PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Dr. Luisa Hartmann, General Counsel, Halcyon Semiconductor Aktiengesellschaft
FROM: Derek Okonkwo, Lead Associate, and Tiffany Rosenthal, Working Associate, Calderwood & Harkness LLP
DATE: December 5, 2023
RE: Surviving Obligations of Halcyon Semiconductor AG Under the Agreement and Plan of Merger dated August 10, 2023 (as terminated November 30, 2023) and the Termination Agreement and Mutual Release dated November 30, 2023
MATTER NO.: 1032-00005
CC: Oliver Mackenzie, Responsible Partner; Harrison Wexford, Billing Partner; Howard Bellamy, Specialist Partner, Antitrust & Competition
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I. Executive Summary
The purpose of this memorandum is to identify, catalog, and comprehensively summarize all obligations of Halcyon Semiconductor Aktiengesellschaft ("Halcyon" or "HSAG"), Halcyon Acquisition Sub, Inc. ("Merger Sub"), and their respective directors, officers, agents, and advisors that survive the termination of the Agreement and Plan of Merger, dated as of August 10, 2023 (the "Merger Agreement"), by and among Halcyon, Merger Sub, and Vectris Photonics, Inc. ("Vectris"), and/or that arise independently under the Termination Agreement and Mutual Release, dated as of November 30, 2023 (the "Termination Agreement"). This memorandum is intended to serve as a practical compliance guide for Halcyon's in-house legal team in managing the post-termination obligations and associated deadlines.
Background. The Merger Agreement contemplated the acquisition of Vectris by Halcyon through a reverse triangular merger, in which Merger Sub would merge with and into Vectris, with Vectris surviving as a wholly owned subsidiary of Halcyon. The aggregate consideration to Vectris stockholders was approximately $800,000,000, consisting of a mix of cash and Halcyon American Depositary Shares. The strategic rationale for the transaction centered on Halcyon's desire to acquire Vectris's leading silicon photonics platform and expand its integrated semiconductor capabilities in the data center interconnect and telecommunications markets.
The Merger Agreement was terminated on November 30, 2023, by Halcyon pursuant to Section 8.1(d) (Antitrust Termination Right) due to the failure to obtain required antitrust approvals from the relevant governmental authorities. Specifically, the U.S. Department of Justice, Antitrust Division, filed a civil antitrust complaint on October 30, 2023 (Case No. 1:23-cv-03187, U.S. District Court for the District of Columbia), seeking to enjoin the proposed merger on the grounds that it would substantially lessen competition in the market for silicon photonics transceivers and related components. In addition, the European Commission opened a Phase II in-depth investigation on October 6, 2023 (Case M.11247), expressing serious doubts as to the compatibility of the proposed concentration with the internal market. In light of these regulatory developments, and following an internal assessment concluding that the likelihood of prevailing at trial in the DOJ action was below 35% and that estimated litigation costs would exceed $45 million, Halcyon determined that early termination of the Merger Agreement was the most prudent course of action.
In connection with termination, Halcyon is obligated to pay, and has paid, a reverse break-up fee in the amount of $28,000,000, representing 3.5% of the $800,000,000 deal value, to Vectris in accordance with Section 8.3(a) of the Merger Agreement and Section 2 of the Termination Agreement. The reverse break-up fee was wired to Vectris's designated account on December 15, 2023, in satisfaction of this obligation.
While many provisions of the Merger Agreement ceased to have force and effect upon the delivery of the Notice of Termination, certain sections of the Merger Agreement were expressly designated as surviving provisions pursuant to Section 8.2, and accordingly continue to bind Halcyon, Merger Sub, and their respective representatives. Additionally, the Termination Agreement imposes independent continuing obligations on Halcyon that were not contemplated by the Merger Agreement itself, or that clarify and supplement surviving obligations thereunder.
This memorandum is organized by obligation category, with cross-references to the specific contractual sections giving rise to each obligation, the duration of each obligation, and our recommended compliance actions for Halcyon's in-house legal team. A comprehensive summary table of all surviving obligations, together with key dates and action items, is set forth in Section XIII below.
II. Overview of Termination and Surviving-Provisions Framework
A. Termination Under Section 8.1(d) of the Merger Agreement
Section 8.1(d) of the Merger Agreement permitted either Halcyon or Vectris to terminate the Merger Agreement by written notice to the other party in the event that any governmental authority of competent jurisdiction had instituted any legal proceeding seeking to enjoin or prohibit the transactions contemplated by the Merger Agreement, or in the event that any required antitrust approval (as defined in Article I to include clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the Council Regulation (EC) No. 139/2004 (the EU Merger Regulation), and any other applicable competition law) could not reasonably be expected to be obtained by the Outside Date.
The "Outside Date" was defined as March 10, 2024, subject to an automatic extension of ninety (90) days (to June 10, 2024) in the event that, as of March 10, 2024, all conditions to closing other than the antitrust condition had been satisfied or were capable of being satisfied. Notwithstanding the availability of this extended timeline, Halcyon elected to exercise its termination right on an accelerated basis. Specifically, on November 30, 2023, following extensive deliberations by the Vorstand (Management Board) of Halcyon, with input from the Aufsichtsrat (Supervisory Board) and outside advisors, Halcyon delivered its Notice of Termination rather than continue to pursue the transaction through protracted regulatory litigation. This decision was based on the internal assessment, supported by the analysis of Howard Bellamy and the Calderwood & Harkness antitrust team, that the probability of prevailing at trial in the DOJ action was below 35%, and that the estimated costs of litigating the DOJ action through trial (including expert fees, document review, and associated disruption to Halcyon's business operations) would exceed $45 million, exclusive of any costs associated with the parallel EC Phase II proceeding.
