Contract analysis

Section 1.01 — Defined Terms As used in this Agreement, the following terms shall have the meanings ascribed to them below. Terms defined elsewhere in this Agreement shall have the meanings assigned to them in the respective provisions in which they are defined. "Agreement" means this Bilateral Advance Pricing Agreement, including all appendices and schedules attached hereto, as the same may be amended, revised, or s

Section 1.02 — Rules of Construction The following rules of construction shall apply to this Agreement: (a) Headings. The headings and titles of the Articles, Sections, and subsections of this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. (b) Singular and Plural. Unless the context otherwise requires, words importing the singular include

ARTICLE II — PARTIES AND COVERED ENTITIES

Section 2.01 — US Applicant The US applicant is Halcyon Semiconductor Inc. ("HSI"), a corporation organized and existing under the laws of the State of Delaware, Delaware File Number 7341825, with United States Employer Identification Number 84-2917630. HSI's registered agent is c/o Capitol Registered Agents LLC, 1209 Orange Street, Wilmington, Delaware 19801. HSI's principal office is located at 8700 Parmer Lane, Bu

Section 2.02 — German Applicant The German applicant is Halcyon Semiconductor AG ("HSAG"), an Aktiengesellschaft organized and existing under the laws of the Federal Republic of Germany, Steuernummer 203/118/04527, Umsatzsteuer-Identifikationsnummer DE 814 723 956. HSAG's registered office is located at Halcyon-Allee 12, 01099 Dresden, Saxony, Germany. HSAG is publicly listed on the Frankfurt Stock Exchange (XETRA),

Section 2.03 — Ownership Structure HSI is a wholly owned (100%) subsidiary of HSAG. HSAG directly holds all of the issued and outstanding shares of common stock of HSI. The HSAG-HSI parent-subsidiary relationship has been in effect since HSI's incorporation and has remained unchanged through the date of this Agreement. The Halcyon group also includes the following affiliated entities, which are not covered by this Ag

ARTICLE III — COVERED TRANSACTIONS

Section 3.01 — Covered Transaction 1: Sale of Tangible Goods (Semiconductor Wafers and Die) Description. Covered Transaction 1 consists of the manufacture and sale by HSAG of semiconductor wafers and singulated die to HSI under the terms of the Master Intercompany Supply Agreement ("MISA"). HSAG manufactures the semiconductor products at its fabrication facilities in Dresden (Fab 1 and Fab 2) and Chemnitz (Fab 3), us

Section 3.02 — Covered Transaction 2: Royalty Payments for Licensed intellectual Property Description. Covered Transaction 2 consists of the payment by HSI to HSAG of a running royalty for the right to use HSAG's proprietary semiconductor process technology, design libraries, and related intangible property in HSI's US distribution, marketing, and design-support activities, pursuant to the intellectual Property Licen

Section 3.03 — Covered Transaction 3: Cost-Sharing Contributions under the Qualified Cost Sharing Arrangement Description. Covered Transaction 3 consists of the cost-sharing contributions made by HSI to HSAG under the Qualified Cost Sharing Arrangement ("CSA") effective July 15, 2018. The CSA governs the sharing of costs and risks associated with the development of next-generation 2nm and sub-2nm semiconductor proces

Section 3.04 — Aggregate Annual Intercompany Flows The aggregate annual intercompany flows between HSAG and HSI for FY 2024 (the most recent completed fiscal year) were as follows: The aggregate intercompany flows of approximately €1.28 billion represent a material component of both HSI's cost of goods sold and operating expenses and HSAG's consolidated revenue, underscoring the significance of the Covered Transactio

Section 3.05 — Transactions Not Covered This Agreement does not cover and is not intended to apply to: (a) Any transaction between HSAG or HSI, on the one hand, and any other affiliated entity (including Halcyon Semiconductor Japan K.K. and Halcyon Semiconductor (Shanghai) Co., Ltd.), on the other hand; (b) Any transaction between HSI and unrelated third parties, except to the extent that such transactions are releva

ARTICLE IV — TRANSFER PRICING METHOD: COVERED TRANSACTION 1 (TANGIBLE GOODS)

Section 4.01 — Selected Method The Competent Authorities have agreed that the Comparable Profits Method ("CPM"), as described in Treasury Regulations § 1.482-5, is the most reliable method for determining the arm's-length result for Covered Transaction 1. The Competent Authorities further acknowledge that the CPM, as applied in this Agreement, is consistent with the Transactional Net Margin Method ("TNMM") as describ

Section 4.02 — Arm's-Length Range The Profit Level Indicator ("PLI") selected for testing HSI's profitability under the CPM/TNMM is the Operating Margin, calculated as HSI's operating income divided by its net third-party US revenue from the resale of semiconductor products, expressed as a percentage. The Economic Analysis identifies a benchmark set of seventeen (17) comparable North American semiconductor distributo

