MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
To: Vivienne St. Claire, Responsible Partner, Capital Markets, Calderwood & Harkness LLP Robert Adeyemi, Billing Partner, Capital Markets, Calderwood & Harkness LLP
From: Claire Dempsey, Lead Associate, Capital Markets, Calderwood & Harkness LLP Audrey Zhou, Working Associate, Capital Markets, Calderwood & Harkness LLP
Date: February __, 2026
Re: Halcyon Semiconductor Aktiengesellschaft — Due Diligence Review of Employee Benefit Plans and Compensation Arrangements
Matter No.: 1032-00003
Purpose: This memorandum summarizes the findings of due diligence conducted on the employee benefit plans, equity-based compensation arrangements, and executive compensation structures of Halcyon Semiconductor Aktiengesellschaft ("Halcyon AG," "Halcyon," or the "Company") across all jurisdictions of operation. The memorandum identifies disclosure requirements for the Registration Statement on Form F-1 (the "Registration Statement") and prospectus (the "Prospectus") in connection with Halcyon's prospective initial public offering of American Depositary Shares ("ADSs") in the United States through a Level III American Depositary Receipt ("ADR") program (the "IPO" or the "Offering"). This memorandum is intended solely for the use of Calderwood & Harkness LLP attorneys working on this matter and is protected by the attorney-client privilege and the work product doctrine.
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I. Executive Summary
Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") has conducted a comprehensive due diligence review of the employee benefit plans and compensation arrangements of Halcyon Semiconductor AG in connection with the Company's contemplated US initial public offering. Our review has encompassed all material benefit plans, equity incentive programs, executive compensation structures, and pension commitments across each jurisdiction in which Halcyon and its subsidiaries employ personnel. In conducting this review, we have coordinated closely with Bähr Stein Rechtsanwälte, Munich (Dr. Christoph Maurelban, Partner, and Johanna Weiß, Senior Associate), who have advised on German-law aspects of the Company's benefit plan compliance and corporate governance framework.
Halcyon employs approximately 8,400 employees worldwide. The Company's global workforce is distributed across the following jurisdictions and locations:
• Germany: Approximately 5,800 employees, including approximately 4,000 at the Company's headquarters in Munich, Bavaria, and approximately 1,800 at the silicon carbide fabrication facilities operated by the Company's wholly owned subsidiary, Halcyon Power Solutions GmbH, in Dresden, Saxony;
• United States: Approximately 420 employees at the offices of Halcyon Semiconductor USA Inc. in Santa Clara, California, engaged primarily in sales, application engineering, and customer support functions;
• Singapore: Approximately 180 employees at Halcyon Asia Pacific Pte. Ltd., the Company's Asia-Pacific sales and regional distribution hub;
• People's Republic of China ("PRC"): Approximately 350 employees at Halcyon Shanghai Semiconductor Co., Ltd. (a wholly foreign-owned enterprise), the Company's Shanghai-based sales and engineering center; and
• Czech Republic: Approximately 650 employees at Halcyon Automotive Components s.r.o. in Brno, engaged in semiconductor module assembly and testing operations.
Our key findings are organized into the following principal categories, each of which is addressed in detail in the body of this memorandum:
(a) German Statutory and Supplemental Benefit Plans. Halcyon and its German subsidiaries maintain compliance with all mandatory German social insurance obligations and provide supplemental benefits—including a company pension plan (betriebliche Altersversorgung), deferred compensation arrangements, company car programs, and supplemental insurance—consistent with market practice for German industrial companies of comparable size and complexity.
(b) Halcyon Employee Stock Ownership Trust (ESOT). The Company established the Halcyon Employee Stock Ownership Trust in 2011 as a trust (Treuhandverhältnis) under German law. The ESOT currently holds 6,665,000 ordinary shares (Stammaktien) of Halcyon AG, representing approximately 3.1% of the Company's 215,000,000 pre-IPO outstanding shares. The ESOT raises certain governance and related-party disclosure considerations in connection with the Prospectus.
(c) Non-German Benefit Plans. The Company's non-German subsidiaries in the United States, Singapore, the PRC, and the Czech Republic each maintain local benefit arrangements that are generally compliant with applicable local law. Certain post-IPO action items have been identified, most notably the requirement to update the State Administration of Foreign Exchange ("SAFE") registration in the PRC for equity-based compensation awards.
(d) Executive Compensation — Vorstand Members. The compensation of Halcyon's five-member Vorstand (Management Board), including fixed base salaries, short-term variable compensation, long-term incentive awards (performance share units), pension commitments, and change-of-control/severance provisions, has been reviewed in detail. Aggregate estimated FY2025 Vorstand compensation is approximately €15,760,400.
(e) Supervisory Board (Aufsichtsrat) Compensation. The Aufsichtsrat compensation structure consists of fixed fees without variable or equity-based components, consistent with best practice under the German Corporate Governance Code.
(f) Prospectus Disclosure Requirements. We have identified all material disclosure requirements applicable to employee benefit plans and compensation under the Form F-1/Form 20-F framework, including compensation tables, equity plan descriptions, related-party transaction disclosures, and dilution analysis inputs.