The Notice of Termination was delivered by Dr. Katarina Breuer, Chief Executive Officer of Halcyon, to Rebecca Lau, General Counsel and Corporate Secretary of Vectris, on November 30, 2023, in accordance with the notice provisions of Section 9.2 of the Merger Agreement. Copies were simultaneously delivered to Whitfield, Prager & Loomis LLP, outside counsel to Vectris, and to Calderwood & Harkness LLP. The termination became effective upon delivery of such notice, as provided in Section 8.1(d).
B. Surviving Provisions Under Section 8.2 of the Merger Agreement
Section 8.2 of the Merger Agreement provides that, in the event of a valid termination of the Merger Agreement pursuant to Section 8.1, the Merger Agreement shall become void and of no further force or effect, and no party shall have any liability or obligation to any other party thereunder, except that the following provisions shall survive the termination and continue in full force and effect in accordance with their respective terms:
(a) Article I (Definitions) — all defined terms used in the surviving provisions shall retain their respective meanings as set forth in Article I of the Merger Agreement;
(b) Section 6.5 (Confidentiality) — the confidentiality obligations of the parties and their respective representatives, as discussed in detail in Section III of this memorandum;
(c) Section 6.8 (Non-Disparagement) — the mutual non-disparagement covenants, as discussed in detail in Section IV of this memorandum;
(d) Section 6.10 (Cooperation) — the obligation of the parties to cooperate in good faith with respect to pending or continuing regulatory proceedings related to the Merger, as discussed in detail in Section V of this memorandum;
(e) Section 8.2 (Effect of Termination) — the survival provisions themselves, which delineate the scope of surviving obligations and preserve rights with respect to pre-termination breaches;
(f) Section 8.3 (Reverse Break-Up Fee / Target Termination Fee) — the provisions governing the payment of the reverse break-up fee, the exclusive remedy limitation, and related payment mechanics, as discussed in detail in Section VI of this memorandum; and
(g) Article IX (Miscellaneous) — including, without limitation, the governing law and jurisdiction provisions (Section 9.1), the notice provisions (Section 9.2), the waiver of jury trial (Section 9.6), and the expenses provision (Section 9.4), as discussed in Section XII of this memorandum.
All other provisions of the Merger Agreement, including without limitation the representations and warranties of the parties (Article III and Article IV), the pre-closing covenants relating to the conduct of Vectris's business (Section 5.1), the no-solicitation provisions (Section 5.3), and the conditions to closing (Article VII), ceased to have any force or effect upon the effectiveness of the termination. The parties have no continuing rights or obligations under any such terminated provisions, subject to the carve-out for pre-termination breach claims described in Section VII below.
C. Termination Agreement and Mutual Release — Additional Obligations
The Termination Agreement, entered into by and among Halcyon, Merger Sub, and Vectris on November 30, 2023, simultaneously with the delivery of the Notice of Termination, serves multiple functions. First, it confirms and memorializes the termination of the Merger Agreement pursuant to Section 8.1(d). Second, it contains a broad mutual release of claims, subject to certain carve-outs for surviving obligations, fraud, and willful breach. Third, it imposes additional or clarifying obligations on the parties that go beyond the surviving provisions of the Merger Agreement itself, including:
(a) Mutual release of claims (Section 3), subject to specified carve-outs for surviving obligations under Section 8.2, claims for fraud or willful breach, obligations arising under the Termination Agreement itself, and rights under the Escrow Agreement;
(b) Dissolution of Merger Sub (Section 4), requiring Halcyon to cause the dissolution and winding-up of Halcyon Acquisition Sub, Inc. as promptly as practicable following termination;
(c) Termination of Escrow Agreement (Section 5), providing for the mutual termination of the Escrow Agreement dated August 10, 2023 with Ironclad National Bank, N.A.;
(d) Document retention requirements (Section 6), requiring each party to retain all transaction-related documents for a minimum of three (3) years following termination; and
(e) Confirmation of the reverse break-up fee obligation (Section 2) and the deadline for payment thereof.
The Termination Agreement is governed by the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof, consistent with the governing law provision of the Merger Agreement. The Termination Agreement was executed and delivered on behalf of Halcyon by Dr. Katarina Breuer and on behalf of Vectris by Rebecca Lau.
III. Confidentiality Covenants (Merger Agreement, Section 6.5)
A. Scope of Confidentiality Obligations
Section 6.5 of the Merger Agreement expressly survives termination pursuant to Section 8.2. Under Section 6.5, Halcyon and its representatives — including Calderwood & Harkness LLP (outside legal counsel), Ridgeline Partners LLC (financial advisor), Thornbury Wight LLP (independent auditors), and all other advisors, agents, consultants, and employees who received Confidential Information of Vectris — remain bound by the confidentiality obligations set forth therein.
Section 6.5 incorporates by reference the terms of the Confidentiality Agreement (also referred to as the "NDA"), which was entered into between Halcyon and Vectris prior to the execution of the Exclusivity Agreement of June 20, 2023. The Confidentiality Agreement, which was initially executed in connection with Halcyon's preliminary evaluation of a potential strategic transaction with Vectris, established the framework for the exchange of confidential and proprietary information between the parties. The Merger Agreement preserved and supplemented the Confidentiality Agreement's protections by incorporating them into the definitive transaction documents.
"Confidential Information," as defined in the Confidentiality Agreement and as used in Section 6.5 of the Merger Agreement, encompasses all non-public information regarding Vectris's business, operations, financial condition, technology, intellectual property portfolio, customer and supplier relationships, strategic plans, and any other proprietary data or information that was furnished, disclosed, or made available by Vectris or its representatives to Halcyon or its representatives, whether in writing, electronically, orally, or by inspection, in connection with the evaluation and negotiation of the proposed Merger and the due diligence process (the Vectris virtual data room was opened on June 26, 2023, and populated with approximately 14,800 documents across 47 data room categories).