Section 4.03 — Application of the Method For each APA Year (and each Rollback Year, to the extent the Rollback Period is covered by this Agreement), HSI's Operating Margin shall be computed in accordance with the methodology described in Section 4.02 and compared to the Arm's-Length Range. (a) Result Within IQR. If HSI's Operating Margin for an APA Year (or Rollback Year) falls within the Interquartile Range of 2.8%

Section 4.04 — Compensating Adjustments and Year-End True-Up HSI shall compute its preliminary Operating Margin for each APA Year within ninety (90) days after the close of such APA Year, based on unaudited financial data. If the preliminary Operating Margin falls outside the Interquartile Range, HSAG and HSI shall implement a compensating adjustment to the intercompany transfer prices for tangible goods sold under t

Section 4.05 — Comparability Adjustments The Comparability Adjustments applied to the benchmark set in the Economic Analysis, including working capital adjustments and other adjustments to improve comparability, shall continue to be applied consistently throughout the APA Term. The methodology for computing Comparability Adjustments is described in detail in Appendix B (Economic Analysis and Benchmarking Results). If

ARTICLE V — TRANSFER PRICING METHOD: COVERED TRANSACTION 2 (ROYALTIES)

Section 5.01 — Selected Method The Competent Authorities have agreed that the Comparable Uncontrolled Transaction ("CUT") method, as described in Treasury Regulations § 1.482-4(c), is the most reliable method for determining the arm's-length royalty rate for Covered Transaction 2. The CUT method determines the arm's-length royalty by reference to the royalty rates charged in comparable uncontrolled transactions invol

Section 5.02 — Arm's-Length Range and Rate The Economic Analysis identifies a benchmark set of eight (8) comparable uncontrolled license agreements for semiconductor-related intangible property. The comparable agreements were sourced from the Clearpoint Royalty Database and publicly available SEC filings, and were selected based on the following criteria: (a) the licensed intangibles are comparable in nature to HSAG'

Section 5.03 — Computation of Royalty For each APA Year (and each Rollback Year, to the extent applicable), the royalty payable by HSI to HSAG shall be computed as follows: Royalty = IP-Attributable Revenues × 6.0% HSI shall compute IP-Attributable Revenues for each APA Year in accordance with the revenue attribution methodology set forth in the IP License Agreement. IP-Attributable Revenues represent the portion of

Section 5.04 — Corroboration via Residual Profit Split The Competent Authorities acknowledge that the 6.0% royalty rate agreed upon in Section 5.02 has been corroborated by a residual profit split analysis, the full details of which are set forth in the Economic Analysis Appendix to the APA applications filed by HSI and HSAG. The residual profit split analysis allocates the combined operating profit of HSAG and HSI f

ARTICLE VI — TRANSFER PRICING METHOD: COVERED TRANSACTION 3 (COST SHARING)

Section 6.01 — Selected Method The Competent Authorities have agreed that the cost-sharing contributions made by HSI under the CSA shall be determined using the income method described in Treasury Regulations § 1.482-7(g)(4), applied in a manner consistent with Chapter VIII of the OECD Transfer Pricing Guidelines (2022 edition). The CSA between HSAG and HSI is a Qualified Cost Sharing Arrangement as defined in Treasu

Section 6.02 — Cost-Sharing Percentages The anticipated benefit shares of the CSA participants, as determined by the income method and agreed upon by the Competent Authorities, are as follows: For each APA Year, HSI's share of Qualified R&D Costs under the CSA shall be computed as follows: HSI's Cost-Sharing Contribution = Total Qualified R&D Costs × 22.5% For reference, in FY 2024, total Qualified R&D Costs were €99

Section 6.03 — Triennial Benefit Share Review The anticipated benefit shares set forth in Section 6.02 shall be reviewed periodically to determine whether they continue to reflect the parties' reasonably anticipated benefits from the exploitation of the cost-shared intangibles. The review shall be conducted every three years, as follows: (a) First Review. The first review shall cover APA Years 2025, 2026, and 2027. H

Section 6.04 — Platform Contribution Transaction (PCT) The Competent Authorities acknowledge and accept that the PCT buy-in payment of $312,500,000 made by HSI to HSAG on July 15, 2018, in connection with the inception of the CSA, was determined using the income method described in Treasury Regulations § 1.482-7(g)(4). The PCT valuation was performed by Stonebridge Valuation Partners LLC (Marcus Reinhardt, Managing D

Section 6.05 — Qualified R&D Costs For purposes of this Agreement, "Qualified R&D Costs" shall have the meaning assigned to that term in the CSA. Qualified R&D Costs represent the subset of HSAG's total R&D expenditures that relate directly to the development of next-generation 2nm and sub-2nm semiconductor process technologies and that qualify for cost sharing under the terms of the CSA. HSAG's total R&D expenditure

