PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION
CALDERWOOD & HARKNESS LLP 1333 New Hampshire Avenue NW, Suite 700 Washington, DC 20036
September 18, 2023
MEMORANDUM
TO:
Dr. Luisa Hartmann, General Counsel, Halcyon Semiconductor Aktiengesellschaft Dr. Katarina Breuer, Chief Executive Officer, Halcyon Semiconductor Aktiengesellschaft
FROM:
Howard Bellamy, Partner, Antitrust & Competition, Calderwood & Harkness LLP
CC:
Oliver Mackenzie, Responsible Partner, M&A, Calderwood & Harkness LLP Derek Okonkwo, Lead Associate, M&A, Calderwood & Harkness LLP Tiffany Rosenthal, Working Associate, M&A, Calderwood & Harkness LLP
RE:
Second Request Compliance Strategy — DOJ Civil Investigative Demand Issued September 15, 2023, in Connection with the Proposed Acquisition of Vectris Photonics, Inc.
Engagement No.: 1032-00005
PRIVILEGE LEGEND: This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product. It is intended solely for the use of the addressees. It reflects legal analysis, mental impressions, strategies, and conclusions of counsel prepared in anticipation of potential litigation with the Antitrust Division of the United States Department of Justice. Do not forward, copy, or distribute this memorandum or any portion thereof without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
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I. Executive Summary
On September 15, 2023, the Antitrust Division of the United States Department of Justice ("DOJ" or the "Division") issued a Second Request, in the form of a Civil Investigative Demand ("CID"), to Halcyon Semiconductor Aktiengesellschaft ("Halcyon" or the "Company") in connection with the proposed acquisition of Vectris Photonics, Inc. ("Vectris") for aggregate consideration of $800,000,000 in cash (the "Proposed Transaction"). The Second Request was issued pursuant to Section 7A of the Clayton Antitrust Act, as amended by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"), 15 U.S.C. § 18a, and constitutes a formal demand for the production of documents, data, and interrogatory responses relating to the competitive effects of the Proposed Transaction.
The timing of the issuance is notable. The Second Request was issued just three days before the expiration of the initial 30-day HSR Act waiting period, which would have expired today, September 18, 2023. The issuance of the Second Request has the legal effect of extending the HSR Act waiting period indefinitely, and closing of the Proposed Transaction may not lawfully occur until at least 30 days after Halcyon has certified substantial compliance with the CID. As a practical matter, this means the regulatory review timeline for the Proposed Transaction has expanded from weeks to months.
For context, the HSR Act premerger notification was filed on August 18, 2023, and the Merger Agreement between Halcyon and Vectris was executed on August 10, 2023. Calderwood & Harkness LLP previously identified in its Antitrust Risk Assessment Memorandum dated July 10, 2023 that there was a meaningful probability of a Second Request issuance, given the combined market shares of the parties in the U.S. market for silicon photonics transceiver modules for hyperscale data center interconnects. That risk has now materialized.
The purpose of this memorandum is to provide a comprehensive analysis of the scope and requirements of the Second Request, to propose a detailed compliance strategy and timeline, to identify key custodians from whom documents and data must be collected, to estimate the costs of compliance, to recommend the engagement of e-discovery vendors and other service providers, and to assess the implications of the Second Request for the transaction timeline — including the interaction with the Outside Date established in the Merger Agreement (March 10, 2024, with a potential automatic 90-day extension to June 10, 2024 under the circumstances described herein).
We note that Vectris Photonics also received a parallel Second Request from the DOJ on September 15, 2023. Whitfield, Prager & Loomis LLP, with partner Douglas Prager leading the antitrust workstream, is coordinating Vectris's compliance response. Close coordination between the parties' respective compliance efforts will be essential to maintaining consistency in approach, managing the DOJ's expectations, and keeping the timeline on track. However, all coordination must be conducted with appropriate safeguards to respect the privilege boundaries between the parties and to comply with the requirements of the Merger Agreement and any applicable common-interest protocol.
We recommend that Halcyon authorize the immediate actions described in Section X of this memorandum and schedule a call at the earliest convenience to discuss the compliance strategy in detail.
II. Background
A. Transaction Overview
On August 10, 2023, Halcyon Semiconductor Aktiengesellschaft (FSE: HSAG; Nasdaq: HCYN), a publicly traded semiconductor company organized under the laws of the Federal Republic of Germany, with its principal U.S. offices in Santa Clara, California, entered into an Agreement and Plan of Merger (the "Merger Agreement") with Vectris Photonics, Inc. ("Vectris"), a Delaware corporation (Delaware Division of Corporations File No. 5918437), and Halcyon Acquisition Sub, Inc. ("Merger Sub"), a newly formed Delaware corporation (Delaware Division of Corporations File No. 7634291) and wholly owned subsidiary of Halcyon.
The Proposed Transaction is structured as a reverse triangular merger under the Delaware General Corporation Law ("DGCL"), pursuant to which Merger Sub will merge with and into Vectris, with Vectris surviving the merger as a wholly owned subsidiary of Halcyon. At the effective time of the merger, each outstanding share of Vectris common stock (other than dissenting shares, treasury shares, and shares held by Halcyon or its affiliates) will be converted into the right to receive cash consideration. The aggregate consideration payable to Vectris stockholders is $800,000,000, representing approximately $13.70 per share on a fully diluted basis, assuming 58,394,160 shares of Vectris common stock outstanding on a fully diluted basis (including shares issuable upon exercise of vested and unvested stock options, restricted stock units, and other equity-based awards, as set forth in the capitalization schedule annexed to the Merger Agreement). The per-share consideration represents a premium of approximately 34% over the unaffected closing price of Vectris common stock on July 7, 2023, the last trading day prior to market speculation regarding a potential transaction.
