PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Beatrice Holloway, Responsible Partner, Mergers & Acquisitions Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS
FROM: Priya Venkataraman, Associate, International Trade & Sanctions Kenneth Morales, Associate, Corporate/M&A
DATE: June 16, 2023
RE: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. — Analysis of Mandatory Declaration vs. Voluntary Joint Notice Filing Options Under CFIUS Regulations
MATTER NO.: 1032-00004
Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006 Tel: (202) 555-7400
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I. Executive Summary
This memorandum analyzes whether Halcyon Semiconductor Aktiengesellschaft's ("HSAG") proposed acquisition of 100% of the outstanding equity of Marlowe Asset Management Photonics Inc. ("VPI") triggers a mandatory declaration requirement under the regulations of the Committee on Foreign Investment in the United States ("CFIUS"), specifically 31 C.F.R. § 800.401, and, if so, whether the parties should instead opt to file a full voluntary joint notice under 31 C.F.R. § 800.501. This memorandum is intended to inform the strategic filing approach for the transaction and to provide a recommended course of action in advance of the pre-filing consultation with the U.S. Department of the Treasury, Office of Investment Security ("Treasury OIS"), currently scheduled for June 19, 2023.
Key Conclusion. The transaction triggers a mandatory declaration requirement under 31 C.F.R. § 800.401(b) because VPI is a "TID U.S. business" that produces, designs, tests, manufactures, fabricates, and develops "critical technologies" — specifically, gallium-nitride (GaN) semiconductor components classified under Export Administration Regulations ("EAR") Export Control Classification Number ("ECCN") 3A001 (certain microwave or millimeter wave discrete semiconductor devices) and International Traffic in Arms Regulations ("ITAR") United States Munitions List ("USML") Category XI(a)(3) (certain military electronics) — and HSAG, as a non-U.S. acquiror, is obtaining a controlling interest in VPI. The export, reexport, or transfer of VPI's controlled technologies to HSAG, a German entity, would require regulatory authorization under both the ITAR (administered by the Directorate of Defense Trade Controls ("DDTC") of the U.S. Department of State) and the EAR (administered by the Bureau of Industry and Security ("BIS") of the U.S. Department of Commerce). Therefore, the mandatory filing threshold under § 800.401(b) is satisfied.
Recommendation. Although a short-form mandatory declaration under § 800.401(a) would technically satisfy the statutory filing obligation, we strongly recommend that the parties file a full voluntary joint notice under § 800.501 in lieu of the declaration. The short-form declaration process is manifestly inadequate for a transaction of this complexity and national security significance. VPI's operational profile — encompassing 14 active Department of Defense ("DoD") contracts with an aggregate backlog of approximately $193 million, products controlled under both the ITAR and the EAR, a facility security clearance ("FCL") at the SECRET level, 212 of 486 employees holding active U.S. government security clearances (approximately 43.6% of the workforce, including personnel holding clearances at the TS/SCI level), and a 45,000-square-foot classified GaN-on-SiC fabrication facility in Albuquerque, New Mexico — places this transaction squarely within the category of cases that CFIUS invariably requires to proceed through the full voluntary notice pathway. A declaration filing would, in our judgment, almost certainly result in CFIUS requesting that the parties file a full notice, thereby adding approximately 30 days of delay to the overall review timeline with no corresponding benefit.
The full voluntary joint notice, while requiring more extensive preparation (approximately four weeks), provides CFIUS with sufficient information to conduct a meaningful national security review from the outset. Upon CFIUS acceptance of the notice, the statutory 45-day review clock commences, offering the most direct and efficient path toward timely clearance. Moreover, only the voluntary notice pathway can result in the issuance of a safe-harbor letter under 50 U.S.C. § 4565(b)(1)(D), which is both a closing condition under the Stock Purchase Agreement ("SPA") at Section 7.1(c) and essential for HSAG's long-term investment protection. We recommend targeting a filing date of July 14, 2023.
