the combined Halcyon/Vectris entity will hold a substantially larger patent portfolio and will benefit from a significantly stronger defensive patent position. Halcyon's existing patent holdings in the broader semiconductor space, combined with Vectris's focused silicon photonics portfolio, will create a combined portfolio that enhances the entity's ability to deter patent assertions by competitors and to negotiate favorable cross-license arrangements.
However, we note that the post-acquisition FTO analysis must also account for Halcyon's existing IP obligations. Halcyon's existing silicon photonics product line — which, according to the U.S. Department of Justice's preliminary competitive analysis, contributes to approximately 19% U.S. market share in the relevant product market — may already be subject to certain third-party license obligations, including field-of-use restrictions, royalty obligations, or non-assertion covenants. We recommend that the deal team coordinate with Halcyon's internal IP team and Halcyon's auditors at Thornbury Wight LLP (Gavin Ashmore) to cross-check Halcyon's existing IP obligations against Vectris's license agreements. The purpose of this cross-check is to identify any conflicts or overlapping obligations that could arise when the two companies' IP portfolios and license agreements are combined under common ownership.
We note that this memorandum does not address the antitrust implications of the combined patent portfolio. Antitrust considerations, including the potential for the combined entity's patent portfolio to create barriers to entry or to be perceived as anti-competitive by regulatory authorities, are addressed separately in the Antitrust Risk Assessment Memorandum prepared by Howard Bellamy and dated July 10, 2023 (Engagement 1032-00005).
VI. IP Assignment and Employee Invention Matters
A secure chain of title from the individual inventors who created the Company's intellectual property to the Company itself is a foundational requirement for any IP-intensive acquisition. We have reviewed the Company's practices and documentation in this area and summarize our findings below.
Standard Employee Agreements. Vectris uses a standard form Confidentiality, Invention Assignment, and Non-Competition Agreement (the "CIAA") for all employees. The CIAA requires employees to: (i) maintain the confidentiality of all Company proprietary information during and after their employment; (ii) assign to the Company all inventions, discoveries, improvements, and other intellectual property conceived or reduced to practice during the course of employment or using Company resources; and (iii) refrain from competing with the Company during employment and for a specified period following termination.
We reviewed the template CIAA and confirmed that the invention assignment provisions are broadly drafted to cover all intellectual property created by employees in connection with their employment, including patentable inventions, trade secrets, copyrightable works, and other proprietary information. The assignment provisions include a present-tense assignment (i.e., an assignment that operates to vest ownership in the Company at the time the intellectual property is created, rather than requiring a subsequent assignment instrument) and a power-of-attorney provision authorizing the Company to execute assignment documents on the employee's behalf.
Key Personnel Agreements. We reviewed executed CIAAs for the following key technical personnel:
• Dr. Anand Raghavan, Co-Founder and Chief Technology Officer. Dr. Raghavan, who holds a Ph.D. in Electrical Engineering from Stanford University, is the Company's principal inventor and a named inventor on a substantial majority of the Company's earliest patents. Dr. Raghavan's original invention assignment agreement was executed at the time of the Company's founding in 2012. We have confirmed that the agreement assigns all of Dr. Raghavan's intellectual property to Vectris without any retained rights, carve-outs, or limitations. There are no provisions in the agreement reserving any pre-existing IP to Dr. Raghavan, and Dr. Raghavan has not claimed any exclusions on the agreement's scheduled list of prior inventions.
• Margaret Sørensen, Vice President of Engineering. Ms. Sørensen is a named inventor on multiple patents in the co-packaged optics portfolio and leads the Company's CPO product development team. Her CIAA was executed upon her hiring and contains standard terms without modification.
• Senior Engineering Leads. We reviewed executed CIAAs for approximately fifteen additional senior engineering leads across the Company's transceiver, CPO, signal processing, and manufacturing engineering teams. All agreements were found to be in standard form and properly executed.
California Labor Code Considerations. We note that California Labor Code Section 2870 limits the enforceability of employee invention assignment agreements to the extent they purport to require assignment of inventions that were developed entirely on the employee's own time, without the use of Company resources, and that do not relate to the Company's business or anticipated research and development. Vectris's CIAA contains a carve-out acknowledging this statutory limitation, which is consistent with California law requirements. Additionally, the non-competition provisions in the CIAA may not be enforceable under California Business and Professions Code Section 16600, which generally prohibits non-competition covenants in the employment context. However, the invention assignment and confidentiality provisions of the CIAA remain generally enforceable under California law and are not affected by the non-competition limitations.
