Contract analysis

I. Executive Summary This memorandum analyzes and advises on the board governance provisions contained in the initial draft National Security Agreement ("NSA" or "Agreement"), designated NSA-2024-0019, circulated by the Committee on Foreign Investment in the United States ("CFIUS") on November 3, 2023, in connection with Halcyon Semiconductor Aktiengesellschaft's ("HSAG") proposed acquisition of one hundred percent (

II. Current VPI Board Composition (Pre-Closing) To provide context for the NSA's post-closing governance requirements, it is useful to summarize VPI's existing board composition and ownership structure. As of the date of this memorandum, VPI's board of directors consists of five members, as follows:

1. Dr. Nathan Trevorrow — Founder, Chief Executive Officer, and Chairman of the Board. Dr. Trevorrow co-founded VPI in 2009 and has served as its CEO and Board Chair since inception. He holds an active TS/SCI security clearance and is intimately involved in VPI's most sensitive classified programs, including programs conducted on behalf of the Missile Defense Agency. Dr. Trevorrow holds a Ph.D. in Electrical Engineer

2. Marissa Sung-Avila — President and Chief Operating Officer. Ms. Sung-Avila joined VPI in 2012 and has served as President and COO since 2018. She holds an active SECRET security clearance and oversees VPI's day-to-day operations at both the Colorado Springs headquarters and the Albuquerque Fab. Ms. Sung-Avila holds an M.B.A. from the Wharton School at the University of Pennsylvania and a B.S. in Materials Science

3. Franklin Yee — Board member designated by Ridgecrest Ventures Fund III, L.P., which holds approximately 31.7% of VPI's outstanding equity. Mr. Yee is the Managing Partner of Ridgecrest Ventures Management LLC, the general partner and investment advisor to Ridgecrest Ventures Fund III, with offices at 3300 Sand Hill Road, Suite 220, Menlo Park, California 94025. Mr. Yee does not hold a security clearance and does n

4. Olivia Hartmann — Board member designated by Cascadian Capital Partners Growth Fund II, L.P., which holds approximately 24.3% of VPI's outstanding equity. Ms. Hartmann is a Managing Director of Cascadian Capital Partners Management LLC, the general partner and investment advisor to Cascadian Capital Partners Growth Fund II, with offices at 1201 Third Avenue, Suite 4400, Seattle, Washington 98101. Like Mr. Yee, Ms.

5. Adrienne Delacroix — Independent Director. Ms. Delacroix has served as an independent member of VPI's board since 2019. She holds an active SECRET security clearance and brings extensive experience in defense-sector corporate governance, having previously served on the boards of two other defense contractors and as a senior official at the Department of Homeland Security. Ms. Delacroix satisfies the independence r

III. NSA-Required Post-Closing Board Reconstitution A. Five-Member Board Structure The draft NSA requires the full reconstitution of VPI's board of directors effective upon closing of the Transaction. As set forth in NSA Section 5.1, the reconstituted board must consist of exactly five (5) members, allocated as follows: three (3) "Security Board Members" and two (2) "HSAG Designees." This structure ensures that U.S.-

1. Be a citizen of the United States of America, whether by birth or through naturalization;

2. Hold, or be eligible to obtain within a reasonable time following appointment, a security clearance at the TOP SECRET / SENSITIVE COMPARTMENTED INFORMATION (TS/SCI) level granted by the U.S. government;

3. Not be, and not have been within the preceding twelve (12) months, an officer, director, employee, consultant, or agent of HSAG or any non-U.S. affiliate, subsidiary, or parent entity of HSAG, including but not limited to Halcyon Semiconductor GmbH (Munich), Halcyon Asia-Pacific Pte. Ltd. (Singapore), and Halcyon Semiconductor K.K. (Tokyo);

4. Have no financial interest in HSAG or any non-U.S. affiliate of HSAG, other than arm's-length compensation received for board service at VPI, which compensation must be disclosed to the CFIUS monitoring agencies; and

