PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT — FOR INTERNAL USE ONLY This memorandum constitutes attorney work product and is protected by the attorney-client privilege and the work product doctrine. It is prepared solely for the internal use of Calderwood & Harkness LLP and is not to be disclosed to any third party without the prior written authorization of the Responsible Partner or the firm's General Counsel. Unauthorized disclosure may result in waiver of applicable privileges.
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, 38th Floor New York, New York 10022
January 15, 2024
MEMORANDUM
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I. PURPOSE AND SCOPE OF MEMORANDUM
This memorandum formally documents the closing of matter 1032-00005 relating to Calderwood & Harkness LLP's representation of Halcyon Semiconductor Aktiengesellschaft ("Halcyon" or "HSAG") in connection with its proposed all-cash acquisition of Vectris Photonics, Inc. ("Vectris") by means of a reverse triangular merger under the Delaware General Corporation Law (the "Transaction"). The Transaction was governed by an Agreement and Plan of Merger dated August 10, 2023 (the "Merger Agreement"), which was terminated by Halcyon on November 30, 2023, pursuant to the antitrust termination right set forth in Section 8.1(d) thereof.
The purposes of this memorandum are as follows:
(i) to memorialize the key facts, parties, and chronological timeline of the engagement for the permanent firm record;
(ii) to record lessons learned for the benefit of future deal teams at the firm, with particular emphasis on antitrust risk assessment in semiconductor M&A transactions and the management of multi-jurisdictional regulatory review processes;
(iii) to establish file retention protocols for the various categories of documents and work product generated during the course of the engagement; and
(iv) to provide conflict-check update instructions to the firm's Conflicts Committee so that the firm's conflicts database accurately reflects the closure of this matter and the identities of all related and adverse parties.
As set forth in greater detail below, the Merger Agreement was terminated on November 30, 2023, following a decision by Halcyon's Supervisory Board (Aufsichtsrat) to exercise the antitrust termination right in light of the civil antitrust complaint filed by the United States Department of Justice on October 30, 2023. All post-termination deliverables, including the analysis of surviving obligations, the payment of the reverse break-up fee, the termination of the financing commitment, and the withdrawal of the European Commission notification, have been completed. The final closing statement of fees and expenses was issued to Halcyon on January 8, 2024, and all amounts have been paid in full. There are no outstanding client deliverables or unpaid invoices associated with this engagement.
This memorandum should be circulated to the firm Management Committee and the Conflicts Committee and thereafter filed in the permanent matter file under engagement number 1032-00005.
II. MATTER SUMMARY
A. Client and Engagement Information
The following sets forth the key engagement-level information for the permanent record:
The engagement letter was executed on May 22, 2023, by Dr. Luisa Hartmann on behalf of Halcyon and by Oliver Mackenzie on behalf of Calderwood & Harkness LLP. The engagement letter provided for hourly billing at the standard partner and associate rates in effect during the engagement period, subject to a $6,500,000 soft fee cap applicable to the M&A workstream (exclusive of antitrust and regulatory matters, which were billed separately without a cap). The engagement letter contained standard provisions regarding conflicts, document retention, and the scope of representation.
B. Target Information
The target of the proposed acquisition was Vectris Photonics, Inc. ("Vectris"), a Delaware C-corporation (Delaware Secretary of State File No. 5918437), headquartered at 4750 Ridgepoint Drive, Suite 300, San Jose, California 95134. Vectris is a fabless designer and supplier of silicon photonics transceivers and co-packaged optics ("CPO") chiplets for hyperscale data center interconnects. The company does not operate its own fabrication facilities; rather, it designs its products and outsources manufacturing to third-party foundries, principally in Taiwan and Singapore.
Key financial and operational information for Vectris is summarized below:
Vectris's key management personnel during the engagement included the following individuals:
• Dr. Anand Raghavan — Founder, Chief Executive Officer, and Chairman of the Board of Directors
• Margaret Sørensen — President and Chief Operating Officer
• Julian Tate — Chief Financial Officer
• Rebecca Lau — General Counsel and Secretary
Vectris's capitalization structure included the following significant shareholders:
Vectris's fully diluted share count was calculated at 58,394,160 shares, consisting of 51,200,000 basic shares outstanding plus 7,194,160 shares issuable upon exercise of in-the-money stock options and settlement of outstanding restricted stock units. The aggregate equity consideration of $800,000,000 implied a per-share price of approximately $13.70 on a fully diluted basis, representing a premium of approximately 39.5% over the unaffected closing share price of $9.82 on May 19, 2023 (the last trading day before the execution of the exclusivity agreement).
C. Calderwood & Harkness Engagement Team
The Calderwood & Harkness professionals who served on the primary engagement team for this matter are listed below, together with their respective billing rates during the engagement period:
In addition to the core deal team, additional antitrust associates and paralegals from the firm's Antitrust & Competition practice group were staffed on the Second Request compliance and DOJ advocacy workstreams from September through November 2023. These individuals are not separately listed in this memorandum but their time is reflected in the antitrust/regulatory billing workstream summarized in Section IV below.
Oliver Mackenzie served as the Responsible Partner for purposes of the engagement letter, the firm's internal quality control protocols, and all client-facing communications. Harrison Wexford served as the Billing Partner and was responsible for review and submission of all fee statements. Howard Bellamy was engaged as a specialist partner from the Antitrust & Competition practice group and led all regulatory strategy, HSR and EUMR filings, Second Request compliance, and advocacy before the DOJ and European Commission.