Without limitation, the Confidential Information of Vectris that is subject to the surviving confidentiality obligations includes:
(a) Vectris's intellectual property portfolio, including its 187 issued U.S. patents and 43 pending U.S. patent applications relating to silicon photonics, optical transceiver design, and related technologies, as well as corresponding foreign patent rights;
(b) Vectris's customer relationships, including relationships with three of the top five U.S. hyperscale cloud operators (by revenue), as well as detailed pricing, volume, and contract information for those relationships;
(c) Vectris's financial statements, projections, and budgets, including the confidential management projections provided during the due diligence process;
(d) Vectris's product roadmap and research and development pipeline, including details regarding next-generation 800G and 1.6T transceiver platforms;
(e) All notes, summaries, analyses, compilations, and other derivative materials prepared by Halcyon or its representatives that contain, reflect, or are based upon the foregoing information; and
(f) The fact and terms of the Merger Agreement and the negotiations relating thereto, to the extent not already publicly disclosed.
B. Duration. The confidentiality obligations under Section 6.5, as governed by the terms of the underlying Confidentiality Agreement, survive for a period of two (2) years following the termination of the Merger Agreement. Accordingly, the general confidentiality obligations remain in full force and effect through November 30, 2025.
In addition, the Confidentiality Agreement provides that certain categories of information that constitute "trade secrets" under applicable law (including under the Delaware Uniform Trade Secrets Act, 6 Del. C. § 2001 et seq., the federal Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 et seq., and, to the extent applicable, the German Trade Secrets Act (Geschäftsgeheimnisgesetz — GeschGehG)) shall remain subject to confidentiality obligations indefinitely, for so long as such information retains its trade-secret status under applicable law. This indefinite survival provision applies irrespective of the two-year general expiration date and is not limited by the terms of the Merger Agreement.
Halcyon's in-house legal team should be mindful that the distinction between general Confidential Information (which expires on November 30, 2025) and trade-secret information (which survives indefinitely) may give rise to practical compliance challenges. We recommend that Halcyon's IT and records management departments, in consultation with Dr. Hartmann's office, develop a protocol for identifying and segregating materials that may contain Vectris trade secrets so that appropriate protections can be maintained beyond November 30, 2025.
C. Permitted Disclosures / Exceptions
The confidentiality obligations under Section 6.5 and the Confidentiality Agreement are subject to certain customary exceptions and permitted disclosures, including the following:
(a) Disclosures required by law, regulation, or legal process. Halcyon may disclose Confidential Information of Vectris to the extent required by applicable law, regulation, or legal process, including without limitation any disclosure obligations arising under the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or "BaFin"), to which Halcyon is subject as a publicly traded Aktiengesellschaft with shares listed on the Frankfurt Stock Exchange (FSE: HCY) and American Depositary Shares listed on the Nasdaq Global Select Market (Nasdaq: HCYY). In the event that Halcyon is compelled to make any such disclosure, it is required to provide Vectris with prompt written notice (to the extent legally permissible) and to cooperate with Vectris in seeking a protective order or other appropriate remedy to limit the scope of the disclosure.
(b) Disclosures to auditors and legal counsel. Halcyon may disclose Confidential Information to its auditors (Thornbury Wight LLP, engagement partner Gavin Ashmore) and legal counsel (Calderwood & Harkness LLP) on a need-to-know basis, provided that such auditors and counsel are themselves subject to confidentiality obligations (whether contractual or professional) that are no less restrictive than those set forth in the Confidentiality Agreement.
(c) Publicly available information. The confidentiality obligations do not apply to information that has become generally available to the public other than as a result of a disclosure by Halcyon or its representatives in violation of the Confidentiality Agreement or Section 6.5.
(d) Information independently developed or known. The confidentiality obligations do not apply to information that was already known to Halcyon or its representatives prior to its disclosure by Vectris, or that is independently developed by Halcyon or its representatives without use of or reference to the Confidential Information of Vectris.
D. Return or Destruction of Confidential Information
Section 6.5(c) of the Merger Agreement requires that, within thirty (30) days following the date of termination (i.e., by December 30, 2023), Halcyon and all of its representatives shall either return to Vectris, or destroy, all Confidential Information of Vectris in their possession or control, including all copies, extracts, notes, summaries, analyses, compilations, and other materials or documents derived from or incorporating such Confidential Information, in any medium or format (whether physical, electronic, or otherwise).
Upon completion of the return or destruction process, Halcyon is required to deliver to Vectris a written certification, signed by a duly authorized officer or representative of Halcyon, confirming that all Confidential Information has been returned or destroyed in accordance with the requirements of Section 6.5(c). Such certification is to be directed to the attention of Rebecca Lau, General Counsel and Corporate Secretary of Vectris, at the notice address specified in Section 9.2 of the Merger Agreement.
The return-or-destroy obligation is subject to the following important exceptions:
(a) Legal and regulatory retention. Halcyon and its representatives may retain copies of Confidential Information to the extent required by applicable law, regulation, or bona fide internal document retention policies, including without limitation any retention requirements under applicable securities laws, tax laws, or professional standards (e.g., the retention obligations of Thornbury Wight LLP under applicable auditing standards).
(b) Litigation hold. As discussed in greater detail in Section IX below, a litigation hold notice was issued by Calderwood & Harkness on October 31, 2023, in connection with DOJ Case No. 1:23-cv-03187. The scope of the litigation hold encompasses certain categories of Confidential Information of Vectris. To the extent that any Confidential Information falls within the scope of the litigation hold, Halcyon and its representatives must preserve such information notwithstanding the return-or-destroy obligation under Section 6.5(c), until such time as the litigation hold is lifted. The certification letter delivered to Vectris should note this exception and identify the scope of materials retained pursuant to the litigation hold.
Recommended Actions:
1. Coordinate with Halcyon's IT department (contact: to be designated by Dr. Hartmann) and records management department to identify all Confidential Information of Vectris in Halcyon's possession or control, including electronic files, email repositories, shared drives, data room downloads, printed materials, and working papers.