Based on our review, no material issues have been identified that would impede the SEC registration or the contemplated IPO. However, several items require prominent disclosure in the Form F-1 Prospectus, including: (i) the ESOT structure, holdings, and governance; (ii) individual and aggregate Vorstand compensation; (iii) the Long-Term Incentive Plan and its dilutive impact; and (iv) the related-party dimensions of the Wendt family's connection to the ESOT and Rheintal Industrieholding GmbH. These disclosure requirements are addressed in detail in Section X of this memorandum.
II. Scope of Review
Documents Reviewed
In conducting our due diligence review, the working team reviewed the following categories of documents, which were provided by Halcyon management (principally through the offices of Wilhelm Ostermann, General Counsel and Vorstand member, and Katarina Dalmqvist, CFO) via the Thackeray Solutions virtual data room established for the IPO transaction (VDR Room "Project Gallium"):
(a) Employee benefit plan documents, including plan instruments, trust deeds, plan rules, and amendments for all material benefit plans maintained by Halcyon AG and each of its subsidiaries;
(b) The Halcyon Employee Stock Ownership Trust deed and all governing instruments, including the original trust agreement dated 2011, subsequent amendments, trustee appointment instruments, and participant communications;
(c) Vorstand service agreements (Dienstverträge) for all five current Vorstand members, including all schedules, addenda, and amendments thereto;
(d) Aufsichtsrat compensation resolutions adopted by the Hauptversammlung (annual general meeting of shareholders);
(e) The Halcyon Long-Term Incentive Plan (LTIP) as adopted in 2020 and amended in 2023, together with form award agreements for Performance Share Units (PSUs) and Stock Appreciation Rights (SARs);
(f) The Employee Share Purchase Plan (ESPP) documents, including plan rules and participant enrollment forms;
(g) Pension commitments documentation, including Direktzusage (direct commitment) agreements for senior management, Pensionskasse regulations, and Contractual Trust Arrangement (CTA) agreements;
(h) Local employment agreements, offer letters, and employee handbooks for non-German subsidiaries in the United States, Singapore, the PRC, and the Czech Republic;
(i) Summary plan descriptions for the Halcyon Semiconductor USA Inc. 401(k) plan and group health and welfare benefit plans;
(j) Internal Revenue Service determination letter for the Halcyon Semiconductor USA Inc. 401(k) plan;
(k) Relevant Vorstand and Aufsichtsrat resolutions relating to the adoption, amendment, and administration of benefit plans and equity compensation arrangements;
(l) SAFE registration documentation for equity-based compensation of PRC-based employees; and
(m) Such other documents and records as were made available in the VDR and were relevant to the scope of our review.
Coordination with Local Counsel
Our review was conducted in coordination with the following external advisors:
• Bähr Stein Rechtsanwälte, Munich (Dr. Christoph Maurelban, Partner, and Johanna Weiß, Senior Associate): German law compliance review of the Company's statutory and supplemental benefit plans, ESOT structure and governance, company pension plan compliance under the Betriebsrentengesetz (BetrAVG), Vorstand service agreement review, and Aufsichtsrat compensation analysis. Bähr Stein has provided a separate legal opinion on German-law benefit plan matters, which is referenced herein.
• Local Counsel — Singapore, PRC, and Czech Republic: Responses to due diligence questionnaires circulated by Calderwood & Harkness were received from local counsel in each of these jurisdictions. The questionnaires addressed statutory benefit compliance, local regulatory requirements for equity compensation, and identification of any pending or threatened regulatory actions or audits. The responses confirmed general compliance in each jurisdiction, subject to the PRC SAFE registration update requirement discussed in Section VII.C below.
Tax Coordination
Leonard Cross, Partner, Tax Department, Calderwood & Harkness LLP, was consulted on the US federal income tax implications of Halcyon's equity-based compensation arrangements as they affect US persons, including potential Passive Foreign Investment Company ("PFIC") considerations for ESOT participants who are US tax residents and Section 409A compliance for US-based participants in the LTIP. Mr. Cross's analysis is the subject of a separate tax memorandum; relevant conclusions are referenced herein where applicable.
III. German Statutory Benefit Programs
A. Social Insurance (Sozialversicherung)
Halcyon AG (Munich) and Halcyon Power Solutions GmbH (Dresden) comply with the mandatory German social insurance framework. Under the German social insurance system, both employers and employees are required to make contributions to five pillars of social insurance:
(i) Health Insurance (Krankenversicherung): Contributions are shared equally between employer and employee at the general contribution rate of 14.6% of gross wages (up to the contribution assessment ceiling, currently €62,100 per annum for 2025), plus any supplemental contribution rate charged by the employee's chosen health insurer (Krankenkasse). Employees whose income exceeds the compulsory insurance threshold (Versicherungspflichtgrenze, currently €69,300 per annum) may opt for private health insurance (private Krankenversicherung), in which case the employer contributes a subsidy equal to the maximum statutory employer contribution.
(ii) Pension Insurance (Rentenversicherung): Contributions are shared equally at a combined rate of 18.6% of gross wages (up to the contribution assessment ceiling of €90,600 per annum in western Germany for 2025).