II. Scope and Purpose
This memorandum supplements the Preliminary CFIUS Jurisdiction Memorandum dated June 14, 2023 (the "Jurisdiction Memo"), which concluded that the proposed acquisition constitutes a "covered transaction" under 31 C.F.R. § 800.213 and, more specifically, a "covered control transaction" under 31 C.F.R. § 800.210. The Jurisdiction Memo established that HSAG's acquisition of 100% of VPI's outstanding equity will result in HSAG obtaining "control" of VPI within the meaning of 31 C.F.R. § 800.208, through the power to determine, direct, and decide important matters affecting VPI, including the appointment of senior officers, the disposition of retained earnings, the approval of major capital expenditures, and the authority to determine the direction of VPI's business operations. The Jurisdiction Memo further concluded that CFIUS has jurisdiction over the transaction and that a filing obligation exists.
This memorandum does not revisit the jurisdictional analysis. Rather, it addresses the discrete procedural question of which filing mechanism — short-form mandatory declaration or full voluntary joint notice — the parties should utilize to notify CFIUS of the transaction and satisfy the applicable filing obligation. In addressing this question, we evaluate the regulatory requirements applicable to each filing mechanism, analyze the factual characteristics of the transaction and the parties that bear on the appropriate filing approach, compare the projected timelines under each pathway, and provide our recommendation.
This analysis has been prepared in anticipation of the pre-filing consultation with Treasury OIS scheduled for June 19, 2023, and is intended to inform the broader CFIUS engagement timeline and strategy. We will seek to confirm our recommended filing approach with Treasury OIS during the pre-filing meeting and will issue a supplemental memorandum (Internal Strategy Memo — Pre-Filing Takeaways & Filing Preparation Plan) following that consultation.
This memorandum should be read in conjunction with the following related work product, each of which is either completed or in active preparation:
• Preliminary CFIUS Jurisdiction Memorandum (dated June 14, 2023)
• CFIUS Risk Assessment & Mitigation Strategy Memo (in preparation; anticipated completion June 23, 2023)
• Comparative NSA Precedent Analysis (in preparation; anticipated completion June 21, 2023)
• FOCI Analysis Memo (in preparation; anticipated completion June 26, 2023)
III. Background on the Transaction
A. The Parties
1. Acquiror: Halcyon Semiconductor Aktiengesellschaft
The acquiror is Halcyon Semiconductor Aktiengesellschaft ("HSAG"), a publicly traded German Aktiengesellschaft listed on the Frankfurt Stock Exchange (XETRA ticker: HLC), with its registered headquarters at Industriestraße 44, 01099 Dresden, Saxony, Federal Republic of Germany. HSAG is one of Europe's leading semiconductor companies, focused on power semiconductors, analog/mixed-signal integrated circuits, and advanced sensor technologies for automotive, industrial, and communications end-markets. As of June 1, 2023, HSAG's market capitalization was approximately €14.8 billion. For fiscal year 2022, HSAG reported consolidated revenue of approximately €6.12 billion, with operations spanning fabrication facilities in Germany, Austria, Malaysia, and China, and design centers in multiple countries.
HSAG's Chief Executive Officer is Dr. Maximilian Ehrhardt, who has served in that role since 2018. HSAG's General Counsel is Stefan Lohse, LL.M. (Georgetown University Law Center), who is admitted to practice law in both the State of New York and the Federal Republic of Germany. HSAG's supervisory board (Aufsichtsrat) is chaired by Professor Dr. Helga Bruckner. HSAG is not owned or controlled by any foreign government, and no foreign government holds a direct or indirect equity interest in HSAG exceeding 5%. HSAG's principal institutional shareholders include Norddeutsche Kapitalverwaltung GmbH (approximately 8.2%), various public pension funds and index funds, and a widely dispersed retail shareholder base.