2. Prepare and circulate internal instructions to all Halcyon personnel who participated in the due diligence process or otherwise had access to Vectris Confidential Information, directing them to identify and return or destroy all such materials by December 28, 2023 (allowing a two-day buffer before the contractual deadline).
3. Deliver written notices to each of Halcyon's external advisors who received Confidential Information of Vectris, reminding them of their independent obligations to return or destroy such materials under the Confidentiality Agreement and Section 6.5(c). Such notices should be sent to, at minimum: Ridgeline Partners LLC (attention: Nathaniel Cross, Managing Director); Thornbury Wight LLP (attention: Gavin Ashmore, Engagement Partner); and any other advisors identified in the data room access log.
4. Prepare the certification letter to Vectris (attention: Rebecca Lau) for Dr. Hartmann's signature. Calderwood & Harkness can prepare a draft of this letter upon instruction.
5. Coordinate with Howard Bellamy to ensure that any Confidential Information subject to the litigation hold is appropriately preserved and segregated from the materials being returned or destroyed.
IV. Non-Disparagement Covenant (Merger Agreement, Section 6.8)
A. Scope. Section 6.8 of the Merger Agreement, which survives termination pursuant to Section 8.2, contains a mutual non-disparagement covenant. Under this provision, neither Halcyon nor Vectris, nor any of their respective officers, directors, or authorized spokespersons, shall make or cause to be made, directly or indirectly, any public statement, press release, public filing, or other public communication that disparages the other party, its business, its products, its technology, its management, or the reasons for the termination of the Merger Agreement.
The non-disparagement obligation is binding on Halcyon and its officers and directors, including without limitation:
• Dr. Katarina Breuer, Chief Executive Officer (Vorstandsvorsitzende)
• Markus Ellinger, Chief Financial Officer (Finanzvorstand)
• Dr. Luisa Hartmann, General Counsel (Chefjustitiar)
• Prof. Dr. Friedrich Wendt, Chair of the Supervisory Board (Aufsichtsratsvorsitzender)
• All other members of the Vorstand and Aufsichtsrat of Halcyon
• Any authorized spokesperson of Halcyon, including investor relations and corporate communications personnel
The term "disparagement" is not separately defined in the Merger Agreement, but should be interpreted broadly in accordance with its common legal meaning to include any statement that tends to cast the other party, its business, or its management in a negative or unfavorable light, beyond what is required for truthful, factual disclosure pursuant to applicable law.
B. Duration. The non-disparagement obligation survives for a period of eighteen (18) months following the effective date of termination of the Merger Agreement. Accordingly, the non-disparagement covenant remains in full force and effect through May 30, 2025.
C. Exceptions. The non-disparagement covenant is subject to certain customary exceptions:
(a) Legally compelled disclosures. Statements that are required by applicable law, regulation, court order, or governmental or regulatory proceeding are not subject to the non-disparagement covenant. This exception encompasses, without limitation, any testimony or filings that Halcyon may be required to provide in connection with the DOJ antitrust action (Case No. 1:23-cv-03187) or the European Commission Phase II investigation (Case M.11247), as well as any disclosures required by the SEC, BaFin, or other regulatory authorities.
(b) Truthful regulatory and securities filings. Truthful statements made in filings with the SEC (including on Form 6-K, Form 20-F, or other applicable forms), with BaFin, or in Halcyon's annual report (Geschäftsbericht), quarterly or interim reports, or other investor communications, are permitted, provided that such statements are factually accurate and are not gratuitously derogatory or designed to cast Vectris in an unfavorable light beyond what is necessary for accurate disclosure.
(c) Internal communications. The non-disparagement covenant, by its terms, applies to public statements and communications. Internal discussions among Halcyon's management, board of directors, and advisors concerning the terminated transaction and the relationship with Vectris are not prohibited, provided that such discussions are not disseminated to the public or to third parties outside the ordinary course.
D. Recommended Compliance Actions
We recommend the following compliance measures to mitigate the risk of an inadvertent breach of the non-disparagement covenant:
1. Internal guidance memorandum. Dr. Hartmann's office should prepare and circulate an internal memorandum to the Halcyon executive team (Vorstand and Aufsichtsrat), investor relations department, corporate communications department, and marketing department, outlining the scope and duration of the non-disparagement obligation and providing practical guidance on permissible and impermissible statements. Calderwood & Harkness can assist in preparing this memorandum.
2. Pre-clearance protocol. All public statements regarding the terminated Vectris transaction and the relationship with Vectris — including press releases, investor presentations, earnings call scripts, analyst day presentations, and social media posts — should be reviewed and approved by Dr. Hartmann's office or, as appropriate, by Calderwood & Harkness, prior to issuance or publication. This pre-clearance requirement should remain in effect through May 30, 2025.
3. Earnings call preparation. Particular care should be taken in connection with Halcyon's upcoming earnings calls and analyst communications, to the extent that Halcyon's management discusses the rationale for terminating the Vectris transaction, the strategic implications of the abandoned deal, or Halcyon's future M&A strategy as it relates to the silicon photonics market. Talking points and Q&A preparation materials for such events should be developed in consultation with legal counsel.
4. Monitoring. Dr. Hartmann's office should monitor public statements by Vectris and its representatives for potential violations of the non-disparagement covenant. In the event that a potential violation is identified, Calderwood & Harkness should be consulted regarding the appropriate response.