(iii) Unemployment Insurance (Arbeitslosenversicherung): Contributions are shared equally at a combined rate of 2.6% of gross wages (up to the contribution assessment ceiling).
(iv) Long-Term Care Insurance (Pflegeversicherung): Contributions at a combined rate of 3.4% (with adjustments based on the employee's number of children), shared between employer and employee.
(v) Accident Insurance (Unfallversicherung): Employer-funded contributions to the relevant professional association (Berufsgenossenschaft); rates vary by industry risk classification. As a semiconductor manufacturer, Halcyon's facilities are classified under the relevant electronics and metal industry association, and contributions are current and paid in full.
Based on our review of payroll records and our coordination with Bähr Stein Rechtsanwälte, Halcyon AG and Halcyon Power Solutions GmbH are making employer-side social insurance contributions at rates consistent with current statutory requirements. No material underfunding, arrears, or compliance gaps have been identified with respect to social insurance obligations.
The estimated annual aggregate employer social insurance cost for the Company's approximately 5,800 German-based employees has been requested from the Halcyon finance team. Katarina Dalmqvist (CFO) has indicated that this figure will be provided in connection with the finalization of the FY2025 financial statements. We will update this memorandum upon receipt of confirmation.
B. Statutory Pension Insurance
All eligible German employees of Halcyon AG and Halcyon Power Solutions GmbH participate in the German public pension system (Deutsche Rentenversicherung). Contributions are made as part of the social insurance framework described above. No issues have been identified with respect to statutory pension insurance compliance. The statutory pension system provides retirement, disability, and survivors' benefits to eligible employees upon meeting applicable vesting and age requirements.
C. Continued Salary Payment (Entgeltfortzahlung)
Halcyon complies with the provisions of the German Continued Remuneration Act (Entgeltfortzahlungsgesetz, or "EFZG"). Under the EFZG, employers are obligated to continue paying an employee's full salary for a period of up to six weeks in the event of illness or incapacity for work, provided the employee has completed a minimum of four weeks of uninterrupted employment. Following the six-week employer obligation period, the employee's statutory health insurer assumes responsibility for sickness benefits (Krankengeld) at a reduced rate.
Based on our review and the representations of Halcyon management, the Company is in compliance with its obligations under the EFZG. No claims or disputes have been identified relating to continued salary payment obligations.
D. Maternity and Parental Leave
Halcyon complies with the requirements of the Mutterschutzgesetz (Maternity Protection Act, or "MuSchG") and the Bundeselterngeld- und Elternzeitgesetz (Parental Allowance and Parental Leave Act, or "BEEG"). The MuSchG provides for mandatory maternity protection periods (six weeks before and eight weeks after childbirth, extended to twelve weeks in the case of premature or multiple births), during which employees are entitled to maternity pay. The BEEG provides for parental leave of up to three years per child, with parental allowance (Elterngeld) funded by the federal government.
Based on our review and the representations of Halcyon management, the Company is in compliance with all applicable maternity protection and parental leave requirements. No claims, disputes, or regulatory actions have been identified in this area.
IV. Supplemental German Employee Benefit Plans
A. Company Pension Plan (Betriebliche Altersversorgung)
Plan Structure. Halcyon maintains a supplemental company pension plan (betriebliche Altersversorgung) for eligible German employees, governed by the Betriebsrentengesetz (BetrAVG — Company Pension Act). The plan provides retirement, disability, and survivors' benefits supplemental to the statutory pension system and is a significant component of the Company's overall employee compensation and benefits offering.
The company pension plan is structured through two vehicles:
(i) Direct Commitment (Direktzusage / Pensionszusage): Senior management employees, including all Vorstand members and certain designated executives, receive direct pension commitments from Halcyon AG. Under a Direktzusage, the Company is directly obligated to pay pension benefits to the eligible employee (or surviving dependents) upon the occurrence of a triggering event (retirement, disability, or death). The pension obligation is recorded as a liability on Halcyon's balance sheet. Pension benefits under the Direktzusage are calculated on a defined benefit basis, generally as a percentage of the employee's final average compensation multiplied by years of credited service. Specific terms vary by individual agreement; the Vorstand members' pension commitments are described in detail in Section VIII below.
(ii) Pensionskasse (Pension Fund): Other eligible German employees (below the senior management level) participate in a pension fund arrangement (Pensionskasse). The Pensionskasse is a legally independent insurance institution organized under German insurance regulatory law that provides pension benefits to plan participants. Halcyon makes annual contributions to the Pensionskasse on behalf of eligible employees. Benefits under the Pensionskasse are generally based on a defined contribution formula, with the level of employer contribution determined by the employee's salary grade and years of service. Employees of Halcyon Power Solutions GmbH (Dresden) also participate in the Pensionskasse vehicle, consistent with the benefit framework applicable to Halcyon AG headquarters employees.
Funded Status. The Company's pension obligations are accounted for in Halcyon's consolidated financial statements prepared under International Financial Reporting Standards ("IFRS") in accordance with IAS 19 — Employee Benefits. The defined benefit obligation under the Direktzusage arrangements and the net obligation under the Pensionskasse arrangement are reflected as pension liabilities on the Company's consolidated balance sheet.