D. Key Counterparties and Advisors
The following is a comprehensive listing of the principal counterparties and professional advisors involved in the Transaction, provided for purposes of the conflicts database and the permanent matter record:
Target's Legal Counsel:
Whitfield, Prager & Loomis LLP ("WPL") served as legal counsel to Vectris throughout the Transaction. Catherine Whitfield of WPL led the M&A aspects of the representation, and Douglas Prager of WPL led the antitrust aspects. WPL negotiated the Merger Agreement, the Voting and Support Agreement, and the Termination Agreement on behalf of Vectris.
Acquirer's Financial Advisor:
Ridgeline Partners LLC served as exclusive financial advisor to Halcyon. Nathaniel Cross (Managing Director) served as the lead banker, and Priya Narayanan (Vice President) served as the day-to-day deal team lead. The advisory engagement provided for a base fee of 0.40% of aggregate equity consideration ($3,200,000), payable upon signing, plus a success fee of 0.10% ($800,000), payable upon closing. Because the Transaction did not close, the success fee was not earned. The base fee of $3,200,000 was paid by Halcyon upon execution of the Merger Agreement.
Target's Financial Advisor:
Clearwater Zanthor & Co., LLC served as financial advisor to Vectris. Diane Okoro (Managing Director) led the engagement. Clearwater Zanthor delivered a fairness opinion to the Vectris Board of Directors in connection with the Board's approval of the Merger Agreement on August 10, 2023.
Financing Source:
Meridian Atlantic Bank, N.A. served as the sole lender under a $500,000,000 senior secured term loan commitment. Sandra Feeney served as Lead Banker. The commitment letter, dated August 8, 2023, provided for a term loan at Term SOFR plus 225 basis points, structured as a 364-day bridge facility. A ticking fee of 20 basis points per annum on the undrawn commitment commenced 90 days after the date of the Merger Agreement (i.e., November 8, 2023). The balance of the $800,000,000 equity consideration (approximately $300,000,000) was to be funded from Halcyon's cash on hand. The commitment letter was terminated on December 1, 2023, following termination of the Merger Agreement.
Financing Counsel (to Meridian Atlantic):
Kalder & Eames LLP served as legal counsel to Meridian Atlantic Bank, N.A. in connection with the financing commitment. Philip Strand of Kalder & Eames served as lead counsel.
Escrow Agent:
Ironclad National Bank, N.A. served as escrow agent under the Escrow Agreement dated August 10, 2023. Thomas Hargreaves of Ironclad National Bank served as the designated escrow officer. The escrow was to hold $40,000,000 (5% of aggregate equity consideration) for a period of 18 months post-closing in support of the indemnification obligations. Because the Transaction did not close, no funds were deposited into escrow.
Acquirer's Auditor:
Thornbury Wight LLP served as independent auditor to Halcyon. Gavin Ashmore served as the engagement partner.
Target's Auditor:
Linden Ross & Co., LLP served as independent auditor to Vectris. Christine Park served as the engagement partner.
Representations and Warranties Insurance:
Atlas Transactional Insurance Group, Inc. served as the insurance broker for the contemplated representations and warranties insurance policy. Martin Cavallo of Atlas served as the lead broker. Pinnacle Specialty Underwriters, Ltd. was the selected carrier; Fiona Brennan served as the lead underwriter. The policy limit was $120,000,000, with a quoted premium of $3,360,000 (reflecting a rate-on-line of 2.8%). Because the Transaction did not close, the R&W insurance policy was never bound and the premium was not paid.
Merger Sub:
Halcyon Acquisition Sub, Inc. was the acquisition subsidiary formed for purposes of the reverse triangular merger. It was incorporated in the State of Delaware on June 12, 2023 (Delaware Secretary of State File No. 7634291). Markus Ellinger served as sole director. The corporation's registered agent was Pinnacle Corporate Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801. The Termination Agreement provides for the dissolution of Halcyon Acquisition Sub, Inc., which will be effected through the filing of a certificate of dissolution with the Delaware Secretary of State.
III. CHRONOLOGICAL SUMMARY OF KEY EVENTS
The following is a detailed chronological summary of the material events and milestones during the course of the engagement, organized by phase.
A. Pre-Signing Phase (May–August 2023)
May 19, 2023. Vectris common stock closed at $9.82 per share on the Nasdaq Stock Market. This was the last trading day before the execution of the exclusivity agreement and is used as the unaffected closing price for purposes of calculating the deal premium.
May 20, 2023. Calderwood & Harkness's Conflicts Committee cleared the engagement following a comprehensive conflicts search run against the following parties and their known affiliates: Halcyon Semiconductor Aktiengesellschaft, Vectris Photonics, Inc., Granite Peak Ventures Fund IV, L.P. (and its general partner, Granite Peak Ventures Management IV, LLC), Nordhaven Capital Partners III, L.P. (and its general partner, Nordhaven Capital GP III, LLC), Stonebridge Institutional Investors, L.P., Meridian Atlantic Bank, N.A., and all related parties identified in the initial client intake questionnaire. No conflicts were identified. The conflicts clearance memorandum was prepared by the Conflicts Committee and is on file.
May 22, 2023. The engagement letter was executed and engagement number 1032-00005 was opened in the firm's matter management system. Billing arrangements were confirmed as set forth in Section II.C above.
June 5, 2023. The Halcyon Supervisory Board (Aufsichtsrat), chaired by Prof. Dr. Friedrich Wendt, convened and approved the pursuit of the acquisition of Vectris. The Aufsichtsrat authorized Dr. Katarina Breuer (CEO) and Markus Ellinger (CFO), in their capacities as members of the Vorstand (Management Board), to negotiate the terms of the proposed acquisition, to execute definitive transaction agreements, and to take all actions necessary or appropriate in connection therewith. A certified copy of the Aufsichtsrat resolution was provided to Calderwood & Harkness by Dr. Hartmann.
