Contract analysis

I. Purpose This memorandum sets forth Calderwood & Harkness LLP's ("C&H" or the "Firm") recommended strategy for settlement negotiations with the U.S. Department of Justice, National Security Division, Counterintelligence and Export Control Section ("DOJ NSD/CES") in connection with the inquiry bearing reference number NSD-CES-2025-04871 (the "Matter"). The Matter concerns the export of certain controlled semiconduct

II. Current Posture The Matter has progressed through an extended investigative and cooperative phase, and DOJ NSD/CES has signaled its readiness to proceed toward resolution. In a telephone conference on February 10, 2026, Senior Trial Attorney Adrienne Kolb expressly acknowledged Halcyon's "substantial cooperation" throughout the inquiry. This acknowledgment is significant because, under DOJ policy, the degree of a

1. Monetary penalty amount. DOJ has communicated an initial aggravated position of $5,500,000. C&H has countered at $1,800,000. The resolution of this point will depend on the weight accorded to aggravating and mitigating factors, as discussed in Section III below.

2. Whether Lansheng Harborline Technologies Technologies Ltd. violations are included. DOJ has advanced a theory that six shipments to Lansheng between April 8, 2024 and August 19, 2025 constitute violations of 15 C.F.R. § 744.21 (the military end-use rule). C&H contests the legal and factual basis for this theory, as discussed in Section VI below, and recommends resisting any inclusion of the Lansheng shipments in t

3. Scope and duration of compliance undertakings. DOJ is expected to require enhanced compliance measures, including the appointment of an independent compliance monitor, annual audits, automated restricted-party screening enhancements, mandatory training programs, and periodic reporting. The scope and duration of these undertakings represent a significant cost and operational burden, and their parameters are subject

4. Form of resolution. The resolution may take the form of (a) an administrative settlement agreement, (b) a non-prosecution agreement ("NPA"), or (c) a deferred prosecution agreement ("DPA"). C&H recommends pursuing an administrative settlement agreement, as discussed in Section IV below. As a foundation for the negotiation strategy set forth in this memorandum, we note the following key factual determinations arisi

III. Penalty Analysis A. BIS Penalty Guidelines Framework The monetary penalty for violations of the Export Administration Regulations ("EAR") is determined by reference to the penalty guidelines set forth in Supplement No. 1 to Part 766 of the EAR (the "Penalty Guidelines"). Under the Penalty Guidelines, the base penalty for each violation is calculated as the greater of (a) twice the value of the transaction giving

IV. Form of Resolution C&H recommends that Halcyon seek an administrative settlement agreement as the form of resolution, rather than a non-prosecution agreement ("NPA") or a deferred prosecution agreement ("DPA"). This recommendation is based on the following considerations:

1. An NPA or DPA signals criminal exposure and is inappropriate in this context. While neither an NPA nor a DPA constitutes a criminal conviction, both instruments are rooted in the criminal enforcement framework and carry an inherent implication that criminal conduct was at least contemplated by the prosecuting authority. Given that C&H's investigation has conclusively established that the violations were non-willfu

2. An administrative settlement is consistent with precedent in comparable cases. The three comparable settlements cited in Section III.D — In re Meridian Photonics GmbH, In re Cascade Dynamics Inc., and In re Novus Precision Instruments AG — were all resolved through administrative settlement agreements. None of these cases involved an NPA or DPA. The use of an administrative settlement in cases involving non-willfu

3. DOJ has indicated its willingness to proceed on an administrative settlement basis. In the February 10, 2026 telephone conference, Senior Trial Attorney Adrienne Kolb stated that DOJ is prepared to resolve the matter through an administrative settlement agreement, provided that the compliance undertakings incorporated into the settlement are sufficiently robust. This indication is consistent with our understanding

4. An administrative settlement will mitigate adverse Board, shareholder, and market impact. An administrative settlement agreement will be significantly easier to explain to HSAG's Supervisory Board, to shareholders, and to the investment community than an NPA or DPA, both of which carry connotations of criminal jeopardy that may be misunderstood or amplified in media coverage. This consideration is particularly imp

V. Compliance Undertakings The settlement agreement is expected to include a package of compliance undertakings designed to address the systemic weaknesses that gave rise to the violations and to provide DOJ with ongoing assurance of the Company's compliance posture. Based on our discussions with DOJ and our review of compliance undertakings imposed in comparable settlements, we anticipate the following requirements

VI. Lansheng Strategy C&H strongly recommends that Halcyon resist any concession on the Lansheng Harborline Technologies Technologies Ltd. shipments. This recommendation is based on both the legal merits and the strategic consequences of including the Lansheng shipments in any settlement. A. DOJ's Theory DOJ NSD/CES has advanced a theory that six shipments made by HSI to Lansheng Harborline Technologies Technologies

1. Increased monetary penalty. Inclusion of the Lansheng shipments would add six additional violations to the penalty calculation, increasing the penalty by an estimated $1,500,000 to $2,500,000, depending on the per-violation calculation methodology and the weight accorded to aggravating and mitigating factors. This increase would bring the total monetary penalty to approximately $4,750,000 to $5,750,000, well above

2. Adverse precedent. A settlement that includes the Lansheng shipments, even if framed as an administrative settlement rather than a finding of violation, would create an adverse precedent suggesting that companies can be held liable under § 744.21 without actual knowledge of military end use and without an "is informed" notice from BIS. This precedent would undermine the knowledge requirement that is the cornerston

3. Future exposure. If Lansheng is subsequently added to the Entity List — a possibility that cannot be ruled out given DOJ's apparent interest in the entity — the inclusion of the Lansheng shipments in the current settlement could complicate the Company's position if the prior shipments are scrutinized in the context of any future enforcement action. A settlement that concedes § 744.21 liability with respect to Lans

VII. Negotiation Timeline The following table sets forth the anticipated timeline for the remaining stages of the settlement negotiation process: We note that this timeline is ambitious and is contingent upon DOJ's timely circulation of a draft settlement agreement and the absence of unexpected complications in the negotiation process. We will keep the client informed of any developments that may affect the timeline.

VIII. Recommendation and Authorization Request Based on the analysis set forth in this memorandum, C&H recommends that Halcyon authorize Calderwood & Harkness LLP to negotiate a resolution of the Matter on the following parameters: Monetary penalty. C&H will target a monetary penalty of $3,000,000. C&H requests authority to negotiate and agree to a penalty of up to $3,500,000 without requiring further client approval