As of the end of fiscal year 2025, the key financial metrics of the company pension plan are as follows (estimates, subject to confirmation by the Company's independent auditors, Blackmere & Whitfield GmbH Wirtschaftsprüfungsgesellschaft, under the direction of Dieter Kaufmann, Wirtschaftsprüfer):
Plan assets are held in a Contractual Trust Arrangement ("CTA"), which is a bilateral trust arrangement commonly used by German companies to segregate assets designated for the funding of pension obligations. The CTA assets are invested in a diversified portfolio managed by the CTA trustee in accordance with the investment guidelines established by the Halcyon Vorstand and Aufsichtsrat.
The net pension liability of approximately €50 million represents the excess of the defined benefit obligation over the fair value of plan assets. This underfunding is not unusual for a German industrial company of Halcyon's size and is consistent with market practice.
Disclosure Note: The net pension liability, the actuarial assumptions underlying the defined benefit obligation calculation (including discount rate, salary growth rate, pension growth rate, mortality assumptions, and employee turnover assumptions), and the sensitivity analysis required by IAS 19 will require disclosure in the financial statements included in the F-1 Prospectus. These financial statements will be audited by Blackmere & Whitfield. The actuarial report for FY2025 pension obligations is a pending open item identified in Section XI below.
Compliance with BetrAVG
Based on our review and the analysis of Bähr Stein Rechtsanwälte, the Company's company pension plan is in material compliance with the requirements of the BetrAVG, including:
• Compliance with the minimum vesting requirements (Unverfallbarkeit) under § 1b BetrAVG (immediate vesting for employer-funded commitments after meeting the applicable qualifying period);
• Compliance with the insolvency protection requirements under §§ 7–15 BetrAVG, including membership in the Pensions-Sicherungs-Verein auf Gegenseitigkeit (PSVaG), the German pension protection fund;
• Compliance with the pension adjustment requirements under § 16 BetrAVG (periodic review and adjustment of ongoing pension payments); and
• Proper accounting treatment of pension obligations under applicable IFRS standards.
No material compliance issues have been identified.
B. Deferred Compensation Arrangements
Halcyon offers a voluntary deferred compensation program (Entgeltumwandlung) to German employees, allowing eligible employees to convert portions of their gross salary into pension contributions. This arrangement benefits from tax-advantaged treatment under § 3 Nr. 63 of the Einkommensteuergesetz (EStG — German Income Tax Act), which permits employee salary deferrals into qualifying pension vehicles (including Pensionskasse and direct insurance arrangements) to be made on a pre-tax basis, subject to statutory limits.
The Entgeltumwandlung program is available to all German employees who have completed their probationary period. Approximately 2,100 German employees currently participate in the program. Contributions are made through the Pensionskasse vehicle described above. Employee participation is voluntary, and the Company provides information sessions and individual counseling to employees regarding the tax and pension benefits of participation.
Based on our review, the Entgeltumwandlung program is operated in compliance with applicable provisions of the BetrAVG (which grants employees a statutory right to salary conversion under § 1a BetrAVG) and the EStG. No issues have been identified.
C. Company Car and Mobility Benefits
Halcyon maintains a standard German company car program (Dienstwagen) for eligible senior employees and sales staff. Under the program, eligible employees are provided with a company-owned or company-leased vehicle for both business and personal use. The personal use benefit is a taxable benefit-in-kind, which is calculated for German income tax purposes under the so-called "1% rule" (1%-Regelung), under which 1% of the vehicle's gross list price is added to the employee's taxable income each month, or alternatively under the logbook method (Fahrtenbuchmethode) if the employee maintains a qualifying logbook.
The company car program is consistent with standard market practice among German industrial companies and does not present any unusual features or compliance concerns.
D. Supplemental Health and Accident Insurance
Halcyon provides group supplemental health insurance (Zusatzversicherung) and group accident insurance (Gruppenunfallversicherung) to all German employees. The supplemental health insurance covers benefits not fully provided by the statutory health insurance system, including enhanced dental coverage, private hospital room accommodation, and alternative medicine treatments. The group accident insurance provides lump-sum benefits and income replacement in the event of a work-related or non-work-related accident resulting in disability or death.
The identity of the insurance carriers and the specific policy terms are to be confirmed. Based on preliminary information provided by Halcyon management, the arrangements are on standard market terms with reputable German insurance carriers and do not present unusual features or material financial exposure.
V. Halcyon Employee Stock Ownership Trust (ESOT)
A. Structure and Governance
The Halcyon Employee Stock Ownership Trust (the "ESOT") is a trust arrangement (Treuhandverhältnis) established under German law in 2011 by Halcyon AG for the purpose of facilitating employee share ownership and aligning employee interests with the long-term success of the Company.
The key structural elements of the ESOT are as follows:
The ESOT was established with the objective of promoting employee retention, rewarding long-term service, and fostering a culture of ownership among the Company's German workforce. The trust holds Halcyon ordinary shares for the benefit of eligible employee participants and allocates beneficial interests in those shares to individual participant accounts in accordance with the trust deed.