2. Acquisition Vehicle: Halcyon US Holdings Inc.
The acquisition will be effected through Halcyon US Holdings Inc. ("Halcyon US Holdings"), a Delaware C-corporation formed on June 5, 2023, as a wholly owned direct subsidiary of HSAG. Halcyon US Holdings was formed for the sole purpose of serving as the acquisition vehicle in this transaction and has no prior operating history, assets, liabilities, or employees. Its registered agent is National Registered Agents of Delaware, 160 Greentree Drive, Suite 101, Dover, Delaware 19904. Its federal Employer Identification Number is 93-2841067.
3. Existing U.S. Operations of HSAG
HSAG currently maintains existing operations in the United States through Halcyon US Inc. ("Halcyon US"), a wholly owned subsidiary incorporated in Delaware and headquartered in Austin, Texas. Halcyon US operates as a fabless semiconductor design center with approximately 320 employees focused on advanced driver-assistance systems ("ADAS") and industrial IoT sensor design. Importantly, Halcyon US does not engage in any classified work, does not hold a facility security clearance, does not hold any U.S. government contracts, and does not engage in any ITAR- or EAR-controlled activities. Halcyon US's operations are commercially focused and present no independent national security considerations. The existence of this pre-existing U.S. presence does not alter the CFIUS filing obligation triggered by the VPI acquisition, but it is relevant context for the CFIUS review because CFIUS will evaluate whether post-acquisition integration of VPI and Halcyon US could create additional national security considerations.
4. Target: Marlowe Asset Management Photonics Inc.
The target is Marlowe Asset Management Photonics Inc. ("VPI"), a Delaware C-corporation originally incorporated on February 14, 2009, with its principal executive offices located at 7400 Ridgeline Parkway, Colorado Springs, Colorado 80919. VPI designs, develops, and manufactures advanced gallium-nitride ("GaN") power amplifier chips and monolithic microwave integrated circuits ("MMICs") used in defense radar systems, satellite communications ("SATCOM"), electronic warfare ("EW") applications, and next-generation 5G telecommunications infrastructure. VPI is led by its Chief Executive Officer, Dr. Nathan Trevorrow, a co-founder who has served as CEO since the company's inception, and its President and Chief Operating Officer, Marissa Sung-Avila, who oversees day-to-day manufacturing operations and the classified programs division. VPI's federal Employer Identification Number is 26-4371885.
VPI operates two principal facilities: (i) its headquarters and commercial design center at 7400 Ridgeline Parkway, Colorado Springs, Colorado (approximately 28,000 square feet), and (ii) a GaN-on-silicon-carbide (GaN-on-SiC) fabrication facility at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113 (approximately 45,000 square feet), which includes classified clean room sections and houses the majority of VPI's manufacturing and testing capabilities.
5. VPI's National-Security-Relevant Profile
VPI presents a significant national security profile across multiple dimensions, each of which bears directly on the appropriate CFIUS filing approach and the anticipated scope of CFIUS review:
Government Contracts. VPI currently holds 14 active DoD contracts (a combination of prime contracts and subcontracts) with an aggregate remaining contract backlog of approximately $193 million. These contracts span multiple military services and defense agencies, including:
• U.S. Army Program Executive Office for intelligence, Electronic Warfare & Sensors ("PEO IEW&S") — prime contracts for GaN-based radar T/R module components for ground-based radar modernization programs;
• Air Force Research Laboratory ("AFRL") — cooperative research agreements and development contracts for advanced GaN MMIC technologies for airborne electronic warfare systems;
• Missile Defense Agency ("MDA") — subcontracts supporting next-generation phased-array radar components for the Ballistic Missile Defense System;
• Naval Sea Systems Command ("NAVSEA") — subcontract to Ironclad Defense Systems Inc. supporting shipboard radar power amplifier modules for the DDG-51 Flight III program; and
• Department of Homeland Security Science and Technology Directorate ("DHS S&T") — development contracts for communications infrastructure hardening technologies.