Post-Closing Non-Competition. The deal terms currently contemplate a three-year post-closing non-competition and non-solicitation covenant for the Vectris founders (including Dr. Raghavan). These covenants, entered into in connection with the sale of a business (as distinct from employment-related non-competes), are generally enforceable under California law pursuant to Business and Professions Code Section 16601, provided they are reasonable in scope and duration and are entered into in connection with the sale of the goodwill of a business. We recommend that the non-competition covenants be drafted to comply with the requirements of Section 16601 and any applicable case law.
Consultant and Contractor Agreements. The Company has engaged independent contractors and consultants from time to time to supplement its engineering capabilities. We reviewed a sample of the Company's independent contractor and consulting agreements and confirmed that all such agreements include intellectual property assignment provisions that vest ownership of all work product and inventions created by the contractor in Vectris. The assignment provisions are broadly drafted and include present-tense assignment language and power-of-attorney provisions consistent with the employee CIAA.
Chain of Title. Based on our review of the employee CIAAs, contractor agreements, and USPTO assignment records, we have not identified any gaps in the chain of title from inventors and contractors to Vectris Photonics, Inc. for the 187 issued U.S. patents in the portfolio. All assignments appear to have been properly executed, recorded, and documented.
VII. IP Encumbrances and Security Interests
An essential component of IP due diligence is confirming that the target's intellectual property assets are free and clear of liens, security interests, pledges, and other encumbrances that could impair the buyer's post-closing rights.
UCC-1 Search. We conducted Uniform Commercial Code ("UCC") lien searches against Vectris Photonics, Inc. in both the State of Delaware (the Company's state of incorporation) and the State of California (the Company's principal place of business). The searches did not identify any UCC-1 financing statements or other filings reflecting security interests against the Company's intellectual property assets.
Absence of Liens and Encumbrances. Based on our review of the data room documents, the UCC searches, and the Company's representations, we have not identified any liens, pledges, mortgages, security interests, or other encumbrances on the Company's patent portfolio, trademark registrations, trade secrets, or other intellectual property assets.
Equity Investor IP Rights. Vectris's principal institutional equity investors — Granite Peak Ventures Fund IV, L.P. (holding approximately 22.7% of the Company's outstanding common stock) and Nordhaven Capital Partners III, L.P. (holding approximately 14.5% of the Company's outstanding common stock) — do not hold any security interests in the Company's intellectual property. We reviewed the relevant equity investment documents (including the Series B and Series C preferred stock purchase agreements, the investors' rights agreement, and the right of first refusal and co-sale agreement) and confirmed that none of these documents grant the investors any security interest, lien, or other encumbrance on the Company's IP assets. The investors' rights agreement includes customary information rights, registration rights, and board observer rights, but does not include any IP-related covenants or restrictions that would affect the Transaction.
Post-Closing Buyer Protections. The Transaction contemplates the following buyer-side protections against potential IP-related breaches of representations and warranties:
(a) Escrow Arrangement. Forty Million Dollars ($40,000,000) of the total purchase price will be deposited into an escrow account held by Ironclad National Bank, N.A. (escrow officer: Thomas Hargreaves) for a period of eighteen (18) months following the closing of the Transaction. The escrowed funds will be available to satisfy indemnification claims by Halcyon arising from breaches of the seller's representations and warranties, including IP-related representations.
(b) Indemnification Cap. The Merger Agreement will include a general indemnification cap of One Hundred Twenty Million Dollars ($120,000,000), representing 15% of the $800,000,000 deal value. IP-related breaches of representations will be covered by this general cap.
(c) R&W Insurance. A representations and warranties insurance policy (the "R&W Policy") has been quoted by Pinnacle Specialty Underwriters, Ltd. through Atlas Transactional Insurance Group, Inc. (broker contact: Martin Cavallo). The R&W Policy will provide a policy limit of One Hundred Twenty Million Dollars ($120,000,000) and has been quoted at a premium of Three Million Three Hundred Sixty Thousand Dollars ($3,360,000). The R&W Policy is expected to provide additional buy-side protection for IP representation breaches, subject to the policy's terms, conditions, and exclusions.