The trustee is an independent professional trustee appointed by the Halcyon Vorstand. The trustee is responsible for the custody, administration, and voting of the ESOT shares in accordance with the terms of the trust deed and applicable fiduciary duties under German law. The identity and qualifications of the current trustee, as well as any historical changes in the trusteeship, are pending confirmation from Wilhelm Ostermann and Bähr Stein Rechtsanwälte. This is identified as an open item in Section XI.
B. Allocation and Vesting
Shares held in the ESOT are allocated to individual participant accounts based on a formula that takes into account the participant's length of service with Halcyon (or its German subsidiaries) and the participant's salary grade. The allocation formula is set forth in the trust deed and is reviewed periodically by the Vorstand in consultation with the trustee.
Allocated shares vest over a four-year period with annual cliff vesting, meaning that 25% of a participant's allocated shares become vested on each anniversary of the allocation date. Upon full vesting, the participant has a vested beneficial interest in the allocated shares. Unvested allocations are subject to forfeiture upon termination of employment (with certain exceptions for retirement, disability, and death).
Voting rights with respect to ESOT shares are exercised by the trustee in accordance with the terms of the trust deed. The trust deed grants the trustee discretion in the exercise of voting rights, subject to the trustee's fiduciary duties to the beneficiaries. There is no pass-through voting mechanism by which individual participants direct the trustee's vote; rather, the trustee votes the shares in a manner that the trustee determines to be in the best interests of the beneficiaries as a whole.
Upon vesting, participants may elect to receive distributions in the form of Halcyon ordinary shares transferred directly to the participant's securities account, or in the form of a cash equivalent based on the market value of the shares at the time of distribution. Distributions may occur upon the participant's separation from service (including retirement), or at specified distribution events defined in the trust deed (such as a change of control of the Company or a liquidation of the ESOT).
C. Impact of the IPO on the ESOT
The ESOT is not a selling shareholder in the Offering. The 6,665,000 ordinary shares held by the ESOT will remain in trust following the completion of the IPO and will not be offered or sold in the Offering.
Following the IPO, assuming the issuance of 30,000,000 new ordinary shares in connection with the primary offering, the ESOT's holding will be diluted from approximately 3.1% of outstanding shares (6,665,000 ÷ 215,000,000) to approximately 2.7% of outstanding shares (6,665,000 ÷ 245,000,000). This dilution is attributable solely to the increase in the denominator resulting from the issuance of new shares and does not reflect any reduction in the number of shares held by the ESOT.
Lock-Up Considerations: ESOT participants will not be required to execute the 180-day lock-up agreement that will be entered into by the Company, its directors and officers, and certain significant shareholders in connection with the Offering. However, the ESOT trust deed contains separate transfer restrictions that limit distributions of shares to participants during the 12-month period following the listing of the Company's ADSs on a US securities exchange. These internal restrictions function as a de facto lock-up for ESOT shares, albeit imposed contractually through the trust deed rather than through the underwriting agreement. The practical effect is that ESOT shares will not enter the market during the 12-month period following the IPO, which is more restrictive than the standard 180-day lock-up applicable to other insiders.
Eligibility: US-based employees of Halcyon Semiconductor USA Inc. (approximately 420 employees in Santa Clara, California) are not eligible for participation in the ESOT. The ESOT is limited to employees of Halcyon AG and Halcyon Power Solutions GmbH who are employed in Germany.
PFIC Considerations: Leonard Cross (Tax Department, Calderwood & Harkness) has conducted a PFIC analysis with respect to Halcyon AG and has confirmed in a separate memorandum that Halcyon does not qualify as a Passive Foreign Investment Company within the meaning of Sections 1291–1298 of the Internal Revenue Code. Accordingly, the PFIC regime does not create adverse US federal income tax consequences for ESOT participants who may be US tax residents (for example, German employees who are also US citizens or green card holders). This conclusion is consistent with the Company's status as an active operating semiconductor company whose income is predominantly derived from manufacturing and sales activities rather than passive investment income.
D. Prospectus Disclosure Requirements for ESOT
The ESOT holding must be disclosed in the following contexts within the F-1 Prospectus:
(i) Principal Shareholders Table: The ESOT's holding of 6,665,000 shares (approximately 3.1% pre-Offering, approximately 2.7% post-Offering) must be disclosed in the "Principal and Selling Shareholders" table. The ESOT should be identified as a separate line item, with appropriate footnotes describing the nature of the trust, the identity of the trustee, and the trustee's voting authority.
(ii) Benefit Plan Description (Item 6 of Form 20-F): A description of the ESOT governance structure, allocation methodology, vesting schedule, voting arrangements, and distribution mechanics is required under Item 6 of Form 20-F, which governs the disclosure of directors, senior management, and employees, including compensation and share ownership arrangements.
(iii) Related-Party Transaction Disclosure (Item 7.B of Form 20-F): The relationship between the ESOT and the Wendt family requires careful consideration. Dr. Friedrich Wendt, Chairman of the Vorstand (CEO), is the brother of Margarethe Wendt, Managing Director of Rheintal Industrieholding GmbH, which holds 22.3% of the Company's pre-IPO outstanding shares (47,945,000 shares) and is a selling shareholder in the Offering (selling 8,500,000 shares). While the ESOT is structured as an independent trust with an independent trustee, the Vorstand—of which Dr. Wendt is the chairman—appoints the trustee. This chain of authority creates a potential perception of influence over the ESOT by Dr. Wendt and, by extension, the Wendt family. We recommend that this relationship be addressed in the related-party transactions section of the Prospectus, with a clear description of the independence safeguards built into the trust deed and the trustee's fiduciary obligations.