V. Cooperation with Respect to Pending Regulatory Matters (Merger Agreement, Section 6.10)
A. Scope of Cooperation Obligation
Section 6.10 of the Merger Agreement, which survives termination pursuant to Section 8.2, requires both Halcyon and Vectris to cooperate in good faith with respect to any pending or continuing regulatory proceedings arising from or related to the Merger. As of the date of this memorandum, the following regulatory proceedings remain open or are in the process of being closed:
(1) DOJ Civil Antitrust Action. United States of America v. Halcyon Semiconductor Aktiengesellschaft and Vectris Photonics, Inc., Case No. 1:23-cv-03187, U.S. District Court for the District of Columbia, filed October 30, 2023. The DOJ's complaint alleged that the proposed Merger would substantially lessen competition in the market for silicon photonics transceivers for data center interconnect applications, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. Halcyon expects that the DOJ will seek voluntary dismissal of the action following the termination of the Merger Agreement, as the proposed transaction that was the subject of the complaint is no longer being pursued. However, as of the date of this memorandum, formal dismissal has not yet been entered, and the DOJ may seek information or cooperation from Halcyon and Vectris in connection with the preparation and filing of its dismissal motion, or in connection with any residual matters relating to the investigation.
(2) European Commission Phase II Investigation. Case M.11247, opened October 6, 2023, pursuant to Article 6(1)(c) of the EU Merger Regulation. The EC investigation focused on the potential anticompetitive effects of the proposed concentration in the markets for silicon photonics components and optical transceivers within the European Economic Area. Calderwood & Harkness, on behalf of Halcyon, filed a withdrawal of the Form CO notification with the European Commission on December 4, 2023. Under the EC's customary practice, the withdrawal of the notification should result in the closure of the investigation. However, the EC may request additional information or documentation from Halcyon as part of the formal administrative closure of its file, and Halcyon is obligated to cooperate with any such requests.
(3) Other governmental inquiries. As of the date of this memorandum, no formal inquiries have been received from any state attorney general or other governmental authority in connection with the proposed Merger. However, Section 6.10 would require cooperation with any such inquiries if they arise in the future.
B. Specific Cooperation Obligations
The cooperation obligations under Section 6.10 include, without limitation, the following specific requirements:
(a) Personnel availability. Each party shall make its officers, employees, and other representatives reasonably available for interviews, depositions, testimony, or other similar proceedings as may be requested by any governmental authority in connection with the pending regulatory matters. Any such requests should be coordinated through the parties' respective legal counsel.
(b) Document access. Each party shall provide reasonable access to documents and information already produced or identified during the regulatory review process, including materials produced in connection with the Second Request issued by the DOJ (Civil Investigative Demand issued September 15, 2023) and information requests from the European Commission. Halcyon should not undertake any destruction of regulatory production materials until the cooperation obligations under Section 6.10 have terminated.
(c) Coordinated public statements. To the extent feasible and legally permissible, the parties shall jointly coordinate any public statements regarding the pending regulatory matters. In practice, this means that Halcyon should consult with Vectris (through their respective counsel) before issuing any press release, investor communication, or regulatory filing that discusses the status or resolution of the DOJ action or the EC investigation.
(d) Cost-sharing. Each party shall bear its own costs and expenses associated with the cooperation obligations under Section 6.10, unless otherwise specifically agreed in writing by the parties. There is no cost-sharing or reimbursement mechanism for cooperation costs.
C. Duration. The cooperation obligations under Section 6.10 do not have a fixed expiration date. Rather, they survive until the final resolution of all pending regulatory matters. In practical terms, this means that the cooperation obligations will terminate upon the earliest date on which: (i) the DOJ action (Case No. 1:23-cv-03187) has been formally dismissed (and any appeal period has expired or been waived); and (ii) the European Commission has formally closed its file in Case M.11247 and no further information requests are outstanding. We anticipate that both of these conditions will be satisfied within the first quarter of 2024, but the timing is uncertain and depends on the schedules and processes of the respective governmental authorities.
D. Recommended Actions
1. DOJ case monitoring. Howard Bellamy of Calderwood & Harkness (Antitrust & Competition practice, Washington, DC office, 1333 New Hampshire Avenue NW, Suite 700, Washington, DC 20036) will continue to monitor the docket in DOJ Case No. 1:23-cv-03187 for any filings or orders, including the anticipated motion for voluntary dismissal. Mr. Bellamy will coordinate with Douglas Prager of Whitfield, Prager & Loomis LLP (antitrust counsel to Vectris) as needed to ensure that the parties' cooperation obligations are fulfilled and that the dismissal process proceeds smoothly.
2. European Commission correspondence. Calderwood & Harkness will monitor correspondence from the European Commission's Directorate-General for Competition in connection with the withdrawal of the notification in Case M.11247 and will assist Halcyon in responding to any follow-up information requests from the EC.
3. Designated point of contact. We recommend that Halcyon designate a single point of contact for all incoming regulatory cooperation requests in connection with the surviving obligations under Section 6.10. We recommend that Dr. Luisa Hartmann serve as the primary designated contact, with Derek Okonkwo of Calderwood & Harkness as the secondary contact for day-to-day coordination.
4. Information preservation. Until the cooperation obligations have terminated, Halcyon should preserve all documents and materials produced to or received from the DOJ and the EC during the regulatory review process, including all Second Request production materials, the EC Form CO and supplemental submissions, and all correspondence with regulatory authorities.
VI. Reverse Break-Up Fee and Related Payment Obligations (Merger Agreement, Section 8.3; Termination Agreement, Section 2)
A. Reverse Break-Up Fee
Section 8.3(a) of the Merger Agreement provides that, in the event of a termination by either party pursuant to Section 8.1(d) (Antitrust Termination Right), Halcyon shall pay to Vectris a reverse break-up fee in the amount of $28,000,000 (twenty-eight million U.S. dollars), representing 3.5% of the aggregate consideration of $800,000,000 contemplated by the Merger Agreement. The reverse break-up fee was payable within fifteen (15) business days following the effective date of termination.
The Termination Agreement (Section 2) confirmed this obligation and, for the avoidance of doubt, specified that the payment deadline was December 15, 2023 (which was the fifteenth business day following November 30, 2023, accounting for the Thanksgiving holiday weekend). The Termination Agreement further specified the wire transfer instructions for payment to Vectris's designated account.
