Contract analysis

From: Margaret Peggy Ashworth <mashworth@calderwoodharkness.com> To: Stefan Lohse <s.lohse@halcyon-semi.de> Cc: Beatrice Holloway <bholloway@calderwoodharkness.com> Subject: Pre-Filing Consultation Debrief — Treasury OIS Meeting of June 19 & Next Steps for CFIUS Notice Preparation

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION

I am writing to debrief you on yesterday's pre-filing consultation at the U.S. Department of the Treasury, Office of Investment Security (OIS), held on June 19, 2023, regarding Halcyon Semiconductor AG's proposed acquisition of Marlowe Asset Management Photonics, Inc. The meeting was attended on our side by Beatrice Holloway, David Caruso, and me from Calderwood & Harkness, along with Harrison Whitfield and Tobias Kw

Overall, the meeting was constructive and productive. Treasury staff were well-prepared and had clearly done their homework — they already had meaningful familiarity with VPI's profile given its defense-sector activities and facility security clearance. Several points of note:

- Treasury confirmed that this transaction will be treated as a **covered transaction** under 31 C.F.R. § 800.213, given VPI's status as a TID U.S. business in critical technologies. This was expected, given VPI's production of GaN semiconductors classified under ECCN 3A001 and ITAR Category XI(a)(3) defense articles.

- Treasury indicated that the transaction would likely involve **co-lead review by the Department of Defense and the Department of Energy**, reflecting VPI's defense contracts and dual-use semiconductor activities. This is standard for a transaction of this profile, and we are well-positioned to engage with both agencies.

- Importantly, **Treasury did not express any preliminary view that the transaction is unresolvable** — this is a positive signal, and one we should not take for granted. That said, the staff made clear that mitigation through a **National Security Agreement (NSA)** is highly likely, which is consistent with our own assessment and what we discussed with your team in the initial CFIUS briefing letter of June 12.

- Treasury **recommended filing a full voluntary joint notice** under 31 C.F.R. § 800.501 rather than a short-form declaration under § 800.401(a). This is consistent with our own recommendation, as detailed in the Mandatory vs. Voluntary Filing Analysis memo circulated to you last week. Given the classified programs, ITAR-controlled activities, and the near-certainty of mitigation, a full notice is clearly the right

**Treasury's Three Primary Areas of Focus**

The discussion centered on three substantive areas that Treasury flagged as priorities for the review. I address each below, along with the corresponding action items for HSAG.

Treasury asked pointed questions about **Halcyon Semiconductor (Shanghai) Co., Ltd.** — HSAG's China subsidiary. Their interest focused on the nature and scope of the Shanghai subsidiary's activities, revenue, personnel, and any connections to Chinese government entities or military end-users. They also inquired specifically about any technology-sharing arrangements between HSAG's German and European operations and t

This was not unexpected. Any acquirer with a China footprint will face heightened scrutiny in a CFIUS review involving critical technologies and classified programs. The good news is that HSAG's China operations are limited and, as we understand it, entirely unrelated to GaN or defense-applicable technologies.

**Action item for HSAG:** We will need a comprehensive written summary of the Shanghai subsidiary's operations, including: revenue breakdown (we understand this is approximately $81.4 million, representing roughly 1.3% of HSAG total revenue); product lines (confirming consumer-grade power management ICs only, with no GaN or defense-related activities); employee headcount; and a clear, affirmative statement that no Ga

Treasury raised concerns about the potential integration of VPI's IT systems with HSAG's global network post-closing. This is a natural area of focus given that VPI handles classified information and ITAR/EAR-controlled technical data at its Albuquerque facility (9200 Innovation Boulevard, Albuquerque, NM 87113). Treasury wants to understand HSAG's enterprise cybersecurity framework, including any ISO 27001 certifica

**Action item for HSAG:** We need HSAG's IT and security team to prepare a cybersecurity program overview covering ISO certifications, data protection architecture, and incident response protocols. We will also need a preliminary proposal for VPI IT system segregation post-closing. David Caruso will coordinate directly with your IT security leadership on this. **This is also needed by June 30, 2023.**

Treasury expressed significant interest in the post-closing governance structure for VPI. Their questions focused on three specific areas: (i) board composition and the role of U.S.-citizen directors with appropriate security clearances; (ii) how classified programs and ITAR-controlled activities would be insulated from foreign parent oversight; and (iii) the continued role of VPI's current Facility Security Officer,

Treasury indicated that a **Government Security Committee (GSC)** composed entirely of cleared U.S. citizens with exclusive authority over classified and export-controlled programs would be a **baseline expectation** in any mitigation agreement. This is standard in CFIUS-mandated NSAs involving cleared contractors, and we should plan accordingly.

Treasury also asked specifically about **Dr. Nathan Trevorrow's** and **Marissa Sung-Avila's** plans post-closing. It is clear that Treasury views continuity of cleared key personnel as an important factor in assessing the national security risk profile of this transaction.

**Action item for HSAG:** We should begin developing a detailed post-closing governance proposal. This should include a reconstituted VPI board with designated Security Board Members (U.S. citizens, clearance-eligible), a draft Government Security Committee charter, and confirmed commitments regarding the retention of Col. Hendrickson as FSO and the continuity of other key cleared personnel. Peggy and David will prep

Several other items came up during the meeting that I want to flag:

- **Government Contracts:** Treasury requested a complete listing of VPI's government contracts, including contracting agencies, contract values, remaining backlog, and classification levels. We will need the detailed table of all 14 active DoD contracts (both prime and subcontract), with the aggregate backlog of approximately $193 million across the top 5 contracts (U.S. Army CERDEC, AFRL, MDA, the Ironclad Defense

- **Export Control Registrations and Licenses:** Treasury noted they will need complete information on VPI's DDTC registration (Registration No. M-24817), all active DSP-5 export licenses (we understand there are 3 licenses for NATO ally deliveries to the UK and Australia), and VPI's CAGE Code (7VK92). David Caruso is leading this workstream.