VI. Equity-Based Compensation Plans
A. Halcyon Long-Term Incentive Plan (LTIP)
Plan Terms. Halcyon maintains a Long-Term Incentive Plan (the "LTIP") that was adopted by shareholder resolution at the Hauptversammlung in 2020 and subsequently amended by shareholder resolution in 2023. The LTIP is the Company's primary vehicle for long-term equity-based compensation and is designed to align the interests of senior management with those of the Company's shareholders over a multi-year horizon.
Eligible Participants: The LTIP is open to members of the Vorstand and approximately 150 senior managers globally across all of the Company's operating jurisdictions (Germany, the United States, Singapore, the PRC, and the Czech Republic).
Award Types: The LTIP provides for the following types of awards:
(i) Performance Share Units (PSUs): PSUs are notional units that entitle the holder to receive Halcyon ordinary shares (or, following the US listing, ADSs) upon vesting, subject to the satisfaction of specified performance conditions. PSUs are the primary long-term incentive vehicle for Vorstand members and senior executives.
(ii) Stock Appreciation Rights (SARs): SARs entitle the holder to receive a cash payment equal to the appreciation in the value of a Halcyon ordinary share over a specified reference price during a defined exercise period. SARs are cash-settled and do not require the issuance of new shares. SARs are used primarily for participants in jurisdictions where share-settled awards would create regulatory or tax complications (notably the PRC).
Performance Conditions (PSUs)
PSUs are subject to a three-year performance period. Vesting is conditioned on the achievement of two equally weighted performance conditions:
(i) Relative Total Shareholder Return (TSR): Halcyon's TSR over the three-year performance period is measured relative to a peer group of European semiconductor companies. The peer group, which is determined by the Aufsichtsrat at the time of each grant, currently includes companies such as Sundial Holdings, Northgate & Co., Brightwater Partners LLC, and other comparable European-listed semiconductor businesses. Vesting under the relative TSR component ranges from 0% (if Halcyon's TSR is below the 25th percentile of the peer group) to 200% (if Halcyon's TSR exceeds the 75th percentile).
(ii) Absolute Revenue Growth Target: Halcyon's compound annual revenue growth rate over the three-year performance period is measured against targets established by the Aufsichtsrat at the time of grant. Vesting under the revenue growth component ranges from 0% (if growth falls below a minimum threshold) to 200% (if growth exceeds a maximum target), with linear interpolation between threshold and target and between target and maximum.
The combined vesting outcome across the two performance conditions determines the final number of shares delivered to the participant, which can range from 0% to 200% of the target number of PSUs.
LTIP Limits and Share Reservation
The maximum annual grant value per Vorstand member is capped at 200% of the member's base salary, as established by the Aufsichtsrat compensation policy in accordance with the Company's remuneration system approved by the Hauptversammlung.
The total number of ordinary shares reserved under the LTIP is 8,600,000 shares, representing approximately 4.0% of the Company's 215,000,000 pre-IPO outstanding shares. As of the date of this memorandum, approximately 3,200,000 PSUs are currently outstanding and unvested, with the remaining capacity available for future grants. No new shares have been issued under the LTIP to date; the share reservation represents authorized but unissued share capital available for issuance upon PSU settlement.
Post-IPO Settlement. The LTIP provides that, following the listing of the Company's securities on a US securities exchange, settlement of vested PSUs may be made in ordinary shares or in ADSs, at the election of the Vorstand with the approval of the Aufsichtsrat. This flexibility is intended to accommodate the anticipated post-IPO trading of ADSs on Nasdaq and to allow the Company to deliver ADS-denominated awards to US-based participants.
Prospectus Disclosure. A full description of the LTIP is required in the "Compensation" section of the Prospectus. In addition:
• The LTIP share reservation and the potential dilutive impact of outstanding and future PSU awards must be reflected in the "Dilution" and "Capitalization" tables of the Prospectus;
• Outstanding PSU awards held by Vorstand members must be disclosed in the equity awards table; and
• The change-of-control provisions of the LTIP (described in Section VIII.D below) must be summarized.
B. Employee Share Purchase Plan (ESPP)
Halcyon offers a voluntary Employee Share Purchase Plan (the "ESPP") that permits eligible German employees and select non-German employees to purchase Halcyon ordinary shares at a discount to the prevailing market price. The key terms of the ESPP are as follows:
Because shares purchased under the ESPP are acquired on the open market, the ESPP does not result in any dilution to existing shareholders. The 15% discount is funded by the Company as an employee benefit expense.
Post-IPO Considerations: The Company is currently evaluating whether to extend the ESPP to permit US-based employees of Halcyon Semiconductor USA Inc. to purchase ADSs at a comparable discount. This evaluation is being conducted jointly by Wilhelm Ostermann (General Counsel) and Calderwood & Harkness, with a target completion date of April 1, 2026. Key considerations include US securities law registration requirements (including potential reliance on SEC Rule 12g3-2(b) or registration of the ESPP shares/ADSs on Form S-8), US federal income tax treatment of the discount (including potential qualification under Section 423 of the Internal Revenue Code), and state law requirements (particularly California).