The financing for the Proposed Transaction consists of two components. First, Meridian Atlantic Bank, N.A. has committed to provide a $500,000,000 senior secured term loan facility pursuant to a commitment letter executed on August 8, 2023 (the "Commitment Letter"). Second, Halcyon will contribute approximately $300,000,000 in cash from its existing balance sheet resources. The term loan is subject to customary conditions precedent, including the absence of a material adverse effect with respect to Vectris and the execution and delivery of definitive credit documentation.
The Proposed Transaction is subject to various closing conditions, including the receipt of all required regulatory approvals, the accuracy of representations and warranties (subject to customary materiality qualifiers), compliance with covenants, and the absence of any law or order prohibiting the consummation of the merger. The regulatory approval conditions include clearance under the HSR Act and the European Union Merger Regulation ("EUMR"), as well as any other applicable competition laws.
B. Antitrust Filing History
On August 18, 2023, Halcyon and Vectris each filed their respective HSR Act premerger notification forms with the Federal Trade Commission ("FTC") and the DOJ, as required under Section 7A of the Clayton Act for transactions meeting the applicable thresholds. The HSR filing size was based on the aggregate consideration of $800,000,000, which exceeds both the $111.4 million filing threshold and the $445.6 million notification threshold applicable in 2023.
Following the HSR filing, the initial 30-day waiting period commenced. Under the standard HSR process, the FTC and DOJ conduct a preliminary review of the filing to determine whether the proposed transaction raises competitive concerns warranting further investigation. If neither agency takes action within the initial waiting period, the transaction is cleared to close without further HSR Act restrictions.
In addition to the U.S. HSR filing, on August 25, 2023, Halcyon submitted a Form CO notification to the European Commission pursuant to Council Regulation (EC) No. 139/2004 (the "EUMR") (Case M.11247 — Halcyon / Vectris). The EUMR notification triggers a Phase I review period of 25 working days, during which the European Commission's Directorate-General for Competition ("DG Competition") will assess whether the Proposed Transaction raises serious doubts as to its compatibility with the internal market.
The initial 30-day HSR waiting period was scheduled to expire on September 18, 2023. However, on September 15, 2023 — three calendar days before expiration — the DOJ issued the Second Request in the form of a CID directed to Halcyon. The issuance of the Second Request demonstrates that the DOJ has determined that further investigation is warranted and that the preliminary review was insufficient to resolve the Division's competitive concerns. This outcome, while not the most favorable, was anticipated as a realistic possibility in our July 10, 2023 risk assessment.
C. Competitive Landscape — Summary
As detailed in Calderwood & Harkness's Antitrust Risk Assessment Memorandum dated July 10, 2023 (previously distributed to Dr. Hartmann and Dr. Breuer), the DOJ's competitive analysis is likely to center on the United States market for silicon photonics transceiver modules designed for hyperscale data center interconnect applications. This product category includes high-bandwidth optical transceiver modules used by major cloud infrastructure operators for intra-data-center and inter-data-center connectivity, including 400G and 800G form factors (QSFP-DD, OSFP, and emerging co-packaged optics formats).
Based on our analysis of publicly available market share data, third-party analyst reports (including reports from Meridian Enterprises and Granite Harbor Management Consulting), and information provided by Halcyon and Vectris during the pre-signing diligence process, the DOJ is likely to estimate that the Proposed Transaction would combine the second-largest and third-largest suppliers in this market segment, resulting in a combined market share of approximately 47% (Halcyon at approximately 19% and Vectris at approximately 28%). The DOJ may define the relevant market more narrowly — for example, focusing specifically on 800G silicon photonics transceivers for hyperscale customers or on co-packaged optics chiplets — in which case the combined share could be higher.
The remaining market participants include several credible competitors, including Celestia Optoelectronics (market share approximately 22%), Luminar Photon Systems (approximately 12%), and several smaller players. However, the DOJ may focus on the fact that the Proposed Transaction eliminates a particularly close competitor and that the two firms compete aggressively on technology development and pricing for the largest hyperscale accounts.
Notably, three of the top five U.S. hyperscale cloud operators — which represent the vast majority of purchasing volume in this market segment — are key customers of Vectris. Halcyon also maintains significant supply relationships with several of these operators, and the DOJ may be concerned that the combined entity would have enhanced pricing leverage over these customers.
In the European context, DG Competition's analysis is likely to focus on co-packaged optics chiplets sold to European Economic Area ("EEA") cloud operators and data center operators. The combined market share in this segment is estimated at approximately 38%, which is above the thresholds at which the European Commission typically considers a transaction to give rise to serious doubts.
The competitive dynamics described above form the backdrop for the DOJ's Second Request and will shape the focus and intensity of the Division's investigative efforts.
III. Scope of the Second Request
A. Overview of the CID
The Second Request issued by the DOJ on September 15, 2023 is an expansive document and data demand designed to enable the Division to conduct a thorough investigation of the competitive effects of the Proposed Transaction. The CID is addressed to Halcyon Semiconductor Aktiengesellschaft and requires the production of documents, electronically stored information ("ESI"), structured data, and responses to interrogatories.