These protections, taken together, provide Halcyon with a robust framework for addressing IP-related risks that may materialize after closing.
VIII. Recommended IP Representations and Warranties for the Merger Agreement
Based on the findings of our due diligence review, we set forth below our recommended intellectual property representations and warranties for inclusion in the Merger Agreement, together with recommended qualifications and carveouts and indemnification coverage.
A. Proposed Representations by Vectris
We recommend that the following representations be made by the Company in the Merger Agreement:
1. Ownership. The Company is the sole and exclusive owner of all Company intellectual Property (as defined in the Merger Agreement), free and clear of all liens, encumbrances, pledges, security interests, claims, licenses, and other restrictions (other than Permitted Encumbrances, as defined in the Merger Agreement, and the license-out agreements disclosed on Schedule 3.10). The Company has good and valid title to all Company-owned patents, patent applications, trademark registrations, and other registered intellectual property.
2. Validity and Enforceability. To the Knowledge of the Company, all issued patents included in the Company intellectual Property are valid and enforceable. Except as set forth on Schedule 3.10 (which shall disclose the two IPR proceedings and one ex parte reexamination proceeding described in this memorandum), there are no pending or, to the Knowledge of the Company, threatened proceedings before any court, arbitral tribunal, administrative agency, or patent office challenging the validity, enforceability, or patentability of any Company-owned patent or patent application.
3. Non-Infringement (Outbound). The conduct of the Company's business as currently conducted and as currently proposed to be conducted does not infringe, misappropriate, or otherwise violate any intellectual property rights of any third party in any material respect. No claim or action alleging such infringement, misappropriation, or violation is pending against the Company, and no such claim or action has been threatened in writing against the Company, except as set forth on Schedule 3.10.
4. Non-Infringement (Inbound). To the Knowledge of the Company, no third party is currently infringing, misappropriating, or otherwise violating any Company intellectual Property in any material respect. The Company has not asserted or threatened in writing any claim against any third party alleging infringement, misappropriation, or violation of any Company intellectual Property, except as set forth on Schedule 3.10.
5. License Agreements. Schedule 3.10 sets forth a complete and accurate list of all material license-in and license-out agreements to which the Company is a party. Each such agreement is in full force and effect and constitutes a legal, valid, and binding obligation of the Company and, to the Knowledge of the Company, of each other party thereto. The Company is not in material breach or default of any such agreement, and no event has occurred that, with the giving of notice or the lapse of time, would constitute such a breach or default.
6. Change-of-Control Consents. Schedule 3.10 identifies all license agreements and other contracts relating to Company intellectual Property that require the consent or approval of, or the delivery of notice to, any third party in connection with the consummation of the transactions contemplated by the Merger Agreement. Without limiting the foregoing, License-In Agreement No. 2 (Electronic-Photonic Interface IP) and License-In Agreement No. 5 (Testing and Measurement IP) are identified as requiring such consent or notice.
7. Employee IP Assignments. All current and former employees, independent contractors, and consultants of the Company who have contributed to the conception, creation, development, or reduction to practice of any Company intellectual Property have executed valid and enforceable written agreements assigning to the Company all right, title, and interest in and to such intellectual property. No such person has any claim, right, or interest in or to any Company intellectual Property, except as set forth in such assignment agreements.
8. No Pending Claims. Except as set forth on Schedule 3.10 (which shall disclose the prior 2019 patent infringement litigation settled in 2021, the two pending IPR proceedings, and the pending ex parte reexamination), there is no action, suit, proceeding, investigation, or claim pending or, to the Knowledge of the Company, threatened against the Company relating to the Company intellectual Property, including any claim of infringement, misappropriation, or violation of any third-party intellectual property rights.
9. Maintenance. All required maintenance fees, annuity payments, renewal fees, and other payments necessary to maintain the Company's issued patents, pending patent applications, and trademark registrations in full force and effect have been timely paid, and no patent, patent application, or trademark registration has lapsed, been abandoned, or been cancelled due to the Company's failure to make such payments.
10. Trade Secrets. The Company has taken commercially reasonable steps to maintain the confidential

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