On December 12, 2023, Calderwood & Harkness (Derek Okonkwo) transmitted wire transfer instructions to Halcyon's treasury department in Munich (attention: Markus Ellinger, CFO) and to Ironclad National Bank, N.A. (Thomas Hargreaves, Escrow Officer, One Liberty Plaza, 165 Broadway, New York, NY 10006), for the purpose of effecting the payment. The payment of $28,000,000 was remitted by wire transfer on December 15, 2023, in accordance with the instructions provided. Calderwood & Harkness has confirmed receipt of the wire transfer with Vectris's counsel at Whitfield, Prager & Loomis LLP.
Status: COMPLETED. The reverse break-up fee obligation has been fully satisfied.
B. Exclusive Remedy
Section 8.3(c) of the Merger Agreement provides that the payment of the reverse break-up fee, when due, constitutes the sole and exclusive remedy of Vectris against Halcyon and Merger Sub for any and all losses, damages, costs, expenses, liabilities, or claims of any kind arising out of or in connection with the termination of the Merger Agreement pursuant to Section 8.1(d). Upon payment of the reverse break-up fee, Vectris is precluded from seeking, and has expressly waived any right to seek, any other damages (whether direct, indirect, consequential, incidental, punitive, or otherwise), specific performance, injunctive relief, or other remedy against Halcyon or Merger Sub in respect of such termination.
This exclusive remedy provision was expressly reaffirmed in the mutual release contained in Section 3 of the Termination Agreement, which released Halcyon and Merger Sub from any and all claims by Vectris arising from the termination, subject only to the carve-outs for surviving obligations, fraud, and willful breach (as discussed in Sections VII and VIII below).
The exclusive remedy provision provides Halcyon with significant protection against any attempt by Vectris or its stockholders to pursue additional claims arising from the failed transaction. We note, however, that the exclusive remedy is limited to claims arising from the termination of the Merger Agreement pursuant to Section 8.1(d) and does not extend to claims for pre-termination willful breach, fraud, or obligations arising under the Termination Agreement itself.
C. Tax Treatment
Halcyon's tax advisors (Thornbury Wight LLP, engagement partner Gavin Ashmore) should confirm the proper characterization and deductibility of the $28,000,000 reverse break-up fee payment under both German tax law (including the German Corporate Income Tax Act (Körperschaftsteuergesetz — KStG) and the German Trade Tax Act (Gewerbesteuergesetz — GewStG)) and U.S. tax law (including the Internal Revenue Code of 1986, as amended). The tax treatment of reverse break-up fees in cross-border M&A transactions can be complex, and the proper characterization may depend on, among other things, whether the payment is treated as a deductible ordinary and necessary business expense, a capital expenditure, or a penalty payment under the applicable tax regime.
Calderwood & Harkness does not render tax opinions and does not opine on the tax treatment of the reverse break-up fee payment. We recommend that Halcyon consult with Thornbury Wight LLP on this matter at the earliest opportunity, particularly in connection with the preparation of Halcyon's annual tax returns and financial statements for the fiscal year ended December 31, 2023.
VII. Indemnification for Pre-Termination Breaches (Merger Agreement, Section 8.2(b))
A. Scope. Notwithstanding the termination of the Merger Agreement and the mutual release of claims under the Termination Agreement, Section 8.2(b) of the Merger Agreement expressly preserves each party's right to seek damages for any willful and material breach of the Merger Agreement that occurred prior to the effective date of termination (November 30, 2023).
The term "willful breach" is defined in Article I of the Merger Agreement as "a material breach of any representation, warranty, covenant, or agreement set forth in this Agreement that is a consequence of an act or omission undertaken, or a failure to act, by the breaching party with actual knowledge that such act, omission, or failure to act would, or would reasonably be expected to, constitute or result in a breach of such representation, warranty, covenant, or agreement." The definition requires actual knowledge on the part of the breaching party; constructive knowledge, negligence, or inadvertence do not suffice to constitute a "willful breach" under the Merger Agreement.
The indemnification provisions of Article VII of the Merger Agreement, which establish a cap on the aggregate liability of any party for pre-termination breach claims, apply to claims arising under Section 8.2(b). The indemnification cap is $120,000,000 (one hundred twenty million U.S. dollars), representing 15% of the aggregate consideration of $800,000,000 contemplated by the Merger Agreement. This cap applies to the aggregate of all claims for pre-termination breach, whether asserted by Halcyon or Vectris.
For clarity, the indemnification provisions of Article VII also include customary "basket" and "de minimis" thresholds for breach claims, but these thresholds are not relevant to the surviving breach claim analysis under Section 8.2(b), which applies only to claims for willful and material breaches. The basket and de minimis provisions were principally designed to apply to post-closing indemnification claims, which are no longer relevant given that the Merger did not close.
B. Halcyon's Exposure Assessment
Based on Calderwood & Harkness's comprehensive review of Halcyon's conduct during the pre-termination period (August 10, 2023, through November 30, 2023), we have concluded that Halcyon complied in all material respects with its covenants and obligations under the Merger Agreement. In particular:
(a) Halcyon timely filed the HSR notification and all required antitrust filings, and complied with the DOJ's Second Request (Civil Investigative Demand issued September 15, 2023) in accordance with the regulatory effort covenants of Section 6.4 of the Merger Agreement.
(b) Halcyon pursued the required antitrust approvals in good faith, consistent with the "hell or high water" standard as modified by the antitrust effort provisions of Section 6.4(b) (which, notably, did not require Halcyon to divest any of its existing product lines or business units as a condition to obtaining regulatory approval).
(c) Halcyon complied with its confidentiality obligations, its non-solicitation obligations (with respect to Vectris's employees), and all other operational and transaction-related covenants.
(d) Halcyon obtained all required internal corporate approvals, including the approval of the Vorstand and the consent of the Aufsichtsrat, for the execution of the Merger Agreement and the transactions contemplated thereby.