June 12, 2023. Halcyon Acquisition Sub, Inc. was incorporated in the State of Delaware as a wholly owned subsidiary of Halcyon for purposes of the reverse triangular merger. The Certificate of Incorporation was filed with the Delaware Secretary of State, and File No. 7634291 was assigned. Markus Ellinger was appointed as sole director.
June 20, 2023. An Exclusivity Agreement was executed between Halcyon and Vectris, providing for a 45-day exclusive negotiation period during which Vectris agreed not to solicit, encourage, or engage in discussions with any third party regarding any alternative acquisition proposal. The Exclusivity Agreement was negotiated between Calderwood & Harkness and Whitfield, Prager & Loomis LLP and was governed by Delaware law.
June 26, 2023. The electronic due diligence data room was opened by Vectris and access credentials were provided to the Calderwood & Harkness deal team and to Ridgeline Partners. The data room was hosted on a secure virtual data room platform and contained approximately 4,200 documents organized across 28 due diligence categories covering corporate and organizational matters, financial information, material contracts, intellectual property, real property, employment matters, litigation, environmental, tax, insurance, regulatory compliance, and other customary categories.
July 10, 2023. Howard Bellamy circulated the antitrust risk assessment memorandum to the deal team and to Dr. Hartmann. The memorandum identified significant horizontal overlap between Halcyon and Vectris in two relevant product markets: (a) silicon photonics transceiver modules, in which the combined U.S. market share was estimated at approximately 47% (Halcyon 19% + Vectris 28%); and (b) co-packaged optics chiplets, in which the combined EEA market share was estimated at approximately 38%. The memorandum assessed antitrust risk as "medium-high" and identified the likely need for a structural remedy (divestiture of overlapping product lines) to obtain regulatory clearance. The memorandum noted that the precise risk level would depend on how the competition agencies defined the relevant markets and on the availability of viable divestiture buyers.
July 14, 2023. The preliminary due diligence memorandum was delivered by Derek Okonkwo and Tiffany Rosenthal to Oliver Mackenzie and Dr. Luisa Hartmann. The memorandum summarized the findings of the initial due diligence review across all 28 diligence categories, identified material risk areas, and flagged items requiring further investigation or negotiation in the disclosure schedules. No material issues were identified that were not already known to Halcyon or that would have affected the decision to proceed with the Transaction.
July 21, 2023. The IP due diligence memorandum was delivered by Tiffany Rosenthal to the deal team. The memorandum covered Vectris's intellectual property portfolio, including 187 issued U.S. patents, 43 pending U.S. patent applications, all material license agreements (including inbound and outbound technology licenses), and a freedom-to-operate analysis with respect to the core silicon photonics transceiver and CPO chiplet product lines. The memorandum concluded that the patent portfolio was well-maintained, that no material encumbrances or third-party claims were identified, and that the existing license agreements were generally on commercially reasonable terms with no change-of-control restrictions that would impede the Transaction.
B. Signing (August 2023)
August 8, 2023. The commitment letter for the $500,000,000 senior secured term loan facility was executed by Meridian Atlantic Bank, N.A. The commitment letter provided for a term loan at Term SOFR plus 225 basis points, structured as a 364-day bridge facility, with a ticking fee of 20 basis points per annum on the undrawn commitment commencing 90 days after the signing of the Merger Agreement. The commitment was subject to customary conditions precedent, including the execution of definitive credit documentation, the absence of a material adverse effect, and the accuracy of specified representations. The remaining balance of the consideration (approximately $300,000,000) was to be funded from Halcyon's available cash on hand. Philip Strand of Kalder & Eames LLP represented Meridian Atlantic in connection with the commitment letter.
August 9, 2023. A commitment letter analysis memorandum was delivered by the deal team to all members of the Calderwood & Harkness engagement team. The memorandum analyzed the key terms and conditions of the commitment letter, identified the conditions precedent to funding, assessed the flex provisions, and noted the ticking fee mechanics and their potential cost implications in a prolonged regulatory review scenario.
August 10, 2023. The following documents were executed and/or delivered on the signing date:
Definitive Agreement and Plan of Merger. The Merger Agreement was executed among Halcyon Semiconductor Aktiengesellschaft, Halcyon Acquisition Sub, Inc., and Vectris Photonics, Inc. The Transaction was structured as an all-cash reverse triangular merger under the DGCL, in which Merger Sub would merge with and into Vectris, with Vectris surviving as a wholly owned subsidiary of Halcyon. The aggregate equity consideration was $800,000,000, representing approximately $13.70 per share on 58,394,160 fully diluted shares (consisting of 51,200,000 basic shares outstanding and 7,194,160 shares issuable upon exercise of in-the-money stock options and settlement of outstanding restricted stock units). This represented a premium of approximately 39.5% over the unaffected closing price of $9.82 per share on May 19, 2023.