- **HSAG's Existing U.S. Operations:** Treasury inquired about Halcyon US Inc. in Austin, Texas. We confirmed it is a fabless design center with approximately 320 employees and no classified work. Treasury noted this is helpful context — HSAG's existing, trouble-free U.S. operations provide a positive track record.

- **Acquisition Vehicle:** Treasury asked about the acquisition structure. We confirmed that the acquisition vehicle is **Halcyon US Holdings Inc.**, a Delaware corporation formed June 5, 2023 (registered agent: National Registered Agents of Delaware, 160 Greentree Drive, Suite 101, Dover, DE 19904).

- **Seller's Counsel Coordination:** I want to note that Harrison Whitfield from Wethersfield & Gale was cooperative throughout the meeting, and VPI's team appears well-prepared and well-organized. I expect the joint filing process to proceed smoothly.

**Notice Preparation Workstreams and Timeline**

Our **target filing date is July 14, 2023** — approximately 3.5 weeks from now. Upon acceptance by CFIUS (estimated approximately one week after filing), the 45-day review period would commence. To meet this target, we will run the following parallel workstreams:

**Workstream 1 — Notice Drafting.** I will lead the drafting of the main body of the joint voluntary notice, supported by Priya Venkataraman and Kenneth Morales from our team. We will coordinate with Wethersfield & Gale on the seller's portions. The notice will be approximately 85 pages and will address all requirements under 31 C.F.R. § 800.501.

**Workstream 2 — Exhibits Preparation.** Seven exhibits (A through G) will accompany the notice:

- **Exhibit A:** Transaction Documents — Stock Purchase Agreement executed June 10, 2023, organizational documents, and ancillary agreements. - **Exhibit B:** Business Description of VPI — products, customers, government contracts, classified programs, ITAR/EAR items, Albuquerque fabrication facility, 212 cleared employees, 47 issued patents and 12 pending applications. - **Exhibit C:** Business Description of HSAG —

**Workstream 3 — HSAG Information Gathering.** This encompasses the three items described above: the China operations summary, the cybersecurity program overview, and the governance proposal. These are critical inputs that require coordination across HSAG's corporate functions, and I want to stress that timely delivery of these materials is essential to meeting our filing target.

**Workstream 4 — Certification Declarations.** We will prepare execution-ready certifications under 31 C.F.R. § 800.502 from **Dr. Maximilian Ehrhardt** (on behalf of HSAG) and **Dr. Nathan Trevorrow** (on behalf of VPI).

David Caruso will lead the export control and government contracts inputs, including ITAR registrations, DSP-5 licenses, CAGE Code documentation, contract summaries, and facility clearance documentation. Additionally, **Omar Siddiqui** and **Christy Bauer** — per the engagement scope expansion effective today (see Engagement Letter Amendment No. 1, dated June 20, 2023) — will coordinate on IP-related disclosures, inc

For your planning purposes, the following is our current best estimate of the overall CFIUS timeline:

- **File notice:** July 14, 2023 - **CFIUS acceptance / 45-day review commencement:** ~July 21, 2023 - **Likely RFI(s) during review:** August 2023 - **45-day review conclusion:** ~early September 2023 - **Possible 45-day investigation period:** September – October 2023 - **NSA negotiation (if required, which we expect):** November – December 2023 - **Target CFIUS clearance:** Q4 2023 or January 2024

This is consistent with the 4–7 month estimated timeline discussed in the initial CFIUS briefing letter of June 12. We will, of course, push for the most efficient process possible, and the quality and completeness of the initial filing will be the single biggest factor in avoiding delays.

To keep us on track, the following action items and deadlines apply:

1. **HSAG to provide China operations summary** (Shanghai subsidiary detail, per Section A above) — **due June 30, 2023.** 2. **HSAG IT/security team to provide cybersecurity program overview** (per Section B above) — **due June 30, 2023.** 3. **Stefan to confirm post-closing intentions regarding Dr. Trevorrow, Sung-Avila, and Col. Hendrickson retention** — **due June 28, 2023.** 4. **VPI (via Wethersfield & Gale) to

Stefan, I am pleased with how the pre-filing consultation went — Treasury's engagement was serious and constructive, and the absence of any "red flag" Signals at this stage is encouraging. There is, of course, a great deal of work ahead of us to prepare a thorough and compelling filing, but I am confident we are well-positioned.

I am available to discuss by phone at your convenience — mindful, of course, of the time difference (we are six hours behind Dresden). I would also like to propose that we schedule a call later this week with you, Beatrice, David, and me to walk through the workstreams in more detail and address any questions. Please let me know what works on your end, and I will coordinate accordingly.

Separately, Beatrice will be in touch regarding the engagement scope expansion under Amendment No. 1, which adds IP and export control diligence to the engagement and brings Omar Siddiqui and Christy Bauer onto the team.

Thank you for your confidence in us on this matter. We will keep you closely apprised at every step.

**Margaret "Peggy" Ashworth** Of Counsel | National Security & CFIUS Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006 T: +1 (202) 555-0184 E: mashworth@calderwoodharkness.com

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