As of the date of this memorandum, no claims for willful or material breach of the Merger Agreement have been asserted by Vectris against Halcyon or Merger Sub, and we are not aware of any factual basis that would support such a claim. The Termination Agreement was negotiated and executed in an orderly and cooperative manner, and Vectris did not raise any allegations of breach during the termination discussions.
C. Statute of Limitations / Survival Period
The right to assert pre-termination breach claims under Section 8.2(b) survives for a period of eighteen (18) months following the effective date of termination (i.e., until May 30, 2025). After the expiration of this eighteen-month survival period, neither party may bring any claim against the other for pre-termination breach of the Merger Agreement, regardless of when such breach may have occurred.
This contractual survival period is independent of, and may be shorter than, the applicable statute of limitations under Delaware law for breach of contract claims (which is generally three years under 10 Del. C. § 8106). To the extent that the contractual survival period expires before the statutory limitations period, the contractual period controls, as the parties have expressly agreed to the shorter survival period in the Merger Agreement.
Recommendation: Although we assess Halcyon's exposure to pre-termination breach claims as low, we recommend that Halcyon maintain appropriate reserves and directors' and officers' liability insurance coverage during the eighteen-month survival period (through May 30, 2025). Dr. Hartmann's office should calendar the May 30, 2025 expiration date and, upon its passage, confirm that no claims have been asserted before closing out this risk item.
VIII. Mutual Release of Claims (Termination Agreement, Section 3)
A. Scope of Release
Section 3 of the Termination Agreement contains a comprehensive mutual release of claims. Under the mutual release:
Each of Halcyon, Merger Sub, and Vectris (each, a "Releasing Party"), on behalf of itself and its successors, assigns, heirs, and personal representatives, hereby irrevocably and unconditionally releases, acquits, and forever discharges each of the other parties (each, a "Released Party"), and each Released Party's past, present, and future officers, directors, employees, agents, advisors, attorneys, accountants, consultants, successors, and assigns, from any and all claims, actions, causes of action, demands, rights, damages, losses, costs, expenses, liabilities, and obligations of every kind and nature, whether known or unknown, suspected or unsuspected, contingent or fixed, liquidated or unliquidated, matured or unmatured, at law or in equity, that any Releasing Party has, has had, may have, or may claim to have against any Released Party, in each case arising out of, relating to, or in connection with the Merger Agreement, the transactions contemplated thereby, and the negotiation, execution, performance, and termination thereof.
The mutual release is, however, subject to the following express carve-outs, which preserve certain categories of rights and obligations notwithstanding the general release:
(a) Surviving obligations under Section 8.2. The release does not apply to any obligation expressly surviving under Section 8.2 of the Merger Agreement, as enumerated in Section II.B of this memorandum. Accordingly, the confidentiality, non-disparagement, cooperation, reverse break-up fee, pre-termination breach, and miscellaneous provisions identified in Section 8.2 are not discharged by the release.
(b) Claims for fraud or willful breach. The release does not apply to claims arising from fraud (as defined in Article I of the Merger Agreement) or willful breach (as defined in Article I and discussed in Section VII above) occurring prior to the effective date of termination. This carve-out ensures that neither party may use the mutual release as a shield against liability for its own fraudulent or deliberately wrongful conduct.
(c) Obligations arising under the Termination Agreement. The release does not apply to any obligations arising under the Termination Agreement itself, including the document retention obligations (Section 6), the dissolution of Merger Sub (Section 4), and the termination of the Escrow Agreement (Section 5).
(d) Rights or obligations under the Escrow Agreement. The release does not apply to any rights or obligations under the Escrow Agreement dated August 10, 2023, among Halcyon, Vectris, and Ironclad National Bank, N.A. As a practical matter, because the Merger did not close, the escrow fund of $40,000,000 was never funded, and the Escrow Agreement is effectively moot. The formal termination of the Escrow Agreement is addressed in Section 5 of the Termination Agreement and is discussed in Section XI.B of this memorandum.
B. Release of Advisors and Representatives
The mutual release extends not only to the principal parties (Halcyon, Merger Sub, and Vectris) but also to each party's officers, directors, employees, agents, advisors, attorneys, accountants, consultants, and other representatives. Accordingly, the following entities and individuals, among others, are beneficiaries of the mutual release:
• Calderwood & Harkness LLP (outside legal counsel to Halcyon)
• Ridgeline Partners LLC (financial advisor to Halcyon)
• Thornbury Wight LLP (independent auditors of Halcyon)
• Whitfield, Prager & Loomis LLP (outside legal counsel to Vectris)
• Clearwater Zanthor & Co., LLC (financial advisor to Vectris)
• All officers, directors, and employees of Halcyon, Merger Sub, and Vectris who participated in the negotiation, execution, or performance of the Merger Agreement
The extension of the release to advisors and representatives provides an additional layer of protection against third-party claims arising from the terminated transaction and is consistent with market practice in transactions of this nature.
IX. Document Retention Requirements (Termination Agreement, Section 6)
A. Contractual Document Retention
Section 6 of the Termination Agreement imposes an affirmative obligation on each of Halcyon and Vectris to retain all transaction-related documents for a minimum period of three (3) years following the effective date of termination of the Merger Agreement (i.e., until November 30, 2026). The scope of documents subject to the retention obligation includes, without limitation:
• All drafts, marked-up versions, and final executed copies of the Merger Agreement, the Termination Agreement, and all ancillary agreements and documents;
• All correspondence (including emails, letters, and memoranda) between the parties and among their respective advisors in connection with the negotiation, execution, and performance of the Merger Agreement and the transactions contemplated thereby;
• All board materials (including board resolutions, presentations, analyses, and minutes of meetings) of the Vorstand, the Aufsichtsrat, and any committees thereof relating to the proposed Merger;
• All due diligence reports, summaries, and analyses;
• All regulatory filings, submissions, and correspondence with the DOJ, the European Commission, and any other governmental authority in connection with the proposed Merger; and
• All financial models, valuations, and analyses prepared in connection with the proposed Merger.