The material terms of the Merger Agreement included the following:
• Indemnification Cap: 15% of aggregate equity consideration ($120,000,000)
• Escrow: $40,000,000 (5% of aggregate equity consideration), to be held by Ironclad National Bank, N.A. as escrow agent for a period of 18 months following closing
• No-Shop: Standard no-solicitation covenant with a fiduciary-out permitting the Vectris Board to engage with a Superior Proposal (as defined) and to terminate the Merger Agreement to accept a Superior Proposal, subject to payment of the target termination fee
• Material Adverse Effect: Customary MAE definition with negotiated carveouts, including a carveout for changes in applicable law (which was the subject of significant negotiation between the parties)
• Reverse Break-Up Fee: 3.5% of aggregate equity consideration ($28,000,000), payable by Halcyon to Vectris upon termination by Halcyon pursuant to the antitrust termination right or upon failure to obtain required antitrust approvals prior to the Outside Date
• Target Termination Fee: 3.0% of aggregate equity consideration ($24,000,000), payable by Vectris to Halcyon upon termination in connection with a Superior Proposal or specified triggering events
• Outside Date: March 10, 2024, with an automatic 90-day extension to June 10, 2024, if the sole unsatisfied closing condition at the initial Outside Date was the receipt of required antitrust approvals
• Section 8.1(d) Antitrust Termination Right: Either party was entitled to terminate the Merger Agreement if the required antitrust approvals had not been obtained prior to the Outside Date, or if a governmental authority of competent jurisdiction had issued a final, non-appealable order permanently enjoining or prohibiting the consummation of the Transaction on antitrust grounds. Halcyon exercised this right on November 30, 2023.
• Founder Non-Compete: Dr. Anand Raghavan and certain other Vectris founders were subject to a non-competition covenant for a period of three years following the closing of the Transaction (which covenant did not become effective due to the termination of the Merger Agreement)
• Governing Law: Delaware
Voting and Support Agreement. A Voting and Support Agreement was executed by Dr. Anand Raghavan (18.2%), Granite Peak Ventures Fund IV, L.P. (22.7%), and Nordhaven Capital Partners III, L.P. (14.5%), collectively representing approximately 55.4% of the outstanding shares of Vectris common stock. The Voting Agreement provided for irrevocable commitments to vote in favor of the Transaction, subject to customary exceptions.
Escrow Agreement. An Escrow Agreement was executed among Halcyon, Vectris, and Ironclad National Bank, N.A. as escrow agent, governing the establishment and administration of the $40,000,000 indemnification escrow fund.
Legal Opinion. Calderwood & Harkness delivered a legal opinion to Vectris and Whitfield, Prager & Loomis LLP regarding the due authorization and enforceability of the Merger Agreement and related transaction documents by Halcyon and Merger Sub.
Signing Closing Checklist. The signing closing checklist was completed and circulated to the deal team, confirming execution and delivery of all required signing deliverables.
C. Regulatory / Antitrust Phase (August–November 2023)
August 18, 2023. Halcyon and Vectris filed premerger notification forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice. The initial 30-day waiting period commenced upon filing.
August 25, 2023. The EUMR (EU Merger Regulation) Form CO notification was filed with the European Commission's Directorate-General for Competition (Case M.11247 — Halcyon / Vectris). The notification was filed seven days after the HSR filing, a timing gap that is discussed in the lessons learned analysis in Section V below.
September 15, 2023. The Antitrust Division of the DOJ issued a Second Request (in the form of a Civil Investigative Demand) to Halcyon, requesting the production of extensive categories of documents and data relating to the competitive effects of the proposed Transaction. The issuance of the Second Request extended the HSR waiting period until 30 days after substantial compliance with the Second Request by both parties.
September 18, 2023. The initial 30-day HSR waiting period would have expired on this date absent the issuance of the Second Request. The waiting period was automatically extended by the Second Request.
September 18, 2023. Howard Bellamy circulated a Second Request compliance strategy memorandum to the deal team and to Dr. Hartmann. The memorandum outlined the scope of the document and data production required, proposed a compliance timeline, identified key custodians and data sources, and estimated the cost and duration of the compliance effort. The memorandum recommended the engagement of an e-discovery vendor and the retention of an economic consulting firm to prepare a quantitative competitive effects analysis.
October 6, 2023. The European Commission announced the opening of a Phase II in-depth investigation into the proposed Transaction (Case M.11247). The Commission expressed concerns regarding the potential impact of the Transaction on competition in the EEA markets for co-packaged optics chiplets and silicon photonics transceiver modules.
October 9, 2023. Howard Bellamy circulated a memorandum analyzing the implications of the EC Phase II investigation and proposing an advocacy strategy for the Commission proceedings. The memorandum noted that the opening of Phase II would extend the EC review timeline by up to 90 working days and would require the preparation and submission of a detailed Statement of Objections response and, potentially, commitments (remedies).
October 10, 2023. A white paper on the competitive effects of the proposed Transaction was submitted to the DOJ on behalf of Halcyon. The white paper argued that the relevant market should be defined more broadly than silicon photonics transceiver modules alone and should include all optical transceiver technologies (including vertical-cavity surface-emitting laser and indium phosphide-based alternatives), that entry barriers were low, and that the Transaction would generate substantial efficiencies in R&D and manufacturing.
October 20, 2023. A letter was submitted to the DOJ proposing a structural remedy consisting of the divestiture of Halcyon's existing U.S. silicon photonics product line (which represented Halcyon's 19% share of the relevant market as defined by Halcyon). The letter identified potential divestiture buyers and outlined a proposed timeline for the divestiture. As discussed in Section V below, this proposal was submitted relatively late in the review process — approximately ten days before the DOJ filed suit — and did not receive substantive engagement from DOJ staff before the complaint was filed.
October 30, 2023. The DOJ filed a civil antitrust complaint captioned United States of America v. Halcyon Semiconductor Aktiengesellschaft and Vectris Photonics, Inc., Case No. 1:23-cv-03187, in the United States District Court for the District of Columbia. The complaint alleged that the proposed Transaction would substantially lessen competition in the market for silicon photonics transceiver modules for hyperscale data center interconnects in the United States, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. The complaint defined the relevant product market narrowly as "silicon photonics transceiver modules designed and optimized for hyperscale data center interconnects" and alleged a combined market share of approximately 47%.