ARTICLE VII — CRITICAL ASSUMPTIONS

Section 7.01 — General This Agreement is premised on the Critical Assumptions set forth in this Article VII. The Competent Authorities have relied upon these Critical Assumptions in agreeing to the TPMs, arm's-length ranges, royalty rates, and cost-sharing percentages set forth herein. The continued validity of this Agreement depends upon the continued validity of these Critical Assumptions. If any Critical Assumptio

Section 7.02 — Enumeration of Critical Assumptions The Critical Assumptions upon which this Agreement is premised are as follows:

1. Business Operations. HSI continues to operate as the exclusive US distribution, marketing, and design-support entity for HSAG products in North America throughout the APA Term. HSI does not undertake manufacturing, fabrication, or assembly activities, and does not assume entrepreneurial risks (including inventory risk, credit risk, or market risk) that are materially different from those described in the functiona

2. Ownership Structure. HSAG maintains direct or indirect ownership of 100% of the issued and outstanding equity interests in HSI throughout the APA Term. There is no change in the ownership structure of HSI, whether through sale, transfer, merger, spin-off, or otherwise, that would alter the controlled-party relationship between HSAG and HSI.

3. Intercompany Agreements. The MISA, IP License Agreement, and CSA remain in effect throughout the APA Term in substantially the form described in this Agreement and in the APA applications. Any amendments to such agreements during the APA Term are consistent with the TPMs, arm's-length ranges, and Critical Assumptions set forth herein and do not materially alter the economic substance of the Covered Transactions.

4. Functional Profile. HSI's functions, assets, and risks remain substantially consistent with the characterization of HSI as a limited-risk distributor, as described in the functional analyses submitted with the APA applications and summarized in Appendix A. HSAG remains the complex, IP-rich principal entity, performing fabrication, research and development, and bearing the entrepreneurial risks associated with semi

5. Accounting Methods. Both HSAG and HSI maintain their existing accounting methods throughout the APA Term, including fiscal year-ends of December 31, and do not make changes to their accounting methods, accounting principles (US GAAP for HSI; IFRS for HSAG's consolidated financial statements), or financial reporting practices that would materially affect the computation of the Profit Level Indicators, Operating Mar

6. Legal and Regulatory Environment. There are no material changes in US tax law (including the IRC, Treasury Regulations, and IRS guidance), German tax law (including the AStG, AO, and GAufzV), the OECD Transfer Pricing Guidelines, or the Treaty that would render the TPMs selected in this Agreement inapplicable, that would make the arm's-length ranges inappropriate, or that would otherwise fundamentally alter the ba

7. Industry Conditions. The semiconductor industry does not experience a structural disruption — such as government-mandated production restrictions, export controls targeting the specific products or technologies at issue, trade embargoes, or supply chain dislocation exceeding eighteen (18) consecutive months — that would fundamentally alter the comparability of the benchmark sets used in the Economic Analysis, rend

8. CSA Scope. The CSA continues to cover the development of next-generation 2nm and sub-2nm semiconductor process technologies, and there is no material change in the scope of the intangible development activities governed by the CSA or in the identity of the cost-sharing participants. The CSA is not expanded to cover materially different categories of intangible property (such as unrelated product designs or non-sem

9. No New Related-Party Participants. No additional related entities — including, without limitation, Halcyon Semiconductor Japan K.K. or Halcyon Semiconductor (Shanghai) Co., Ltd. — become parties to the CSA or to any of the Covered Transactions during the APA Term without prior written notification to both Competent Authorities and their consent to such addition.

10. Transfer of Intangibles. HSAG does not transfer ownership of material intangible property that is the subject of the IP License Agreement to any entity other than HSI during the APA Term, whether by sale, license, contribution, or otherwise, in a manner that would materially affect the arm's-length royalty rate or the allocation of income between the Contracting States.

Section 7.03 — Notification Obligations HSI and HSAG shall each notify the Competent Authorities in writing within thirty (30) days of becoming aware that any Critical Assumption has ceased to be valid, has been breached, or is reasonably likely to cease to be valid in the foreseeable future. The notification shall include: (a) an identification of the Critical Assumption at issue; (b) a description of the relevant c

ARTICLE VIII — APA TERM AND ROLLBACK

Section 8.01 — Prospective APA Term This Agreement covers five (5) consecutive prospective tax years, constituting the APA Term, as follows: For each APA Year, HSI and HSAG shall apply the TPMs set forth in Articles IV, V, and VI to the Covered Transactions and shall report their compliance in the Annual Compliance Reports required under Article IX.

Section 8.02 — Rollback Provisions The applicants request, and the Competent Authorities agree to consider, the application of the TPMs set forth in this Agreement to the three (3) prior tax years constituting the Rollback Period, as follows: The application of this Agreement to the Rollback Period is subject to the following conditions: (a) Competent Authority Consent. Both Competent Authorities must consent to the

Section 8.03 — Effective Date This Agreement shall become effective upon the date on which it has been signed by both Competent Authorities. The applicants' consent signatures, while required for the Agreement to take effect, do not constitute signature by the Competent Authorities for purposes of determining the effective