Export-Controlled Products and Technologies. VPI's product portfolio encompasses items controlled under both the ITAR and the EAR:
• ITAR Controls: Certain of VPI's GaN power amplifier modules, when specifically designed, developed, or manufactured for defense end-use applications, constitute "defense articles" controlled under USML Category XI(a)(3) of the ITAR, 22 C.F.R. Part 121. These items require a license from DDTC for any export, temporary import, or transfer to a foreign person, regardless of destination.
• EAR Controls: VPI's dual-use GaN semiconductor components (including certain microwave and millimeter wave discrete semiconductor devices) are classified under ECCN 3A001 of the Commerce Control List, 15 C.F.R. Part 774, Supplement 1. VPI also produces items classified under ECCN 3A991. Additionally, VPI possesses controlled technology for the development and production of items controlled under ECCN 3A001, classified under ECCN 3E001. Export of these items and technology to Germany (Country Group A:1) generally requires a license or is eligible for a license exception; however, the deemed export of controlled technology to HSAG personnel in the United States would require a deemed export license unless a license exception applies.
DDTC Registration and Export Licenses. VPI has been registered with DDTC as a manufacturer and exporter of defense articles since 2011 (Registration No. M-24817). VPI currently holds three active DSP-5 (permanent export) licenses for deliveries of certain ITAR-controlled components to end-users in the United Kingdom and Australia under the foreign military sales ("FMS") program and direct commercial sales.
Facility Security Clearance. VPI holds a Facility Security Clearance ("FCL") at the SECRET level, issued by the Defense Counterintelligence and Security Agency ("DCSA"), for its Albuquerque fabrication facility. VPI's CAGE Code is 7VK92. The Albuquerque facility includes classified clean room Sections C-7 through C-12, where classified work is performed under applicable National Industrial Security Program Operating Manual ("NISPOM") requirements.
Cleared Personnel. Of VPI's approximately 486 total employees, 212 (approximately 43.6%) hold active U.S. government personnel security clearances. The majority of these clearances are at the SECRET level, but a significant number of VPI personnel hold clearances at the TOP SECRET/Sensitive Compartmented Information ("TS/SCI") level, reflecting VPI's involvement in classified programs requiring access to compartmented intelligence information.
intellectual Property. VPI holds 47 granted U.S. patents and has 12 pending patent applications. Of these, 23 patents were developed under government-funded contracts and are subject to government purpose rights and/or march-in rights under the Bayh-Dole Act, 35 U.S.C. §§ 200–212, and applicable contract clauses (DFARS 252.227-7013 and 252.227-7014). VPI also maintains 31 registered internal trade secrets covering proprietary fabrication processes, epitaxial growth parameters, and device design methodologies.
B. Transaction Structure
HSAG, acting through its wholly owned acquisition subsidiary Halcyon US Holdings Inc., is acquiring 100% of the outstanding equity interests of VPI on a cash-free, debt-free basis, with customary working capital and other adjustments. The transaction is structured as a stock purchase in which Halcyon US Holdings will purchase all issued and outstanding shares of VPI common stock and preferred stock (on an as-converted basis) from VPI's existing shareholders.
The base purchase price is $1.42 billion, subject to customary purchase price adjustments for working capital, indebtedness, transaction expenses, and cash on hand at closing. In addition, the SPA provides for a contingent earnout of up to $85 million in the aggregate, consisting of (i) up to $50 million payable upon VPI's achievement of specified revenue and EBITDA targets for calendar year 2024, and (ii) up to $35 million payable upon VPI's achievement of specified revenue and EBITDA targets for calendar year 2025. The maximum aggregate consideration payable under the SPA (including the base purchase price and the full earnout) is $1.505 billion. All consideration is payable in cash.