VII. Non-German Employee Benefit Plans
A. United States — Halcyon Semiconductor USA Inc.
Entity Information. Halcyon Semiconductor USA Inc. ("Halcyon USA") is a wholly owned subsidiary of Halcyon AG, incorporated in the State of Delaware and headquartered at 2500 Augustine Drive, Suite 100, Santa Clara, California 95054. Halcyon USA's Employer Identification Number (EIN) is 84-3927561. The subsidiary employs approximately 420 individuals engaged primarily in sales, application engineering, and customer support functions serving the North American market.
401(k) Defined Contribution Plan
Halcyon USA maintains a tax-qualified defined contribution retirement plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan is available to all eligible employees of Halcyon USA and provides for the following:
• Employee Contributions: Employees may make pre-tax or Roth after-tax salary deferral contributions to the plan, subject to the annual limits established by the Internal Revenue Code (currently $23,500 for 2025, with an additional $7,500 catch-up contribution for employees aged 50 and over).
• Employer Matching Contributions: Halcyon USA provides a matching contribution equal to 50% of the first 6% of each employee's salary that the employee contributes to the plan. This results in an effective employer match rate of 3% of salary for employees who contribute at least 6% of their compensation.
• Vesting: Employer matching contributions vest on a graded vesting schedule, with full vesting after three years of service.
• Administration: The 401(k) Plan is administered by a third-party recordkeeper. Plan investments are participant-directed, with a menu of diversified investment options.
• IRS Determination Letter: The 401(k) Plan has received a favorable determination letter from the Internal Revenue Service confirming the plan's tax-qualified status.
• Compliance: Based on our review, there are no pending audits, investigations, or enforcement actions by the Department of Labor ("DOL") or the IRS with respect to the 401(k) Plan. Confirmation from Halcyon USA management is an open item (Section XI).
No defined benefit pension plan is maintained by Halcyon USA.
Health and Welfare Benefits
Halcyon USA provides a standard suite of health and welfare benefits to its employees, including:
• Group medical insurance (PPO and HMO options);
• Dental insurance;
• Vision insurance;
• Group term life insurance (employer-paid basic coverage with voluntary supplemental coverage available);
• Short-term disability insurance; and
• Long-term disability insurance.
These benefits are provided on standard US market terms and do not present unusual features or material compliance concerns. Halcyon USA is subject to the requirements of the Affordable Care Act ("ACA") and, based on our review, appears to comply with the ACA's employer shared responsibility provisions (the "employer mandate") by offering minimum essential coverage that meets minimum value and affordability standards to substantially all full-time employees.
Paid Time Off
Halcyon USA maintains a paid time off ("PTO") policy that provides eligible employees with a combination of vacation, sick leave, and personal days. The PTO policy has been reviewed for compliance with California state requirements, including California's requirement that accrued vacation be treated as earned wages that cannot be forfeited. Based on our review, the PTO policy is compliant with applicable California and other state requirements.
Equity Participation. US employees are eligible to participate in the LTIP described in Section VI.A above. Approximately 45 US-based senior managers currently hold outstanding PSU and/or SAR awards under the LTIP. US employees are not eligible for participation in the German ESOT.
Employment Arrangements. Halcyon USA employees are employed on an at-will basis, consistent with standard US practice. We reviewed offer letters and employment agreements for US-based personnel and identified no material severance or change-of-control provisions, with two exceptions:
Two senior US executives (whose names are maintained in the confidential working file) have entered into change-of-control agreements with Halcyon USA. These agreements provide that, in the event of a termination of employment (without cause or by the executive for good reason) within 12 months following a "change of control" of Halcyon AG (as defined in the agreements), the executive is entitled to a severance payment equal to 12 months' base salary. The change-of-control definition in these agreements is substantially similar to the definition in the Vorstand service agreements (acquisition of more than 30% of voting shares by a third party or a successful public takeover bid). As discussed in Section VIII.D below, the US IPO does not constitute a change of control under these agreements.
Section 409A Compliance
We reviewed the deferred compensation arrangements applicable to US-based employees, including the PSU and SAR awards under the LTIP, for compliance with Section 409A of the Internal Revenue Code. Section 409A imposes strict timing and form-of-payment rules on nonqualified deferred compensation arrangements, with severe adverse tax consequences (including a 20% penalty tax and accelerated income inclusion) for non-compliant arrangements.
Based on our review and consultation with Leonard Cross (Tax Department, Calderwood & Harkness):
• PSU awards are structured to qualify for the "short-term deferral" exemption under Treasury Regulation § 1.409A-1(b)(4), as settlement occurs within the applicable short-term deferral period following the lapse of the substantial risk of forfeiture (i.e., within 2½ months following the end of the calendar year in which vesting occurs); and
• SAR awards are structured to qualify for the "stock rights" exemption under Treasury Regulation § 1.409A-1(b)(5), as the SARs are granted with a reference price equal to or greater than the fair market value of a Halcyon ordinary share on the grant date and satisfy other applicable conditions.
