Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the implications of the CHIPS and Science Act of 2022, Pub. L. No. 117-167 (the "CHIPS Act" or the "Act"), for Halcyon Semiconductor AG's ("HSAG") planned acquisition of Marlowe Asset Management Photonics Inc. ("VPI"), with particular focus on the following issues: (a) whether VPI would remain eligible for CHIPS Act incentive funding following its acqu

II. Background on the Transaction A. Transaction Structure HSAG (Halcyon Semiconductor Aktiengesellschaft) is a publicly traded German semiconductor company listed on the Frankfurt Stock Exchange (XETRA: HLC), with a market capitalization of approximately €14.8 billion as of June 1, 2023, and full-year 2022 consolidated revenue of €6.12 billion. HSAG is headquartered in Munich, Germany, and is a leading global manufa

III. Overview of the CHIPS and Science Act A. Legislative Purpose and Structure The CHIPS and Science Act was enacted on August 9, 2022, as Public Law 117-167, following bipartisan passage in both chambers of Congress. The Act represents the most significant piece of U.S. industrial policy legislation directed at the semiconductor industry in decades and was motivated by growing concerns over the concentration of adv

IV. Foreign Entity of Concern (FEOC) Guardrail Provisions A. Statutory Framework — Section 9902(a)(6) The CHIPS Act's guardrail provisions are among the most consequential elements of the legislation for purposes of the HSAG/VPI transaction. Section 9902(a)(6) of the FY2021 NDAA, as amended by the CHIPS Act, prohibits any "covered entity" that receives CHIPS Act federal financial assistance from engaging in any "sign

V. Interaction Between CHIPS Act and CFIUS Review A. Parallel but Distinct Processes The CFIUS review of the HSAG/VPI transaction, conducted under the authority of Section 721 of the Defense Production Act of 1950, as amended, 50 U.S.C. § 4565, and the implementing regulations at 31 C.F.R. Part 800, is a national security review of the acquisition itself. CFIUS evaluates whether the transaction poses a risk to U.S. n

VI. Potential Restrictions on VPI's CHIPS Act Participation Post-Acquisition A. Application Timing Considerations A threshold strategic question is whether VPI should apply for CHIPS Act incentives before or after the closing of the acquisition. Each approach presents distinct advantages and risks. Pre-Closing Application. If VPI were to submit a CHIPS application before closing — while VPI is still owned by Ridgecre

VII. CHIPS for America Defense Fund — Special Considerations for VPI A. Overview of the Defense Fund The CHIPS for America Defense Fund was established with an allocation of $2 billion to support investments in semiconductor manufacturing capabilities essential to national defense. The Defense Fund is administered by the Department of Defense, in coordination with the Department of Commerce, and is specifically desig

VIII. 25% Advanced Manufacturing Investment Tax Credit (Section 48D IRC) A. Overview

Section 107 of the CHIPS Act added new Section 48D to the Internal Revenue Code, establishing a 25% investment tax credit (the "Advanced Manufacturing Investment Credit" or "Section 48D Credit") for "qualified property" placed in service in a "qualified semiconductor manufacturing facility" after December 31, 2022, and before January 1, 2027 (with construction-commencement requirements extending through 2029 for cert

IX. Recommendations Based on the analysis set forth in this memorandum, we make the following recommendations: A. CFIUS Filing Strategy

1. Include CHIPS Act Discussion in CFIUS Filing. The joint voluntary notice (to be filed on approximately July 14, 2023, CFIUS Case No. CFIUS-023-07-3841) should include a substantive discussion of HSAG's commitment to maintaining and expanding VPI's U.S. semiconductor manufacturing capacity and VPI's eligibility for CHIPS Act incentives. This discussion should frame the acquisition as consistent with the policy obje

2. Proactively Disclose Shanghai Operations. The notice and all subsequent RFI responses should proactively disclose the existence and scope of HSAG's Shanghai Subsidiary operations, emphasizing the limited scope of those operations (consumer-grade power management ICs only, $81.4 million in revenue representing approximately 1.3% of HSAG total revenue, no GaN or defense-related activities). Proactive disclosure will

3. Align NSA Terms with CHIPS Eligibility. In the NSA negotiations, we should seek provisions that are consistent with, and do not inadvertently undermine, VPI's eligibility for CHIPS Act incentives. In particular, the Technology Control Plan, data segregation requirements, and restrictions on VPI's interactions with HSAG's China operations should be structured to reinforce CHIPS guardrail compliance. We should avoid

1. Defer Formal Application. VPI should defer any formal CHIPS application until after CFIUS clearance has been obtained and the transaction has closed. This approach avoids the complications of overlapping regulatory processes and allows VPI to present a complete and transparent application to the Commerce Department.

2. Begin Preparatory Work. Notwithstanding the recommendation to defer the formal application, VPI should begin preparatory wo