5. Be approved by CFIUS — specifically by the Department of Defense ("DoD") and the Department of Energy ("DOE"), acting as the co-lead agencies for this Transaction — prior to formal appointment to VPI's board. The approval process includes both a background investigation and a substantive assessment of the nominee's qualifications and independence. Analysis. The requirement that all three Security Board Members hol

1. The Independent Security Director must not have had any employment, consulting, advisory, or board relationship with HSAG, VPI, or any of their respective affiliates, subsidiaries, parent entities, or predecessors within the five (5) years preceding the date of appointment;

2. The Independent Security Director must possess substantial professional experience in one or more of the following domains: U.S. national security policy, defense contracting and acquisition, intelligence community operations, or military service at a senior level (defined in the draft NSA as O-7/GS-15 equivalent or above); and

3. The Independent Security Director must be nominated jointly by the other two Security Board Members and must receive the written approval of the CFIUS monitoring agencies — specifically DCSA, the Department of the Treasury, DoD, and DOE — before assuming the role. The Independent Security Director is designated under the draft NSA as the permanent chair of the Government Security Committee (discussed in detail in

1. Col. (Ret.) Bryce Hendrickson — Proposed Security Board Member (Nominee #1) Col. Hendrickson currently serves as VPI's Vice President of Government Programs and Facility Security Officer ("FSO"). He is a retired U.S. Air Force Colonel with over 28 years of military service, including extensive experience in defense acquisition, classified program management, and industrial security administration. Col. Hendrickson

2. Adrienne Delacroix — Proposed Security Board Member (Nominee #2) Ms. Delacroix currently serves as an Independent Director on VPI's pre-closing board. She holds an active SECRET security clearance. Under the draft NSA's qualifications, she would need to hold or be eligible to obtain a TS/SCI clearance. Based on our preliminary assessment, Ms. Delacroix's background and current SECRET clearance status suggest that

3. Independent Security Director — To Be Identified (Nominee #3) The Independent Security Director must be a new appointee who satisfies the enhanced independence and experience requirements of NSA Section 5.3. This individual must have had no employment, consulting, advisory, or board relationship with either HSAG or VPI (or their respective affiliates) within the preceding five years. As discussed above, this posit

1. HSAG Designees may not hold, access, receive, or be briefed on any classified national security information held, processed, or generated by VPI, including but not limited to classified contract specifications, classified technical data, classified performance reports, and any information classified at the CONFIDENTIAL, SECRET, or TOP SECRET levels;

2. HSAG Designees may not participate in, attend, or vote on any matter that falls within the exclusive jurisdiction of the Government Security Committee, as defined in NSA Section 6.2 (discussed in Section IV.B below);

3. HSAG Designees may not access VPI's classified facilities — specifically identified in the draft NSA as Sections C-7 through C-12 of the Albuquerque Fab — without prior written approval from both DCSA and the GSC, which approval may be withheld in the sole discretion of the GSC;

4. HSAG Designees may not receive, access, review, or possess any technical data controlled under ITAR (22 C.F.R. Parts 120–130) or any technology controlled under EAR (15 C.F.R. Parts 730–774) except as specifically permitted under the Technology Control Plan set forth in NSA Annex B and any applicable export licenses or license exceptions; and

5. Each HSAG Designee must be approved by CFIUS before assuming a board seat. The CFIUS approval process for HSAG Designees is limited to a background check and does not involve the full clearance investigation or substantive qualifications review applicable to Security Board Members. However, CFIUS retains the right to object to a proposed HSAG Designee on the basis of background check results. Analysis. The restric

IV. Government Security Committee (GSC) A. Composition. NSA Section 6.1 establishes the Government Security Committee as a standing committee of VPI's board of directors, composed exclusively of the three (3) Security Board Members. The GSC is permanently chaired by the Independent Security Director, who serves as the committee's presiding officer and as the principal point of contact between the GSC and the CFIUS mo