Confirmation of Section 409A compliance for all outstanding US-based LTIP awards is an open item identified in Section XI.
B. Singapore — Halcyon Asia Pacific Pte. Ltd.
Halcyon Asia Pacific Pte. Ltd. is the Company's Asia-Pacific sales and regional distribution hub, headquartered in Singapore. The subsidiary employs approximately 180 individuals.
Central Provident Fund (CPF): Halcyon Asia Pacific Pte. Ltd. makes employer contributions to the Central Provident Fund in compliance with the CPF Act. Contribution rates are in accordance with current statutory requirements, which vary based on the employee's age and wage level. Based on the responses received from local Singapore counsel, no compliance issues have been identified.
Supplemental Benefits: The Singapore subsidiary provides group medical insurance to employees and operates an annual performance bonus program. These benefits are consistent with standard market practice in Singapore for companies of comparable size and industry.
Equity Participation: Select senior managers at Halcyon Asia Pacific Pte. Ltd. participate in the LTIP and hold outstanding PSU awards. No special regulatory issues have been identified with respect to equity-based compensation in Singapore.
C. People's Republic of China — Halcyon Shanghai Semiconductor Co., Ltd.
Entity Information. Halcyon Shanghai Semiconductor Co., Ltd. ("Halcyon Shanghai") is a wholly foreign-owned enterprise ("WFOE") organized under PRC law and registered at No. 500 Zhangheng Road, Pudong New Area, Shanghai 201203, People's Republic of China. Halcyon Shanghai employs approximately 350 individuals engaged in sales and engineering functions.
Social Insurance and Housing Fund
Halcyon Shanghai contributes to the mandatory PRC social insurance programs, which include:
• Pension insurance;
• Medical insurance;
• Unemployment insurance;
• Work-related injury insurance; and
• Maternity insurance.
In addition, Halcyon Shanghai makes employer contributions to the Housing Provident Fund (住房公积金) in accordance with applicable PRC regulations. Based on the responses received from local PRC counsel, Halcyon Shanghai is in compliance with all applicable social insurance and housing fund contribution requirements.
Supplemental Benefits. Halcyon Shanghai provides supplemental commercial medical insurance to all employees, enhancing the coverage available under the statutory medical insurance system. The subsidiary also operates an annual performance bonus program. These benefits are consistent with market practice for foreign-invested enterprises in the PRC technology sector.
Equity Participation and SAFE Registration
Approximately 12 PRC-based senior managers at Halcyon Shanghai participate in the LTIP. Notably, these participants receive SARs only (cash-settled), rather than share-settled PSU awards. This structure was adopted to avoid the foreign exchange complications and regulatory burdens associated with the delivery of foreign shares to PRC-resident individuals. Cash-settled SARs allow the Company to provide long-term incentive compensation to PRC-based managers without requiring the participants to remit funds offshore for share purchases or the Company to deliver foreign securities into the PRC.
Notwithstanding the cash-settlement structure, cross-border equity compensation for PRC employees (including cash-settled awards linked to the value of foreign shares) requires registration with the State Administration of Foreign Exchange ("SAFE") under Circular 7 (Huifa [2012] No. 7 — "Notice of the State Administration of Foreign Exchange on Issues Concerning Foreign Exchange Administration over Domestic Individuals' Participation in Equity Incentive Plans of Overseas Listed Companies"). Halcyon has completed the required SAFE registration for existing SAR grants.
Post-IPO Action Item: Following the US listing, if the Company elects to use ADSs as the reference security for SAR awards (rather than Halcyon ordinary shares), or if the Company determines to grant share-settled PSU awards to PRC-based participants in the future, an updated SAFE registration will be required to reflect the change in the nature and terms of the equity compensation arrangement. This requirement has been flagged as an action item in Section XI, with Claire Dempsey designated as the responsible attorney in coordination with local PRC counsel.
D. Czech Republic — Halcyon Automotive Components s.r.o.
Halcyon Automotive Components s.r.o. is the Company's Czech Republic subsidiary, located at Technologický park 6, 612 00 Brno, Czech Republic. The subsidiary employs approximately 650 individuals engaged in semiconductor module assembly and testing operations. The Brno facility is an important component of Halcyon's automotive semiconductor supply chain.
Social Insurance: Halcyon Automotive Components s.r.o. makes employer contributions to Czech social security and health insurance in compliance with applicable Czech statutory requirements. Based on the responses received from local Czech counsel, no compliance issues have been identified.
Supplemental Benefits: The Czech subsidiary provides the following supplemental benefits:
• Meal vouchers (stravenky), a common and tax-advantaged benefit in the Czech Republic;
• Supplemental pension insurance contributions, consisting of employer contributions to employees' Pillar III (voluntary supplementary pension insurance) accounts;
• Group life insurance.
These benefits are consistent with market practice for manufacturing employers in the Czech Republic.
Equity Participation: Approximately 8 Czech-based senior managers participate in the LTIP and hold outstanding equity awards. No special regulatory issues have been identified with respect to equity-based compensation in the Czech Republic.