October 31, 2023. A litigation hold notice was issued to Halcyon, directing the preservation of all documents and electronically stored information potentially relevant to the DOJ litigation and the Transaction more broadly. The litigation hold was communicated to Dr. Hartmann and to Halcyon's internal IT and records management teams.
November 1, 2023. A DOJ complaint analysis memorandum was delivered to the Halcyon Board (Vorstand and Aufsichtsrat). The memorandum analyzed the legal theories asserted in the complaint, assessed the strength of the DOJ's case, and evaluated the likelihood of Halcyon prevailing at trial. The memorandum concluded that the probability of Halcyon prevailing on the merits at trial was below 35%, based on the strength of the DOJ's market definition, the concentration levels in the relevant market, and recent case law in vertical and horizontal merger challenges. The memorandum further estimated that the total cost of litigating the case through trial would likely exceed $45,000,000, inclusive of outside counsel fees, expert witness fees, e-discovery costs, and internal costs.
November 8, 2023. The ticking fee under the Meridian Atlantic commitment letter commenced on this date, 90 days after the execution of the Merger Agreement on August 10, 2023. The ticking fee accrued at a rate of 20 basis points per annum on the $500,000,000 undrawn commitment.
D. Termination Phase (November–December 2023)
November 15, 2023. Oliver Mackenzie delivered a board memorandum to the Halcyon Vorstand and Aufsichtsrat setting forth a termination analysis and recommendation. The memorandum analyzed three available courses of action:
(a) Litigate the DOJ complaint. This option would involve defending against the DOJ's Section 7 challenge through trial. Estimated cost: in excess of $45 million. Estimated probability of success: below 35%. Timeline: 12–18 months to trial, with the risk of a preliminary injunction in the interim. The EC Phase II investigation would continue in parallel, adding further uncertainty and cost.
(b) Negotiate further remedies with the DOJ. This option would involve submitting revised remedy proposals (potentially including a broader divestiture package) and engaging in settlement discussions. The memorandum assessed this option as unlikely to succeed given the DOJ staff's apparent view that the Transaction was anticompetitive on its face and that the proposed divestiture of Halcyon's existing U.S. product line was insufficient to restore competition.
(c) Terminate the Merger Agreement under Section 8.1(d) and pay the $28 million reverse break-up fee. This option would result in a defined and immediate exit cost of $28 million (plus accrued ticking fees, advisor fees, and internal costs), would end the regulatory proceedings, and would allow Halcyon to redirect management attention to other strategic priorities.
The memorandum recommended Option (c) — termination — as the course of action most likely to serve Halcyon's interests, given the low probability of prevailing in litigation, the substantial costs of continued pursuit of the Transaction, and the risk of further adverse developments in the EC Phase II proceeding. The memorandum noted that early termination would also limit the ticking fee exposure under the Meridian Atlantic commitment letter.
November 20, 2023. The Halcyon Supervisory Board (Aufsichtsrat) convened a special meeting at which it authorized the termination of the Merger Agreement pursuant to Section 8.1(d) and the payment of the reverse break-up fee.
November 30, 2023. The following actions were taken on this date:
• Halcyon terminated the Merger Agreement pursuant to Section 8.1(d) (Antitrust Termination Right). A formal Notice of Termination was delivered to Vectris, attention: Rebecca Lau, General Counsel, in accordance with the notice provisions of the Merger Agreement.
• A Termination Agreement and Mutual Release was executed among Halcyon, Halcyon Acquisition Sub, Inc., and Vectris. The Termination Agreement confirmed the termination of the Merger Agreement, provided for the payment of the reverse break-up fee, established the surviving provisions of the Merger Agreement (including confidentiality under Section 6.5, non-disparagement under Section 6.8, and cooperation on pending regulatory matters under Section 6.10), provided for the dissolution of Halcyon Acquisition Sub, Inc., and included a mutual release of claims. The Termination Agreement was governed by Delaware law.
December 1, 2023. A letter was delivered to Meridian Atlantic Bank, N.A. (with a copy to Kalder & Eames LLP) formally terminating the commitment letter in accordance with its terms.
December 4, 2023. A notification was submitted to the European Commission withdrawing the EUMR notification in Case M.11247, in light of the termination of the Merger Agreement and the abandonment of the Transaction.
December 5, 2023. A post-termination memorandum on surviving obligations was delivered to Dr. Luisa Hartmann. The memorandum identified and summarized all provisions of the Merger Agreement and the Termination Agreement that survived the termination, including:
• Confidentiality obligations under Section 6.5 of the Merger Agreement (perpetual, subject to customary exceptions)
• Non-disparagement obligations under Section 6.8 of the Merger Agreement (perpetual)
• Cooperation obligations on pending regulatory matters under Section 6.10 of the Merger Agreement (until final resolution of all regulatory proceedings)
• Mutual release provisions of the Termination Agreement
• Indemnification for pre-termination breaches, to the extent applicable
December 12, 2023. Wire transfer instructions for the payment of the reverse break-up fee were transmitted by Vectris's counsel (WPL) to Halcyon, and confirmed by Dr. Hartmann.
December 15, 2023. The reverse break-up fee of $28,000,000 was paid by Halcyon to Vectris via wire transfer in accordance with the Termination Agreement.
E. Administrative Closure (January 2024)
January 8, 2024. The closing statement of fees and expenses (the final fee statement for this engagement) was issued to Halcyon. The statement reflected all professional fees and disbursements incurred through the conclusion of all post-termination work and administrative tasks. All amounts were paid in full by Halcyon upon receipt.
January 15, 2024. This matter closing memorandum was prepared by Oliver Mackenzie and Derek Okonkwo for filing in the permanent matter file and circulation to the firm Management Committee and Conflicts Committee.