The Stock Purchase Agreement was executed on June 10, 2023 (the "Signing Date"). The SPA is governed by Delaware law and provides for exclusive jurisdiction in the Delaware Court of Chancery (or, if that court declines jurisdiction, the Superior Court of the State of Delaware).
Financing. The acquisition is being financed through a combination of debt and equity:
• Debt Financing: $900 million senior secured term loan facility pursuant to a commitment letter dated June 8, 2023, from a bank syndicate led by Meridian National Bank, N.A. (as administrative agent), with Atlas Commercial Lending AG (Frankfurt) and Pacific Basin Credit Corp. (Singapore) as co-lead arrangers and joint bookrunners. The term loan facility will be secured by the assets of VPI and guaranteed by Halcyon US Holdings and HSAG.
• Equity Contribution: Approximately $520 million equity contribution from HSAG, funded through a combination of HSAG balance sheet cash and an approximately €300 million draw on HSAG's existing revolving credit facility with Rheinische Handelsbank AG (Frankfurt). The revolver draw will be repaid from HSAG operating cash flow within 18 months following closing.
We note that the participation of Atlas Commercial Lending AG (a German-domiciled bank) and Pacific Basin Credit Corp. (a Singapore-domiciled bank) in the financing syndicate may draw CFIUS attention, and we will address this in the Joint Voluntary Notice with appropriate disclosure regarding the lending syndicate's composition and any foreign government affiliations (or lack thereof) of the lending institutions.
C. Sellers. The following table sets forth the shareholders of VPI who will be selling their equity interests in the transaction:
All shareholders have executed the SPA or a joinder agreement. Ridgecrest Ventures Fund III, L.P. and Cascadian Capital Partners Growth Fund II, L.P. are represented in the transaction by their respective general partners. Neither Ridgecrest Ventures nor Cascadian Capital Partners has any foreign government investment or foreign-government-affiliated limited partners, based on representations provided by their respective general partners; this will be confirmed through CFIUS-specific representations and warranties prior to filing.
IV. Legal Framework: CFIUS Filing Mechanisms
A. Overview of Filing Options
Under the CFIUS regulations codified at 31 C.F.R. Part 800, as substantially amended by the implementing regulations for the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA"), Pub. L. No. 115-232, Title XVII, §§ 1701–1728, which became effective on February 13, 2020, parties to a covered transaction may notify CFIUS through one of two filing mechanisms:
1. Short-Form Declaration under 31 C.F.R. § 800.401 — a streamlined filing format limited to no more than five pages of narrative text (plus permissible attachments, including organizational charts and transaction diagrams), subject to a 30-calendar-day assessment period during which CFIUS evaluates the transaction and determines whether further review is warranted.
2. Full Voluntary Joint Notice under 31 C.F.R. § 800.501 — a comprehensive filing (typically ranging from 50 to more than 100 pages of narrative, plus extensive exhibits and attachments), subject to a 45-calendar-day initial review period, which may be extended by an additional 45-calendar-day investigation period if CFIUS determines that further review is necessary to assess the national security implications of the transaction.
In certain circumstances, filing one or the other is mandatory; in others, parties have discretion to choose between the two filing mechanisms or to refrain from filing altogether (accepting the risk that CFIUS may initiate a non-notified review). The specific circumstances of the HSAG/VPI transaction, as analyzed below, trigger a mandatory filing obligation — but the parties retain discretion as to whether to satisfy that obligation through a short-form declaration or a full voluntary joint notice.