The Second Request is a comprehensive investigative instrument, and its scope is broad by design. It consists of approximately 45 individual document specifications (numbered Specifications 1 through 45) and 12 interrogatories (numbered Interrogatories 1 through 12). The specifications and interrogatories cover all aspects of competition in the silicon photonics transceiver module market and adjacent product categories, including competitive dynamics, pricing behavior, customer relationships, product development, barriers to entry, and the rationale for and expected effects of the Proposed Transaction.
The lookback period for most document specifications extends five years, from September 2018 to the present. However, certain specifications — particularly those relating to pricing data, customer contracts, and transactional sales data — extend the lookback period to seven years (from September 2016 to the present). The broader lookback period for pricing and contract data reflects the DOJ's interest in understanding pricing trends, customer switching behavior, and the evolution of competitive conditions over a more extended period.
The Second Request also imposes ongoing obligations. Halcyon is required to supplement its production on a rolling basis as new responsive documents are created during the compliance period, including documents generated in connection with the Proposed Transaction, competitive analyses, and customer communications. This continuing obligation will require Halcyon to implement a document management protocol to capture newly created documents throughout the compliance period.
B. Document Specifications — Key Categories
We have organized the approximately 45 document specifications into seven principal categories for purposes of this compliance strategy analysis. Within each category, we identify the key specifications and their likely scope and burden.
1. Organizational and Structural Documents (Specifications 1–5)
These specifications require the production of corporate organizational charts, board of directors presentations, strategic plans, annual reports, and internal management reports for Halcyon's semiconductor divisions, with a particular focus on the silicon photonics and data center interconnect product lines. This category also encompasses any documents reflecting the organizational structure of Halcyon's business units, reporting lines, and management hierarchies. The DOJ uses these documents to understand how Halcyon is organized, how decisions are made, and how the relevant business units interact with the broader corporate structure. Many of these documents will be readily available from Halcyon's corporate secretary's office and the silicon photonics business unit's administrative files. We estimate that these specifications will generate a moderate volume of documents, primarily from centralized corporate repositories and the files of senior executives.
2. Competitive Analyses (Specifications 6–14)
This category represents one of the most significant areas of focus for the DOJ. These specifications require the production of all documents that analyze competition, market share, market trends, pricing strategies, and competitive positioning in the markets for silicon photonics transceivers, co-packaged optics, and data center interconnect products generally. This includes not only formal market analysis reports and competitive intelligence presentations but also informal communications — such as emails and instant messages — in which Halcyon employees discuss competitors, competitive dynamics, market share, or pricing trends. The DOJ typically places great weight on these documents because they reflect the company's own contemporaneous assessment of the competitive landscape, unfiltered by the lens of merger advocacy. Specifications in this category will require collection from a broad set of custodians, including sales, marketing, strategy, and business unit leadership personnel.
3. Transaction-Related Documents (Specifications 15–21)
These specifications demand production of all documents created in connection with the evaluation, negotiation, and consummation of the Proposed Transaction. This includes, without limitation, Halcyon board of directors and management presentations relating to the acquisition; financial analyses prepared by Halcyon's financial advisor, Ridgeline Partners; synergy analyses and integration planning documents; due diligence materials; and all internal and external communications regarding the strategic rationale, competitive benefits, and expected effects of the Proposed Transaction. The DOJ scrutinizes transaction-related documents with great care because they often contain candid assessments of the competitive significance of the merger and the expected impact on competition, pricing, and innovation. Any "hot" documents in this category — particularly board presentations describing competitive overlap, synergy estimates derived from pricing power, or integration plans that contemplate eliminating competing product lines — are likely to receive heightened attention from the Division's staff and, potentially, from the front office of the Assistant Attorney General for Antitrust.
4. Customer-Related Documents (Specifications 22–28)
This category requires the production of customer contracts, correspondence, pricing proposals, requests for proposals ("RFPs"), requests for quotes ("RFQs"), win/loss analyses, and customer communications relating to silicon photonics transceiver products. The DOJ uses these documents to understand how Halcyon and Vectris compete for customers, the extent to which customers view the two firms as close substitutes, and whether customers have expressed concerns about the Proposed Transaction. These specifications are likely to be particularly burdensome with respect to sales personnel who maintain extensive correspondence with key hyperscale data center customers. We anticipate that these specifications will generate a high volume of documents, particularly emails between sales representatives and customer procurement teams.
5. Product Development and R&D (Specifications 29–34)
These specifications require the production of documents relating to product roadmaps, R&D pipeline projects, patent strategy, and new product development in silicon photonics and related technologies. The DOJ seeks to understand the innovation trajectories of the merging parties and whether the Proposed Transaction would eliminate a significant independent source of innovation in the market. This is particularly relevant in the silicon photonics sector, where technological advancement — including the development of next-generation 1.6T transceivers and co-packaged optics solutions — is a critical dimension of competition. Documents in this category will primarily be collected from R&D leadership, engineering teams, and product management personnel.
6. Supply-Side and Entry Analysis (Specifications 35–39)
These specifications require the production of documents analyzing potential market entrants, barriers to entry, capacity constraints, manufacturing capabilities, and supply-side substitutability. The DOJ uses these documents to evaluate whether the entry or expansion of other firms would be timely, likely, and sufficient to counteract any anticompetitive effects of the Proposed Transaction. Specifications in this category will require collection from strategy, operations, and manufacturing personnel, as well as from any competitive intelligence or market research groups within Halcyon.