The conflicts database was updated on November 30, 2023, to reflect the termination of the Merger Agreement, and will be further updated as of the date of this memorandum to reflect the formal closing of the engagement, as described in Section VII below.
IV. FINANCIAL SUMMARY OF THE ENGAGEMENT
A. Fee Summary
The following summarizes the professional fees billed by Calderwood & Harkness LLP in connection with engagement number 1032-00005:
The M&A work stream billings of approximately $5,800,000 were within the $6,500,000 soft fee cap established in the engagement letter. The antitrust/regulatory work stream was billed separately, as contemplated by the engagement letter, and was not subject to the soft fee cap due to the inherent unpredictability of the scope and duration of the regulatory review process.
The standard hourly billing rates applicable to the principal timekeepers during the engagement period were as follows:
All invoices have been submitted and paid in full as of January 8, 2024. There are no outstanding receivables, write-offs, or disputed amounts associated with this engagement.
B. Client Transaction Costs (For Reference)
The following is a summary of the significant transaction costs incurred by Halcyon in connection with the Transaction, provided for reference and to contextualize the total cost of the terminated deal. These figures are based on information provided by the client and are approximate:
For reference, the implied valuation multiples at the deal price of $800 million in aggregate equity consideration were approximately 2.6× EV/Revenue (based on FY2022 revenue of $312 million) and approximately 10.8× EV/EBITDA (based on FY2022 EBITDA of $74 million). These multiples were within the range of comparable transactions in the semiconductor sector at the time of signing, as analyzed in the Ridgeline Partners fairness analysis.
V. LESSONS LEARNED
This section sets forth the principal lessons learned from the engagement for the benefit of future deal teams at the firm. The observations below are organized by subject matter and are intended to inform the firm's practice in future semiconductor M&A transactions and, more broadly, in any acquisition where antitrust clearance is a material closing condition.
A. Antitrust Risk Assessment in Semiconductor Transactions
1. Early and rigorous competitive overlap analysis is critical. The July 10, 2023, antitrust risk assessment memorandum prepared by Howard Bellamy correctly identified the significant combined market shares in silicon photonics — approximately 47% in the United States (Halcyon 19% + Vectris 28%) in silicon photonics transceiver modules and approximately 38% combined EEA share in co-packaged optics chiplets. The memorandum rated the antitrust risk as "medium-high." Notwithstanding this assessment, the deal team and the client proceeded with the Transaction on the view that structural remedies (specifically, the divestiture of Halcyon's existing U.S. silicon photonics product line) could be offered to resolve the agencies' concerns and secure clearance.
In hindsight, the magnitude of the horizontal overlap — particularly in light of the DOJ's increasingly aggressive enforcement posture in technology and semiconductor transactions during the relevant period — presented a higher risk profile than was initially weighted in the go/no-go analysis presented to the Halcyon Board. While the antitrust risk was properly identified, the deal team's assessment of the probability of successfully remedying the competitive concerns may have been overly optimistic, particularly given the narrow market definition that the DOJ ultimately adopted (silicon photonics transceiver modules for hyperscale data center interconnects, as opposed to the broader optical transceiver market that Halcyon's internal analysis assumed).
For future transactions, when combined market shares in any plausible relevant market definition exceed 40%, the deal team should present a more granular risk stratification to the client, including a specific assessment of the probability of a Second Request, the probability of a DOJ or FTC challenge, and the estimated total cost of a regulatory defeat (inclusive of break-up fees, ticking fees, advisor fees, opportunity cost, and reputational impact).
2. Market definition is a key variable. The DOJ defined the relevant product market more narrowly than Halcyon's internal competitive analysis anticipated. Halcyon and Ridgeline Partners had assessed the relevant market as the broader "optical transceiver module" market, which included VCSEL-based, indium phosphide-based, and silicon photonics-based solutions. Under this broader definition, the combined market share would have been significantly lower (estimated at approximately 22–25%). The DOJ, however, defined the market as "silicon photonics transceiver modules designed and optimized for hyperscale data center interconnects" — a product market in which Halcyon and Vectris were two of only a handful of significant competitors.
The lesson is clear: in future semiconductor M&A transactions with significant horizontal overlaps, the firm should stress-test multiple plausible market definitions, including the narrowest credible market that an aggressive enforcement agency could adopt. The risk assessment should explicitly model the competitive effects analysis under each definition and present the client with a range of outcomes, rather than a single point estimate based on the market definition most favorable to the parties.
3. Remedy proposals must be compelling and timely. The structural remedy proposal — the divestiture of Halcyon's existing U.S. silicon photonics product line — was submitted to the DOJ on October 20, 2023, approximately ten days before the DOJ filed suit on October 30, 2023. By the time the remedy proposal was submitted, DOJ staff had already substantially completed their competitive effects analysis and had, in all likelihood, already recommended litigation to the Assistant Attorney General. The remedy proposal did not receive substantive engagement from DOJ staff before the complaint was filed.
For future matters, remedy proposals in high-risk transactions should be developed and submitted earlier in the review process — ideally during the Second Request compliance phase or immediately following substantial compliance — to maximize the opportunity for meaningful dialogue with the reviewing agency. The firm should consider retaining an economic consulting firm at the outset of the regulatory phase to develop a quantitative analysis supporting the proposed remedy and to model the post-divestiture competitive landscape.
4. Dual-jurisdiction complexity. The parallel European Commission Phase II investigation compounded the regulatory burden and influenced the termination calculus. The EC's opening of Phase II on October 6, 2023, preceded the DOJ complaint by nearly a month and signaled to the deal team and the client that regulatory opposition was building on both sides of the Atlantic. The prospect of having to develop and defend separate remedy proposals in two jurisdictions, with potentially inconsistent requirements, was a significant factor in the Halcyon Supervisory Board's decision to terminate.