B. Mandatory Declaration Requirement Under § 800.401
Section 800.401(b) of the CFIUS regulations establishes a mandatory filing obligation for certain covered transactions involving "TID U.S. businesses" — that is, U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more "critical technologies," as that term is defined in 31 C.F.R. § 800.215, or that otherwise meet the criteria for a TID U.S. business under 31 C.F.R. § 800.248 (which encompasses critical technologies, critical infrastructure, and sensitive personal data). Specifically, a mandatory declaration is required for any covered transaction in which:
(a) the U.S. business produces, designs, tests, manufactures, fabricates, or develops one or more "critical technologies" that would require a U.S. regulatory authorization (e.g., an export license under the EAR, an export authorization under the ITAR, or a specific authorization under the Atomic Energy Act or the Nuclear Regulatory Commission's regulations) for the export, reexport, transfer (in-country), or retransfer of such critical technology to the foreign person acquiring control or acquiring a covered interest in the U.S. business; or
(b) the critical technologies are identified by CFIUS through the critical technology pilot program (initially announced October 10, 2018) or subsequent rulemakings expanding the mandatory declaration categories.
Importantly, § 800.401(a) provides that the mandatory filing obligation may be satisfied by filing either a short-form declaration under § 800.401 or a full voluntary joint notice under § 800.501. The parties are not required to use the declaration format; the regulation merely requires that a filing be made.
Application to VPI. The analysis of whether VPI qualifies as a TID U.S. business producing critical technologies is straightforward and yields an unambiguous result:
• EAR-Controlled Items (ECCN 3A001, 3A991, 3E001). VPI produces items classified under ECCN 3A001 of the Commerce Control List (15 C.F.R. Part 774, Supplement 1), which controls certain microwave or millimeter wave discrete semiconductor devices, including monolithic microwave integrated circuits. Items classified under ECCN 3A001 are controlled for National Security (NS), Missile Technology (MT), and/or Anti-Terrorism (AT) reasons, depending on the specific subparagraph. Export of these items to Germany (a Country Group A:1 destination) may require a BIS license depending on the specific technical parameters and applicable license exceptions, but the items are nonetheless "critical technologies" requiring U.S. regulatory authorization within the meaning of § 800.401(b). VPI also possesses technology classified under ECCN 3E001 (technology for the development or production of items controlled under, inter alia, ECCN 3A001), which is controlled under identical reasons and requires U.S. regulatory authorization for export or deemed export.
• ITAR-Controlled Defense Articles (USML Category XI(a)(3)). Certain of VPI's products constitute "defense articles" controlled under USML Category XI(a)(3), 22 C.F.R. Part 121. All ITAR-controlled defense articles are "critical technologies" under the CFIUS regulations. Export, temporary import, or transfer of ITAR-controlled defense articles to any foreign person — including HSAG, a German entity — requires a license or other authorization from DDTC, without exception. There is no available exemption that would eliminate the requirement for DDTC authorization in this context.
Conclusion. VPI unambiguously qualifies as a TID U.S. business that produces, designs, tests, manufactures, fabricates, and develops "critical technologies" within the meaning of 31 C.F.R. §§ 800.215 and 800.248. The export, reexport, or transfer of VPI's controlled technologies to HSAG — a German Aktiengesellschaft — would require regulatory authorization under both the ITAR and the EAR. Therefore, under § 800.401(b), a mandatory filing is required for this transaction. The parties must file either a short-form declaration under § 800.401 or a full voluntary joint notice under § 800.501 prior to the completion of the transaction.
C. Short-Form Declaration: Content and Process
The content requirements for a short-form declaration are set forth in 31 C.F.R. § 800.403. A declaration must include the following categories of information:
(a) Basic identifying information about the parties to the transaction, including the name, address, country of incorporation or organization, and principal place of business of each party;
(b) A brief description of the transaction, including the type of transaction (acquisition, merger, joint venture, etc.), the percentage interest being acquired, and the expected completion date;
(c) A brief description of the U.S. business's products, services, and primary customers, with identification of any items that are export-controlled under the ITAR, EAR, or other U.S. regulatory regimes;
(d) Identification of any U.S. government contracts held by the U.S. business, including the contracting agency, contract number, and a brief description of the work performed;
(e) Identification of any facility security clearances, personnel security clearances, or access to classified information held by the U.S. business;
(f) A brief statement of any potential national security considerations that the parties believe may be relevant to CFIUS's assessment; and
(g) Certifications from authorized officers of both the buyer and the seller as to the accuracy and completeness of the information provided.