1. Classified Programs and Contracts. All decisions relating to VPI's classified programs and contracts with U.S. government agencies and their contractors, including but not limited to the fourteen (14) active Department of Defense contracts with aggregate backlog of approximately $193 million. These contracts include agreements with the U.S. Army Program Executive Office for intelligence, Electronic Warfare, and Se

2. ITAR-Controlled Defense Article Activities. All decisions relating to VPI's activities involving defense articles controlled under ITAR Category XI(a)(3), including research, development, production, export, and related licensing matters. VPI currently holds three (3) active DSP-5 export licenses authorizing deliveries of ITAR-controlled defense articles to end-users in the United Kingdom and Australia. VPI is reg

3. Personnel Security Decisions. All decisions relating to personnel security, including the hiring, termination, reassignment, and compensation of employees who hold or require security clearances; the sponsorship of employees for initial or upgraded security clearances; the determination of access levels and need-to-know authorizations for classified information; and the reporting of adverse information or security

4. Facility Security Clearance Administration. All decisions relating to the maintenance, administration, and renewal of VPI's Facility Security Clearance at the SECRET level (CAGE Code 7VK92), including compliance with NISPOM requirements (32 C.F.R. Part 117), DCSA inspection preparation and response, and the establishment and enforcement of facility security procedures at the Albuquerque Fab.

5. Facility Security Officer Oversight. The appointment, supervision, evaluation, and, if necessary, replacement of VPI's Facility Security Officer. As discussed above, Col. (Ret.) Bryce Hendrickson currently serves as FSO and is required to remain in that position for a minimum of twenty-four months post-closing. The FSO reports to the GSC — not to VPI's CEO, HSAG, or the full board — on all security matters.

6. Cybersecurity Incident Response for Classified Systems. The management and direction of cybersecurity incident response activities involving VPI's classified information systems, including coordination with DCSA, the Department of Defense Cyber Crime Center ("DC3"), and other relevant government agencies. This authority encompasses both the initial response to suspected or confirmed cybersecurity incidents and the

7. Government and Monitor Engagement. All engagement and communication with DCSA, the CFIUS monitoring agencies (Treasury, DoD, DOE), and the third-party compliance monitor — Whitmore Compliance Group LLC (principal: Gerald Whitmore; office: 1300 Crystal Drive, Suite 710, Arlington, Virginia 22202) — on all security-related matters arising under the NSA. This includes the preparation of responses to monitoring agency

8. New Classified or ITAR-Controlled Contracts. The approval of any new classified contract, classified subcontract, ITAR-controlled contract, or ITAR-controlled subcontract that VPI proposes to enter into following the closing of the Transaction. This provision ensures that VPI's expansion into new classified or defense-related work is subject to independent security oversight.

9. Facility Access Decisions. All decisions regarding access to VPI's classified facilities (identified as Sections C-7 through C-12 of the Albuquerque Fab) by any person who does not hold an active security clearance at the appropriate level, including HSAG personnel, HSAG Designees, visitors, and contractor personnel.

10. Technology Transfer Review. The review and approval of any proposed transfer, disclosure, or provision of access to VPI technical data, technology, or source code to any non-U.S. person, whether within or outside of VPI's organization, including transfers to HSAG personnel, HSAG affiliates, and third-party recipients. This authority is exercised in coordination with the Technology Control Plan (NSA Annex B). C. A

V. Full Board Reserved Matters A. Matters Requiring Full Board Approval While the GSC exercises exclusive authority over security-related matters, the draft NSA reserves a defined set of corporate governance decisions to the full five-member board, ensuring that HSAG's two Designees participate in and vote on these matters alongside the three Security Board Members. NSA Section 7.1 identifies the following as full-bo

1. Annual Operating Budget and Capital Expenditure Plan. Approval of VPI's annual operating budget and capital expenditure plan for each fiscal year, including allocations for both classified and unclassified operations (subject to the dual-character decision issue discussed in Section IV.C above).

2. Material Indebtedness. Authorization for VPI to incur indebtedness in excess of a specified threshold, set in the draft NSA at five million dollars ($5,000,000) in the aggregate at any one time outstanding. This threshold applies to borrowings, credit facilities, guarantees, and other forms of indebtedness, but excludes ordinary course trade payables and accrued liabilities.