For future cross-border semiconductor deals — and particularly for transactions involving parties with significant market positions in both the United States and the European Economic Area — the deal team should budget for concurrent multi-jurisdictional advocacy from the outset. Staffing plans should anticipate dual-track workstreams from the date HSR and EUMR notifications are filed, and the engagement letter should address the scope and cost of multi-jurisdictional regulatory work explicitly.
B. Early Engagement with Competition Authorities
1. Pre-notification outreach. The deal team did not conduct pre-notification discussions with the DOJ Antitrust Division prior to the filing of the HSR notification on August 18, 2023. For transactions with obvious horizontal overlap at these concentration levels — particularly in sectors where the DOJ has announced heightened scrutiny — informal pre-notification engagement can serve several valuable purposes: it can surface the agency's likely concerns earlier in the process; it allows the merging parties to shape the analytical narrative before formal review begins; and it can provide an early indication of whether a Second Request is likely, which in turn informs the parties' decisions about deal structure, timeline, and protective provisions.
This is a strong recommendation for future matters. In any semiconductor transaction where combined market shares in any plausible market definition exceed 35%, the deal team should recommend pre-notification engagement with the relevant competition authority as a default practice.
2. European Commission timing. The EUMR Form CO notification was filed on August 25, 2023, seven days after the HSR filing on August 18. While this gap was not operationally significant, it resulted in slightly misaligned review timelines across the two jurisdictions. Aligning the filing dates more closely — ideally filing on the same day or within one to two business days — could facilitate a more coordinated advocacy strategy, enable the parties to present a unified competitive effects narrative to both agencies simultaneously, and reduce the risk of one agency taking an adverse action (such as opening a Phase II investigation) before the other has reached a comparable stage in its review. In this case, the EC opened Phase II on October 6, 2023, which preceded the DOJ complaint by more than three weeks and added independent pressure to the termination analysis.
3. Coordination between deal counsel and antitrust counsel. The integration between the M&A and antitrust workstreams within the Calderwood & Harkness team functioned well throughout the engagement. Beginning with the issuance of the Second Request on September 15, 2023, the M&A and antitrust teams held weekly joint status calls (typically on Monday mornings) to coordinate strategy, share information, and ensure that the regulatory developments were promptly reflected in the advice provided to the client's Board. This practice of regular, scheduled cross-workstream coordination proved valuable and should be formalized as a standard operating procedure for any future deal where antitrust risk is rated "medium-high" or above at the outset. The coordination protocol should be memorialized in the engagement's internal staffing plan and should include a designated point of contact in each workstream responsible for information flow.
C. Deal Structure and Protective Provisions
1. Reverse break-up fee calibration. The 3.5% reverse break-up fee ($28,000,000) was within the range of market practice for transactions of this size and risk profile. The fee ultimately functioned as intended: it provided a defined exit cost that facilitated an orderly termination of the Merger Agreement when the regulatory path forward became untenable. Vectris did not contest the termination or the amount of the break-up fee, and the payment was completed on December 15, 2023, without dispute.
However, in transactions where antitrust clearance is identified as the primary risk factor at the outset, the client should be counseled early and clearly on the full expected cost of a regulatory failure scenario. This includes not only the reverse break-up fee itself but also the ticking fees on undrawn financing commitments, the base advisory fee paid to the financial advisor (which is typically non-refundable), the legal fees incurred through the termination process, the opportunity cost of management time, and any reputational impact. In this Transaction, the total cost of the terminated deal to Halcyon was approximately $39–40 million (reverse break-up fee of $28 million, legal fees of approximately $7.9 million, advisory fee of $3.2 million, ticking fees of approximately $60,000, plus internal costs). Presenting this figure to the client at the outset — framed as the "cost of failure" — would ensure that the go/no-go decision is made with full visibility into the downside.
2. Outside Date and auto-extension mechanics. The Outside Date was set at March 10, 2024, with an automatic 90-day extension to June 10, 2024, if the sole unsatisfied closing condition at the initial Outside Date was the receipt of required antitrust approvals. This structure provided Halcyon with flexibility to pursue regulatory clearance over an extended period but also created exposure in the form of ongoing ticking fees, legal fees, and management distraction.
Halcyon's decision to terminate early — on November 30, 2023, well in advance of the initial Outside Date — was the correct strategic call given the assessed probability of prevailing at trial (below 35%), the substantial estimated litigation costs (exceeding $45 million), and the compounding effect of the EC Phase II investigation. The Section 8.1(d) antitrust termination right was well-drafted, clearly triggered by the DOJ complaint, and functioned cleanly without ambiguity or dispute.
For future transactions, when the primary closing risk is antitrust, the deal team should consider whether the Outside Date mechanics appropriately balance the need for regulatory runway against the cost of continued exposure. In particular, the auto-extension provision should be carefully calibrated: a 90-day extension may be appropriate in some circumstances, but in others (e.g., where a DOJ complaint has already been filed), the extension merely prolongs the period of cost accrual without meaningfully increasing the probability of closing.
3. Financing commitment exposure. The ticking fee of 20 basis points per annum on the $500,000,000 undrawn commitment commenced on November 8, 2023, exactly 90 days after the signing of the Merger Agreement. By terminating the Merger Agreement on November 30, 2023, and the commitment letter on December 1, 2023, Halcyon limited the ticking fee accrual to approximately 22 days (approximately $60,274). Had Halcyon instead elected to litigate the DOJ complaint through the full Outside Date (or the extended Outside Date), the ticking fee accrual would have been substantially higher.