The maximum length of a declaration is five pages of narrative text, exclusive of organizational charts, transaction structure diagrams, and certain other permissible attachments.
Assessment Period and Possible Outcomes. Upon acceptance of a declaration by CFIUS, the Committee has 30 calendar days to assess the transaction. Within that 30-day period, CFIUS may take one of the following actions:
1. Clear the transaction — CFIUS concludes that the transaction does not present national security concerns and notifies the parties that no further action is required. Notably, however, CFIUS does not issue a safe-harbor letter in connection with a declaration clearance.
2. Request a full voluntary notice — CFIUS determines that the information provided in the declaration is insufficient to permit a complete assessment and requests that the parties file a full voluntary joint notice under § 800.501. This is the most common outcome for declarations involving transactions with significant national security dimensions.
3. Notify the parties that CFIUS is unable to conclude action — CFIUS informs the parties that it cannot determine whether the transaction raises national security concerns based on the declaration alone and requests that the parties file a full voluntary notice.
4. Initiate a unilateral review — CFIUS determines, based on the declaration, that the transaction may raise national security concerns and initiates a review of the transaction under its own authority, without requiring the parties to file a voluntary notice.
Critical Limitation: No Safe-Harbor Letter. The most significant limitation of the short-form declaration process is that, even in the event CFIUS clears a transaction following a declaration review, no safe-harbor letter is issued. Under 50 U.S.C. § 4565(b)(1)(D), the safe-harbor provision applies only to transactions for which CFIUS has "completed all action" following a full review initiated by a voluntary notice or a unilateral CFIUS review. A declaration assessment, even if concluded without further action, does not constitute "completed action" within the meaning of the statute and does not trigger safe-harbor protection. This means that, following a declaration clearance, CFIUS retains the authority to reopen review of the transaction at any time, including post-closing, if it identifies new information or changed circumstances bearing on national security.
D. Voluntary Joint Notice: Content and Process
The content requirements for a full voluntary joint notice are set forth in 31 C.F.R. § 800.502. A voluntary notice must provide comprehensive information across multiple categories, including but not limited to:
(a) Parties: Detailed information about each party to the transaction, including corporate organizational charts, ownership structures (with identification of all entities and individuals holding a 5% or greater interest, traced through the chain of ownership to the ultimate parent entity and ultimate beneficial owners), governance arrangements (board composition, voting rights, veto rights, consent rights), business operations, financial statements, and relationships with foreign governments (including government contracts, subsidies, grants, and direct or indirect government ownership interests);
(b) Transaction: Comprehensive description of the transaction structure, purpose, and economic rationale, including the purchase price, consideration, financing sources and terms, closing conditions, material agreements (SPA, ancillary agreements, transition services agreements, employment agreements), and any pre- or post-closing restructuring;
(c) U.S. Business: Detailed description of the U.S. business's products, services, customers, suppliers, facilities, personnel, government contracts, security clearances, export-controlled items and technologies, critical infrastructure, sensitive personal data, intellectual property, and any other information relevant to CFIUS's assessment of the national security implications of the transaction;
(d) National Security Considerations: Discussion of any potential national security considerations and, if applicable, proposed mitigation measures; and
(e) Certifications: Sworn certifications from authorized officers of both the buyer and the seller, executed under penalties of perjury, attesting to the accuracy, completeness, and non-misleading nature of the information provided in the notice and all accompanying exhibits.
Certifications must be executed by officers of the filing parties who have been specifically authorized by their respective boards of directors (or equivalent governing bodies) to submit the notice and make the required certifications. Under § 800.502, the certifications must be executed by officers of each party to the transaction — in this case, by an authorized officer of HSAG (or Halcyon US Holdings) and by an authorized officer of VPI.