7. Pricing and Financial Data (Specifications 40–45)
These specifications require the production of transactional pricing data, revenue data, cost data, margin analyses, and profit-and-loss ("P&L") statements for the relevant product lines. As noted above, the pricing and financial data specifications extend the lookback period to seven years (September 2016 to the present), reflecting the DOJ's interest in understanding pricing trends over a longer time horizon. This category overlaps with the structured data requests described below and will require close coordination between Calderwood & Harkness, Halcyon's IT department, and the finance and accounting teams to extract and validate data from Halcyon's enterprise resource planning ("ERP") systems and financial reporting infrastructure.
C. Interrogatories — Key Areas
The CID includes 12 interrogatories that require detailed narrative responses, each of which must be verified under oath by an authorized officer of Halcyon. The interrogatories address the following key areas:
Interrogatory 1: Identification and description of all products sold by Halcyon in the silicon photonics transceiver and co-packaged optics categories, including product names, SKU numbers, specifications, form factors, data rates, and intended applications.
Interrogatory 2: Halcyon's estimates of its own market share and the market shares of its competitors in each relevant product market, together with a description of the methodology used to develop such estimates.
Interrogatory 3: Identification of all competitors in the silicon photonics transceiver and co-packaged optics markets, including the name, address, and estimated market share of each competitor.
Interrogatory 4: Detailed revenue and unit sales data by product, customer, and geography for each of the past five fiscal years and the current fiscal year to date.
Interrogatory 5: Description of Halcyon's sales process for silicon photonics transceiver products, including the pricing methodology, discount structures, volume-based pricing tiers, and the process for responding to RFPs and RFQs from hyperscale data center customers.
Interrogatory 6: Identification and description of all customer complaints regarding Halcyon's silicon photonics products received during the past three years, including the nature of the complaint, the customer involved, and the resolution.
Interrogatory 7: Identification of all bids lost and competitive losses in the silicon photonics transceiver market during the past three years, including the identity of the winning competitor, the product and customer involved, and the reasons for the loss (to the extent known).
Interrogatory 8: Description of the rationale for the Proposed Transaction, including all competitive, strategic, financial, and operational reasons for the acquisition.
Interrogatory 9: Description of all anticipated synergies, cost savings, and efficiencies expected to result from the Proposed Transaction.
Interrogatory 10: Identification and description of all past, pending, or contemplated divestitures, acquisitions, joint ventures, and strategic alliances involving Halcyon's silicon photonics or data center interconnect businesses.
Interrogatory 11: Description of all barriers to entry in the relevant product markets, including technological barriers, intellectual property barriers, capital requirements, customer qualification requirements, and regulatory barriers.
Interrogatory 12: Identification of all Halcyon personnel with knowledge of the matters described in the CID, including each person's name, title, responsibilities, and areas of knowledge.
D. Data Requests
In addition to the document specifications and interrogatories, the Second Request includes specific data requests requiring the production of structured data in prescribed electronic formats. The principal data requests are as follows:
The DOJ requires Halcyon to produce transactional-level sales data for all silicon photonics transceiver products and co-packaged optics chiplets in CSV or relational database format. The specified data fields include: customer name and identifier, product name and SKU, unit price (both list price and net price after discounts), volume (in units), total revenue, contract date, order date, delivery date, and geographic location of the customer. The data must cover the period from September 2016 to the present (the full seven-year lookback period for pricing-related specifications).
The DOJ also requires production of financial data by product line, including revenue, cost of goods sold, gross margin, operating expenses, and operating income for each of the past five fiscal years and the current year to date. This data is to be provided at the product-line level, not merely at the divisional or corporate level.
Finally, the DOJ requires employee and headcount data for the silicon photonics business unit, including the number of employees by function (engineering, sales, marketing, manufacturing, management), location, and compensation band, for each of the past three years.
These data requests will require significant IT and finance resources to extract, compile, validate, and format, as described further in Section VII below.
IV. Proposed Compliance Timeline
A. Phased Approach
We propose a four-phase compliance approach designed to achieve substantial compliance within approximately 14 to 16 weeks from the date of this memorandum. This timeline is aggressive but achievable with adequate resourcing and prioritization. We believe that targeting substantial compliance certification in early January 2024 is a realistic and appropriate goal, provided that Halcyon commits the necessary internal resources and that the meet-and-confer process with the DOJ yields reasonable narrowing of the Second Request's scope.
Phase 1: Foundation and Collection (Weeks 1–3: September 18 – October 8, 2023)
During Phase 1, we will focus on building the infrastructure necessary for an efficient and comprehensive compliance effort. Key activities include:
• Custodian identification and notification: Finalize the list of document custodians (described in Section V below), notify all custodians of their preservation obligations, and conduct preliminary custodian interviews to understand the nature and location of their documents and ESI.
• Preservation notices: Issue detailed litigation-hold and document-preservation notices to all identified custodians, instructing them to preserve all documents and ESI within the scope of the Second Request. The preservation notices will also be issued to Halcyon's IT department to ensure the preservation of email archives, shared drives, cloud repositories, and backup systems.
• Document collection: Initiate forensic collection of documents and ESI from Tier 1 custodian devices, including laptops, desktops, email accounts (Outlook / Exchange or equivalent), shared network drives, cloud-based collaboration platforms (e.g., Northgate Data Systems, Aldermere Systems, Meridian Solutions), and any other relevant repositories. Collection will be performed by the e-discovery vendor under forensic collection protocols.
• E-discovery vendor engagement: Formally engage Crestfield Analytics Group (or comparable vendor) under expedited terms, establish the processing and hosting environment, and load collected data into the review platform.