For future engagements where antitrust risk is elevated, the deal team should negotiate longer ticking fee grace periods in the commitment letter (e.g., 120 or 150 days rather than 90 days). Alternatively, the commitment letter should be structured with antitrust-out provisions that mirror the Merger Agreement termination mechanics, so that the commitment terminates automatically upon termination of the Merger Agreement under the antitrust termination right, without additional ticking fee accrual.
D. Due Diligence Process
1. IP due diligence. The IP due diligence on Vectris's intellectual property portfolio — encompassing 187 issued U.S. patents, 43 pending U.S. patent applications, all material license agreements, and a freedom-to-operate analysis — was thorough and well-executed. No material issues were identified that would have affected the terms of the Transaction or the valuation of Vectris. While this workstream was ultimately rendered moot by the termination of the Merger Agreement, the work product generated during the IP diligence may be relevant if Halcyon revisits a transaction in the silicon photonics space in the future. The IP diligence materials should be retained in accordance with the retention protocols set forth in Section VI and should be indexed for ease of retrieval by future deal teams.
2. Preliminary due diligence. The preliminary due diligence memorandum delivered on July 14, 2023, flagged all material risk areas adequately. No issues emerged post-signing from the due diligence workstream that had not been previously identified and addressed in the Merger Agreement or the disclosure schedules. The due diligence process functioned as intended and does not give rise to specific lessons learned or recommendations for process improvement.
E. Post-Termination Execution
1. Efficient wind-down. The post-termination wind-down of the Transaction was executed efficiently and in a compressed timeline:
• November 30, 2023: Merger Agreement terminated; Termination Agreement and Mutual Release executed
• December 1, 2023: Meridian Atlantic commitment letter terminated
• December 4, 2023: EC notification withdrawn (Case M.11247)
• December 5, 2023: Post-termination memorandum on surviving obligations delivered to client
• December 12, 2023: Wire transfer instructions for reverse break-up fee confirmed
• December 15, 2023: Reverse break-up fee of $28,000,000 paid
The compressed timeline — 15 days from termination to payment of the break-up fee — reflects well-planned execution and effective coordination with counterparty counsel (WPL), the financing source (Meridian Atlantic), and the European Commission.
2. Surviving obligations documentation. The surviving obligations under the Merger Agreement and the Termination Agreement were clearly documented in the December 5, 2023, memorandum delivered to Dr. Hartmann. The memorandum identified each surviving provision by section number and summarized its scope, duration, and practical implications for Halcyon's ongoing obligations to Vectris. The surviving provisions — confidentiality under Section 6.5, non-disparagement under Section 6.8, and cooperation on pending regulatory matters under Section 6.10 — are not time-limited (other than the cooperation obligation, which expires upon final resolution of all regulatory proceedings) and should be flagged in the client relationship file for future reference.
3. Dissolution of Merger Sub. The Termination Agreement addresses the dissolution of Halcyon Acquisition Sub, Inc. The dissolution will be completed through the filing of a certificate of dissolution with the Delaware Secretary of State. As of the date of this memorandum, the certificate has not yet been filed but is expected to be filed promptly. The matter file should be updated upon completion of the dissolution.
VI. FILE RETENTION PROTOCOLS
A. Document Categories and Retention Periods
The following retention schedule applies to all documents and work product generated in connection with engagement number 1032-00005. All retention periods are measured from the formal matter closing date of January 15, 2024, unless otherwise specified.
1. Engagement Letter and Conflicts Memoranda. The engagement letter dated May 22, 2023, and all conflicts clearance memoranda (including the initial conflicts clearance memorandum dated May 20, 2023, and the updated conflicts memorandum dated November 30, 2023) shall be retained in the permanent firm files with no destruction date. These documents are to be maintained indefinitely in accordance with the firm's general records retention policy for engagement letters and conflicts materials.
2. Transaction Documents. The following executed transaction documents shall be retained for a minimum of 10 years from the matter closing date (i.e., until at least January 15, 2034):
• Agreement and Plan of Merger, dated August 10, 2023
• Voting and Support Agreement, dated August 10, 2023
• Escrow Agreement, dated August 10, 2023
• Commitment Letter, dated August 8, 2023
• Exclusivity Agreement, dated June 20, 2023
• Termination Agreement and Mutual Release, dated November 30, 2023
• All ancillary agreements, side letters, and amendments
These documents contain surviving obligations (including confidentiality, non-disparagement, and cooperation covenants) that may be relevant beyond the minimum retention period. If any dispute arises relating to the Transaction or the surviving obligations, the retention period shall be extended until the final resolution of such dispute.
3. Due Diligence Memoranda and Work Product. The following due diligence materials shall be retained for a minimum of 7 years from the matter closing date (i.e., until at least January 15, 2031):
• Preliminary due diligence memorandum, dated July 14, 2023
• IP due diligence memorandum, dated July 21, 2023
• Antitrust risk assessment memorandum, dated July 10, 2023
• Disclosure schedule comments and drafts
• Due diligence request lists and correspondence
• All related work product and research memoranda
4. Regulatory/Antitrust Materials. The following regulatory and antitrust materials shall be retained for a minimum of 10 years from the matter closing date (i.e., until at least January 15, 2034):
• HSR premerger notification forms and related drafts
• EUMR Form CO notification and related drafts (Case M.11247)
• Second Request (Civil Investigative Demand) and all compliance materials, including document productions, data submissions, and custodian certifications
• White paper on competitive effects submitted to DOJ (October 10, 2023)
• Structural remedy proposal letter to DOJ (October 20, 2023)
• DOJ complaint analysis memorandum (November 1, 2023)