This contractual document retention obligation supplements, and does not supersede, any longer retention periods that may be required by applicable law, regulation, or Halcyon's existing internal document retention policies. To the extent that applicable law or Halcyon's internal policies require a longer retention period for any category of documents, the longer period governs. Conversely, to the extent that Halcyon's internal retention policies would otherwise permit destruction of documents prior to November 30, 2026, the contractual three-year retention obligation overrides such policies for transaction-related documents.
B. Litigation Hold Considerations
As noted above, a litigation hold notice was issued by Calderwood & Harkness on October 31, 2023, in connection with DOJ Case No. 1:23-cv-03187. The litigation hold was distributed to all relevant Halcyon personnel and to Halcyon's external advisors, and it remains in full force and effect as of the date of this memorandum.
The scope of the litigation hold encompasses all documents and electronically stored information ("ESI") in the possession, custody, or control of Halcyon and its representatives that relate in any way to:
(a) The proposed acquisition of Vectris, including all negotiations, due diligence, and transaction documentation;
(b) Halcyon's silicon photonics product lines and related business operations, to the extent relevant to the competitive analysis underlying the DOJ's complaint;
(c) Competitive analyses, market data, market share estimates, and strategic planning documents relating to the silicon photonics and optical transceiver markets;
(d) All communications with Vectris, its officers, directors, employees, and advisors;
(e) All communications with the DOJ, the European Commission, and any other governmental authority relating to the proposed Merger; and
(f) All communications with Halcyon's advisors (including Calderwood & Harkness, Ridgeline Partners, and Thornbury Wight) relating to any of the foregoing.
The litigation hold overrides and supersedes any obligation to return or destroy documents under Section 6.5(c) of the Merger Agreement, to the extent that any documents falling within the scope of the litigation hold are also Confidential Information of Vectris. In other words, Halcyon must not destroy or return any documents that are subject to the litigation hold, even if such documents would otherwise be required to be returned or destroyed under the confidentiality provisions. This principle is well-established under federal law, and a failure to preserve documents subject to a litigation hold could expose Halcyon to sanctions for spoliation of evidence.
Recommended Actions:
1. Maintain the litigation hold until the DOJ action (Case No. 1:23-cv-03187) is formally dismissed and any appellate or related proceedings have concluded. Howard Bellamy will advise when the hold may be narrowed or lifted.
2. Upon the formal dismissal of the DOJ action, evaluate whether the litigation hold can be narrowed or lifted. If the hold is lifted, Halcyon should promptly comply with the return-or-destroy requirements of Section 6.5(c) for any remaining Vectris Confidential Information that is not independently required to be retained under the three-year contractual retention obligation (Section 6 of the Termination Agreement), applicable law, or Halcyon's internal document retention policies.
3. Ensure that all Halcyon personnel and external advisors who are subject to the litigation hold are periodically reminded of their preservation obligations. Calderwood & Harkness's standard practice is to issue quarterly reminders of active litigation holds; we will continue this practice until the hold is lifted.
C. Calderwood & Harkness File Retention
Calderwood & Harkness LLP will retain its own matter files relating to the Halcyon/Vectris transaction in accordance with the firm's standard document retention policy, which provides for a minimum retention period of seven (7) years from the date of matter closing. In addition, Calderwood & Harkness's file retention practices comply with applicable professional responsibility obligations under the New York Rules of Professional Conduct (22 NYCRR Part 1200), including Rule 1.15 (Preserving Identity of Funds and Property of Others) and Rule 1.16 (Declining or Terminating Representation).
A separate matter closing memorandum for Matter No. 1032-00005 will be prepared following the completion of all post-termination action items and the formal closing of the regulatory matters. We anticipate that the matter closing memorandum will be prepared in January 2024, subject to the timing of the DOJ dismissal and EC file closure.
X. Dissolution of Halcyon Acquisition Sub, Inc. (Termination Agreement, Section 4)
Section 4 of the Termination Agreement provides that Halcyon shall cause the dissolution and winding-up of Halcyon Acquisition Sub, Inc. (the "Merger Sub") as promptly as practicable following the effective date of termination of the Merger Agreement. The following key facts are relevant to the dissolution:
• Entity name: Halcyon Acquisition Sub, Inc.
• Jurisdiction of incorporation: State of Delaware
• Delaware File Number: 7634291
• Date of incorporation: June 12, 2023
• Sole director: Markus Ellinger, CFO of Halcyon
• Sole stockholder: Halcyon Semiconductor Aktiengesellschaft (100%)
• Registered agent: Pinnacle Corporate Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801
• Purpose: Merger Sub was incorporated solely for the purpose of effectuating the reverse triangular merger contemplated by the Merger Agreement and has conducted no business or operations, incurred no liabilities, and held no assets other than in connection with the Merger Agreement.
Because the Merger did not close, Merger Sub has no continuing purpose, and Halcyon is contractually obligated to dissolve it. The dissolution of a Delaware corporation is effected by filing a Certificate of Dissolution with the Delaware Secretary of State, Division of Corporations, in accordance with Sections 275 and 276 of the Delaware General Corporation Law (8 Del. C. §§ 275–276). Because Merger Sub has not commenced business and has no outstanding debts or obligations (other than the franchise tax for the current year), the dissolution should be a straightforward process.
Recommended Actions:
1. Board resolution. Markus Ellinger, as sole director of Merger Sub, should adopt a written resolution authorizing the dissolution and winding-up of Merger Sub. Calderwood & Harkness can prepare the form of resolution.
2. Stockholder consent. Halcyon, as the sole stockholder of Merger Sub, should execute a written consent of the sole stockholder approving the dissolution. Calderwood & Harkness can prepare the form of consent.
3. Certificate of Dissolution. Following the adoption of the board resolution and stockholder consent, Calderwood & Harkness will prepare and file the Certificate of Dissolution with the Delaware Secretary of State. The filing fee is currently $204.00.