• Initial meet-and-confer with DOJ staff: Schedule and conduct the initial meet-and-confer with the DOJ Antitrust Division staff, with the objectives described in Section IV.B below.
Phase 2: Review and Initial Production (Weeks 4–8: October 9 – November 12, 2023)
During Phase 2, the focus shifts to document review, privilege analysis, and the commencement of rolling productions to the DOJ. Key activities include:
• Document review: Deploy the review team (comprising contract reviewers supervised by Calderwood & Harkness associates and antitrust specialists) to review collected documents for responsiveness, relevance, and privilege. Review will be conducted using a combination of technology-assisted review ("TAR") and manual review, as described in Section VI.C below.
• Privilege logging: Begin the privilege review process and the preparation of the privilege log. Given the sensitivity of privilege issues in the context of a merger investigation — particularly with respect to communications involving outside counsel, financial advisors, and integration planning teams — this process will require careful attention from experienced attorneys.
• First rolling production: Target the first rolling production of documents to the DOJ during weeks 5–6 of the compliance process (approximately October 16–27, 2023). This initial production should focus on high-priority specifications, including transaction-related documents (Specifications 15–21) and competitive analyses (Specifications 6–14), as these are typically the categories of greatest interest to DOJ staff in the early stages of their investigation.
• Initial interrogatory responses: Begin preparation and submission of initial interrogatory responses, focusing on Interrogatories 1–3 (product identification, market share estimates, and competitor identification), which provide the foundational framework for the DOJ's analysis.
• Structured data compilation: Commence extraction, validation, and formatting of the structured data required by the CID's data requests, working closely with Halcyon's IT and finance teams.
Phase 3: Continued Production and Completion (Weeks 9–14: November 13 – December 22, 2023)
Phase 3 represents the most intensive period of the compliance effort. Key activities include:
• Continued rolling productions: Deliver additional rolling productions to the DOJ on a regular schedule (approximately bi-weekly), covering customer-related documents, product development and R&D documents, supply-side and entry analysis documents, and pricing and financial data.
• Completion of privilege log: Finalize the privilege log and resolve any privilege disputes with DOJ staff. If the DOJ challenges privilege designations, we will address those challenges promptly and, if necessary, seek judicial intervention to protect legitimately privileged materials.
• Submission of remaining interrogatory responses: Complete and submit all remaining interrogatory responses, including the detailed narrative responses to Interrogatories 4–12.
• Structured data submission: Submit the validated structured data sets in the DOJ's required format.
• Substantial compliance assessment: As productions near completion, conduct an internal assessment of compliance status to determine whether all specifications and interrogatories have been addressed and whether the production is sufficient to support a certification of substantial compliance.
Phase 4: Final Compliance Certification (Target: Early January 2024)
During Phase 4, we will finalize the compliance effort and prepare for certification:
• Final supplemental production: Produce any remaining supplemental materials, including documents generated during the compliance period that fall within the Second Request's continuing production obligation.
• Substantial compliance certification: File a formal certification of substantial compliance with the DOJ, triggering the commencement of a new 30-day waiting period under the HSR Act.
• Post-certification engagement: Following certification, prepare for potential substantive engagement with the DOJ, including possible investigative hearings ("depositions"), remedies discussions, and — if necessary — preparation for litigation.
B. Meet-and-Confer with DOJ Staff
The meet-and-confer process is a critical early step in the Second Request compliance effort. We recommend scheduling the initial meet-and-confer call with the DOJ Antitrust Division staff within 10 days of receipt of the CID — that is, by September 25, 2023. The meet-and-confer serves several important functions and provides an opportunity to establish a cooperative and constructive relationship with the Division's staff, which can yield significant benefits in terms of scope narrowing, timeline flexibility, and overall efficiency.
The key objectives for the initial meet-and-confer are as follows:
(i) Scope narrowing: We will seek to narrow certain specifications that appear overbroad in light of the competitive issues at the center of the investigation. In particular, we will propose narrowing the seven-year lookback period on pricing data (Specifications 40–45) to five years, consistent with the lookback period applicable to most other specifications. We will also propose reasonable limitations on the scope of specifications relating to product development (Specifications 29–34), arguing that the DOJ's legitimate investigative interests can be served by focusing on the silicon photonics transceiver product lines rather than Halcyon's broader semiconductor R&D portfolio.
(ii) Custodian list agreement: We will present our proposed custodian list (set forth in Section V below) and seek the DOJ's agreement on the appropriate set of custodians. The DOJ may request additional custodians or may agree to reduce the number of custodians in exchange for broader search terms or other accommodations.
(iii) Search terms: We will propose an initial set of keyword search terms for use in identifying responsive documents, and will discuss with DOJ staff the process for refining and supplementing the search terms over time.
(iv) Structured data format: We will discuss the format, field structure, and delivery mechanism for the structured data submissions, and will seek agreement on any clarifications or modifications to the data request specifications.
(v) Rolling production schedule: We will propose a rolling production schedule (consistent with the timeline set forth above) and seek the DOJ's agreement to a phased approach that prioritizes the document categories of greatest interest to the Division.
Howard Bellamy will lead the meet-and-confer on behalf of Halcyon, with support from Derek Okonkwo and Tiffany Rosenthal. We will coordinate with Douglas Prager at Whitfield, Prager & Loomis LLP regarding Vectris's parallel compliance effort to ensure that the two parties' approaches are consistent and that the DOJ's expectations are managed effectively. In our experience, the DOJ appreciates a coordinated approach from merging parties, particularly with respect to timing and format of productions.