3. Material Acquisitions and Divestitures. Approval of material acquisitions or divestitures of VPI assets, business units, or subsidiaries, subject to CFIUS pre-notification requirements. The draft NSA requires HSAG and VPI to provide CFIUS with at least thirty (30) days' advance written notice of any material change to VPI's business, including any proposed acquisition, divestiture, joint venture, or strategic alli

4. Charter and Bylaw Amendments. Approval of any changes, amendments, or restatements of VPI's certificate of incorporation (as filed with the Delaware Secretary of State) or bylaws.

5. Dividends and Distributions. Declaration or payment of dividends, distributions, or other returns of capital to HSAG (through Halcyon US Holdings as VPI's direct shareholder). This provision ensures that HSAG's financial return on its investment is subject to full board oversight, including input from the Security Board Members on whether proposed distributions could adversely affect VPI's financial capacity to pe

6. Appointment and Removal of Non-Security Officers. Appointment or removal of VPI's Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and other officers whose roles are not exclusively related to security or classified programs. This provision is subject to an important qualification: the removal or replacement of any "Key Personnel" identified in the NSA's personnel continuity provisions —

7. Material Commercial Contracts. Entry into material commercial (non-government) contracts, including supply agreements, customer contracts, technology licenses, and joint development agreements that exceed a specified dollar threshold or term (the draft NSA does not specify the precise thresholds for this category; this is a point for negotiation).

8. Material Litigation Decisions. Authorization of the commencement, settlement, or resolution of litigation, arbitration, or regulatory proceedings involving claims above a specified dollar threshold (the draft NSA references a threshold to be agreed; based on precedent, we anticipate this will be set in the range of $1 million to $5 million).

9. Audited Financial Statements. Approval of VPI's annual audited financial statements, prepared in accordance with U.S. GAAP and audited by VPI's independent registered public accounting firm, Arbor & Greenfield LLP (engagement partner: Joan Greenfield). B. Analysis. The full-board reserved matters enumerated above preserve HSAG's legitimate interest in commercial and financial oversight of its $1.42 billion investm

VI. Interaction with FOCI Mitigation and Facility Security Clearance A. SSA-Equivalent Treatment The board governance provisions of the draft NSA are structured to function as a Special Security Agreement ("SSA") equivalent for purposes of the Defense Counterintelligence and Security Agency's Foreign Ownership, Control, or Influence ("FOCI") mitigation framework. Under the National Industrial Security Program Operati

1. Post-Closing DCSA Notification Letter. Within the timeframe specified in the NSA (typically five business days after closing), VPI must submit a formal notification to DCSA confirming: (a) the change in ownership from the pre-closing shareholders (Ridgecrest Ventures Fund III, L.P., Cascadian Capital Partners Growth Fund II, L.P., and other existing shareholders) to Halcyon US Holdings (as the direct parent) and H

2. DCSA Review and Approval. DCSA will review the post-closing notification and the governance structure established under the NSA to confirm that the FOCI mitigation measures are adequate to support VPI's continued FCL eligibility. This review process typically takes four to six weeks from the date of the notification submission. During this period, VPI's FCL status may be placed in a transitional or interim status,

3. Ongoing DCSA Monitoring. DCSA serves as one of the monitoring agencies under the NSA and will conduct periodic oversight of VPI's compliance with the governance provisions. DCSA's monitoring activities include annual security reviews, ad hoc inspections, and coordination with the third-party compliance monitor. Whitmore Compliance Group LLC (1300 Crystal Drive, Suite 710, Arlington, Virginia 22202) will serve as t

VII. Restrictions on Information Flow to HSAG The draft NSA establishes a comprehensive framework governing the flow of information from VPI to HSAG, Halcyon US Holdings, and other HSAG affiliates. This framework is designed to prevent unauthorized disclosure of classified information and controlled technology to foreign persons while preserving HSAG's ability to access unclassified business information necessary for