V. Custodian Identification
A. Recommended Custodians — Halcyon
Based on our review of the Second Request specifications, Halcyon's organizational structure, and the key individuals likely to possess responsive documents, we recommend a custodian list of approximately 18 to 22 individuals, organized into two tiers based on the likely significance and volume of their responsive documents.
Tier 1 — Critical Custodians (10 Custodians — Immediate Collection)
Tier 1 custodians are individuals who are most likely to possess the highest-value responsive documents and whose collections should be prioritized for immediate forensic collection and early review. These individuals occupy senior leadership positions and are directly involved in competitive strategy, transaction evaluation, customer relationships, or product development in the relevant business lines.
1. Dr. Katarina Breuer — Chief Executive Officer. Dr. Breuer is the most senior executive of Halcyon and has ultimate oversight of all strategic decisions, including the approval of the Proposed Transaction. Her files are expected to contain board-level presentations, strategic planning documents, and high-level competitive analyses. She is also likely to have communications with Vectris's leadership regarding the transaction.
2. Markus Ellinger — Chief Financial Officer; Sole Director of Merger Sub. Mr. Ellinger is responsible for Halcyon's financial strategy and served as the sole initial director of Halcyon Acquisition Sub, Inc. His files are expected to contain financial analyses relating to the Proposed Transaction, including valuation models, synergy analyses, accretion/dilution analyses, and communications with Ridgeline Partners and Meridian Atlantic Bank. As CFO, he also oversees the financial reporting for Halcyon's business segments, including the silicon photonics division.
3. Dr. Luisa Hartmann — General Counsel. Dr. Hartmann oversees all legal matters, including the regulatory strategy for the Proposed Transaction. Her files will contain privileged communications with outside counsel and regulatory strategy documents. While many of these documents will be privileged and withheld from production, her files must nonetheless be collected and reviewed to identify non-privileged responsive documents and to ensure comprehensive privilege logging.
4. Head of Silicon Photonics Business Unit. [To be identified by Halcyon — we request that Halcyon confirm the identity of this individual by September 20, 2023.] This individual is responsible for the day-to-day management of the business unit most directly relevant to the DOJ's investigation. His or her files are expected to contain competitive analyses, product strategy documents, customer relationship files, pricing decisions, and operational plans for the silicon photonics transceiver product line.
5. Vice President of Sales, Data Center Products. This individual oversees Halcyon's sales efforts for data center interconnect products, including silicon photonics transceivers. His or her files are expected to contain pricing proposals, customer contracts, RFP and RFQ responses, win/loss analyses, and customer correspondence. Given the DOJ's focus on customer-facing competition, this custodian's documents are likely to be among the most heavily reviewed.
6. Vice President of Corporate Development. This individual is responsible for evaluating and executing strategic transactions, including the Proposed Transaction. His or her files are expected to contain the internal deal evaluation materials, synergy analyses, communications with Ridgeline Partners (Halcyon's financial advisor) and Clearwater Zanthor, and integration planning documents.
7. Vice President of R&D, Photonics Division. This individual is responsible for research and development activities relating to silicon photonics and co-packaged optics technologies. His or her files are expected to contain product roadmaps, R&D pipeline documents, patent strategy materials, and technical assessments of Vectris's technology portfolio.
8. Chief Strategy Officer. This individual is responsible for Halcyon's long-range strategic planning, including market analyses, competitive positioning studies, and assessments of industry trends. His or her files are expected to contain formal and informal analyses of the competitive landscape in silicon photonics and data center interconnect markets.
9. Head of Marketing, Semiconductor Division. This individual is responsible for marketing strategy, competitive intelligence, and market share analysis for Halcyon's semiconductor products. His or her files are expected to contain market share estimates, competitive benchmarking reports, and marketing strategy documents that reference competitors and competitive dynamics.
10. Integration Planning Lead. This individual (who may have been appointed specifically in connection with the Proposed Transaction) is responsible for coordinating the post-merger integration of Halcyon and Vectris. His or her files are expected to contain integration planning documents, including organizational integration plans, product line rationalization analyses, and workforce integration assessments. These documents are of particular interest to the DOJ because they may reflect the merging parties' expectations regarding the competitive effects of the combination.
Tier 2 — Secondary Custodians (8–12 Custodians — Collection in Weeks 2–3)
Tier 2 custodians are individuals who are expected to possess responsive documents but whose collections are lower priority or lower volume than Tier 1 custodians. Collection from Tier 2 custodians will commence after Tier 1 collections are substantially complete.
• Regional Sales Director, Americas. This individual oversees Halcyon's sales activities in the United States and other Western Hemisphere markets. His or her files may contain customer-specific pricing negotiations, competitive intelligence, and win/loss analyses for the Americas region.
• Regional Sales Director, EMEA. This individual oversees Halcyon's sales activities in the Europe, Middle East, and Africa region. His or her files may be relevant to both the U.S. and European investigations.
• Product Manager, 400G Silicon Photonics Transceivers. This individual is responsible for a key product line within the relevant market segment. His or her files may contain product-specific competitive analyses, pricing data, and customer feedback.
• Product Manager, 800G Silicon Photonics Transceivers. As above, for the next-generation product line that is central to the forward-looking competitive analysis.
• Product Manager, Co-Packaged Optics Chiplets. This individual is responsible for the co-packaged optics product line, which is a focus of both the DOJ and the European Commission investigations.
• Finance Controller, Photonics Division. This individual oversees the financial reporting and budgeting for the photonics division. His or her files may contain P&L data, budget presentations, margin analyses, and other financial documents responsive to the pricing and financial data specifications.
• Senior Engineers involved in product development overlap areas. Depending on the organizational structure, two to four senior engineers who work on products where Halcyon and Vectris have overlapping technology development efforts may need to be included as custodians.
• Additional custodians as identified during custodian interviews. During the interview process, we may identify additional individuals whose files warrant collection. We will supplement this list as needed and coordinate with the DOJ on any additions to the custodian list.
B. Custodian Coordination with Vectris
As noted above, the DOJ has issued a parallel Second Request to Vectris Photonics. Whitfield, Prager & Loomis LLP (led by Douglas Prager) is managing Vectris's compliance effort. We understand that the key custodians on the Vectris side are expected to include, among others:
• Dr. Anand Raghavan — Chief Executive Officer, Vectris Photonics
• Margaret Sørensen — Chief Financial Officer, Vectris Photonics
• Julian Tate — Vice President of Business Development, Vectris Photonics
• Rebecca Lau — Vice President of Engineering, Vectris Photonics
We recommend that Halcyon and Vectris enter into a joint defense / common interest protocol to facilitate coordination of the compliance efforts while preserving each party's respective privileges. This protocol should establish the terms under which the parties may share information about compliance progress, custodian selection, search terms, and production timing, without waiving the attorney-client privilege or work-product protection that attaches to their respective legal analyses and communications with counsel. We will prepare a draft common-interest agreement for review by Dr. Hartmann and by Whitfield, Prager & Loomis within the coming week.
It is important to note that while coordination is desirable and necessary for efficiency, the two parties must maintain appropriate information barriers with respect to substantive competitive information that is not authorized for sharing under the Merger Agreement's pre-closing information-sharing provisions. All coordination should be conducted through outside counsel.
VI. Document Collection, Processing, and Review
A. E-discovery Vendor Engagement
Given the scale and complexity of the Second Request, we strongly recommend engaging a specialized e-discovery vendor to manage the forensic collection, processing, hosting, and review platform infrastructure. Handling these functions in-house is neither practical nor advisable for a compliance effort of this magnitude.
We recommend engaging Crestfield Analytics Group ("Crestfield") as the primary e-discovery vendor for this engagement. Crestfield is a well-established provider of litigation support and e-discovery services with extensive experience in antitrust Second Request compliance matters, including several recent engagements in the semiconductor and technology sectors. Calderwood & Harkness's antitrust group has worked with Crestfield on multiple occasions and has confidence in their technical capabilities, responsiveness, and ability to scale rapidly to meet the demands of a Second Request compliance effort.
The scope of Crestfield's engagement would include the following:
• Forensic collection: Crestfield's forensic collection team will image custodian devices (laptops, desktops) and collect email archives, shared drive contents, cloud-based collaboration data (including Northgate Data Systems, Aldermere Systems, Meridian Solutions, and similar platforms), and any other ESI repositories identified during the custodian interview process. All collections will be performed in a forensically defensible manner, with full chain-of-custody documentation.
• Processing: Crestfield will process collected data through their proprietary processing pipeline, which includes de-duplication (both intra-custodian and cross-custodian), de-NISTing (removal of known system files using the National Institute of Standards and Technology's National Software Reference Library), metadata extraction, text extraction (including OCR for image-based documents), and date filtering based on the applicable lookback periods.
• Hosting and review platform: Crestfield will host the processed document population on a secure, cloud-based review platform (Relativity or equivalent) configured with the appropriate coding panels, search indices, and analytics modules to support the review team's work.
• Analytics support: Crestfield will provide analytics-assisted review support, including technology-assisted review ("TAR") / predictive coding model training, clustering, email threading, and concept searching capabilities.
We will circulate a draft statement of work and engagement letter for Crestfield for Halcyon's review and approval within the next three business days.
B. Estimated Document Volume
Based on our preliminary assessment of the number of custodians, the scope of the Second Request specifications, and our experience with comparable semiconductor industry Second Request matters, we estimate the following document volumes:
• Total pre-processing volume: Approximately 1.5 to 2.5 million documents across all custodians, prior to de-duplication and filtering. This estimate includes email messages, email attachments, documents stored on shared drives and cloud repositories, and presentations and spreadsheets.
• Post-processing and filtering volume: After de-duplication, de-NISTing, date filtering, and keyword culling, we estimate that the reviewable population will be approximately 600,000 to 900,000 documents. This is the population that will require substantive review for responsiveness and privilege.
• Estimated responsive production volume: Based on typical responsiveness rates in semiconductor antitrust Second Request matters (approximately 15–25% of the reviewable population), we estimate that the final production will comprise approximately 90,000 to 225,000 documents.
Given this volume, we anticipate the need for a review team of approximately 25 to 40 contract review attorneys, depending on the final size of the reviewable population and the timeline. The contract reviewers will be supervised by Calderwood & Harkness associates (Derek Okonkwo and Tiffany Rosenthal will serve as review leads) and by antitrust specialists from our team who will provide guidance on responsiveness determinations and privilege issues.
C. Search Methodology
We propose a multi-layered search methodology that combines targeted keyword searches, technology-assisted review, and manual review to ensure comprehensive and efficient identification of responsive documents. This approach is consistent with best practices in Second Request compliance and is designed to withstand scrutiny from the DOJ if the sufficiency of our compliance effort is questioned.
Targeted Keyword Searches. As a first step, we will develop a comprehensive set of keyword search terms designed to capture documents responsive to each of the 45 specifications. These search terms will be developed based on our understanding of Halcyon's products, competitors, customers, and internal terminology, and will be refined through consultation with the custodians and with the DOJ during the meet-and-confer process. We anticipate that the final search term list will comprise approximately 80 to 120 individual terms (including Boolean combinations), organized by specification category. Keyword searches will be applied to the full-text content and metadata of all custodian documents to create the initial reviewable population.
Technology-Assisted Review (TAR). For the broader document population — particularly documents from Tier 2 custodians and from shared drives and repositories — we recommend deploying technology-assisted review ("TAR") or predictive coding to supplement keyword searching. TAR uses machine learning algorithms, trained on a seed set of documents coded by senior reviewers, to prioritize documents for review based on their predicted responsiveness. TAR has been widely accepted by courts and regulatory agencies as a reliable and proportionate method of document review, and its use is consistent with the DOJ's expectations in Second Request compliance matters. We will discuss the use of TAR with DOJ staff during the meet-and-confer and will seek their agreement to the TAR protocol.
Manual Review for High-Priority Documents. All documents from Tier 1 custodians that are identified by keyword search or TAR as potentially responsive will undergo manual review by experienced reviewers. In addition, certain categories of "hot" documents — including board presentations, strategic plans, competitive analyses, and transaction-related documents — will be subject to enhanced manual review and senior attorney quality-control review to ensure that all significant documents are correctly identified and coded.
D. Privilege Review
All documents identified as potentially responsive will undergo a thorough privilege review before production to the DOJ. The privilege review process is essential to protect Halcyon's attorney-client privilege and the work-product doctrine, both of which attach to a significant volume of communications and documents generated in connection with the Proposed Transaction and the antitrust review process.
A detailed privilege log will be maintained throughout the review process and will be produced to the DOJ as part of the compliance effort. Based on our experience with comparable matters, we anticipate that the privilege log will contain approximately 5,000 to 10,000 entries. Each entry will identify the document by Bates number, date, author, recipients, and a description of the subject matter sufficient to permit the DOJ to assess the privilege claim without revealing privileged content.
We anticipate that privilege issues will be particularly sensitive in the following areas:
• Communications with outside counsel: Communications between Halcyon personnel and Calderwood & Harkness LLP, Whitfield, Prager & Loomis LLP, and any other outside counsel involved in the Proposed Transaction or the antitrust review process. These communications are protected by the attorney-client privilege and the work-product doctrine.
• Communications with financial advisors: Communications with Ridgeline Partners (Halcyon's financial advisor) and Clearwater Zanthor must be reviewed carefully. While communications with financial advisors are not automatically privileged, they may be protected to the extent that they were made for the purpose of obtaining or providing legal advice or were prepared at the direction of counsel in anticipation of litigation. We will apply a conservative approach and will log any documents where a colorable privilege claim exists.
• Communications with auditors: Communications with Thornbury Wight (Halcyon's auditor) and Linden Ross (Vectris's auditor) must be reviewed for privilege issues, particularly with respect to any communications that involve legal advice or that were prepared at the direction of counsel.
• Integration planning documents: Documents relating to post-merger integration planning are frequently the subject of privilege disputes in Second Request compliance. To the extent that integration planning documents were prepared at the direction of counsel for the purpose of evaluating the antitrust risk of the integration or were created in anticipation of potential DOJ litigation, they may be protected. However, documents that reflect purely business-planning activities — such as headcount reduction plans, organizational restructuring proposals, and operational integration timelines — are generally not privileged and must be produced.
We will provide detailed guidance to the review team on privilege determinations and will establish a privilege escalation protocol to ensure that difficult calls are resolved by experienced antitrust counsel.
VII. Structured Data and Interrogatory Responses
A. Structured Data Production
The structured data requirements of the Second Request represent a significant undertaking that will require close collaboration between Calderwood & Harkness, Halcyon's IT department, and Halcyon's finance and accounting teams. The DOJ has requested transactional-level sales data for all silicon photonics products, covering a seven-year period, in a specified electronic format.
Specifically, the data must be produced in CSV format (or, alternatively, in a relational database format acceptable to the DOJ), with the following fields for each transaction:
• Customer name and unique customer identifier
• Product name and SKU / part number
• Unit price (list price and net price after discounts, rebates, and other adjustments)
• Volume (units)
• Total revenue
• Contract date
• Order date
• Delivery / shipment date
• Geographic location of the customer (country, state/province, city)
We understand that Halcyon maintains its transactional data primarily in Harborline Software and in a supplementary data warehouse. The extraction, transformation, and validation of this data will require substantial effort from Halcyon's IT team, working under the direction of Calderwood & Harkness's data analytics team and the economic consultant (discussed below).
We estimate that the structured data compilation and validation process will require approximately two to three weeks from the commencement of the extraction effort. This timeline assumes that Halcyon's IT team has the bandwidth to dedicate the necessary resources to the extraction and that no significant data quality issues are discovered during the validation process. If data quality issues are encountered (e.g., inconsistencies between the ERP system and financial reporting, missing customer identifiers, or product SKU changes during the lookback period), additional time may be required.
We strongly recommend that the data sets be validated by both Halcyon's finance team and by an independent economic consultant before submission to the DOJ, to ensure accuracy and consistency and to anticipate any questions that the DOJ's economists may raise.
B. Interrogatory Responses