Length and Preparation. A typical voluntary joint notice ranges from 50 to more than 100 pages of narrative text, plus voluminous exhibits including organizational charts, transaction diagrams, product catalogs, government contract summaries, export license documentation, facility security clearance documentation, personnel security clearance information, intellectual property summaries, and proposed mitigation frameworks. Preparation of a voluntary notice typically requires four to six weeks of intensive work by both the buyer's and the seller's counsel, with significant input from the business teams of both parties.
Review Period. Upon CFIUS acceptance of a voluntary joint notice, the statutory review period is 45 calendar days. During this period, CFIUS conducts its initial assessment of the national security implications of the transaction. If CFIUS determines that additional time is needed, it may initiate a second-stage investigation of up to 45 calendar days. The total statutory timeline for review and investigation is therefore up to 90 calendar days from acceptance. In extraordinary circumstances, CFIUS may request additional time, and parties may agree to withdraw and re-file the notice to restart the review clock (a practice that, while not preferred, is not uncommon in complex transactions).
Possible Outcomes. Following completion of its review (and, if applicable, investigation), CFIUS may take one of the following actions:
1. Clearance with safe-harbor letter — CFIUS concludes that the transaction does not present unresolved national security concerns and issues a safe-harbor letter, confirming that CFIUS has completed all action with respect to the transaction and that the transaction is protected from future CFIUS review under 50 U.S.C. § 4565(b)(1)(D), absent material misrepresentation or omission in the notice.
2. Clearance with mitigation (National Security Agreement) — CFIUS concludes that the transaction presents national security concerns that can be adequately mitigated through binding commitments by the parties. CFIUS negotiates a National Security Agreement ("NSA") — sometimes referred to as a mitigation agreement, security agreement, or CFIUS agreement — that imposes conditions on the transaction and ongoing obligations on the parties. Upon execution of the NSA and completion of CFIUS review, a safe-harbor letter is issued. This is the most common outcome for transactions involving classified government contracts, export-controlled technologies, and facility security clearances.
3. Referral to the President — In rare cases, CFIUS is unable to resolve the national security concerns through mitigation and refers the transaction to the President of the United States for a final decision on whether to block or unwind the transaction under 50 U.S.C. § 4565(d). Presidential action is extremely rare, with only a handful of publicly known instances.
Safe-Harbor Protection. The critical advantage of the voluntary notice pathway is that, upon conclusion of the review/investigation and the issuance of a safe-harbor letter, the transaction is definitively protected from future CFIUS review under 50 U.S.C. § 4565(b)(1)(D). This protection extends to any subsequent CFIUS or presidential action with respect to the same transaction, provided that the notice was accurate, complete, and not misleading. For a transaction of this magnitude and national security significance, safe-harbor protection is an essential requirement.
V. Application to the HSAG/VPI Transaction
A. Why the Mandatory Declaration Requirement Is Triggered
As established in Section IV.B above, VPI is a TID U.S. business that produces, designs, tests, manufactures, fabricates, and develops "critical technologies" controlled under both the ITAR (USML Category XI(a)(3)) and the EAR (ECCN 3A001, 3A991, 3E001). HSAG is a "foreign person" within the meaning of 31 C.F.R. § 800.224 that is acquiring a controlling interest in VPI. The export, reexport, or transfer of VPI's critical technologies to HSAG would require U.S. regulatory authorization under both the ITAR and the EAR. Therefore, the mandatory filing requirement under 31 C.F.R. § 800.401(b) is triggered.
As noted, the mandatory filing obligation may be satisfied by filing either a short-form declaration under § 800.401 or a full voluntary joint notice under § 800.501. The parties are not required to use the declaration format; the regulation requires only that a filing be made prior to completion of the transaction.
With respect to timing, the CFIUS regulations do not specify a particular pre-closing filing deadline for mandatory declarations. Section 800.401(b) provides that the declaration (or notice) must be filed "not later than" the completion of the transaction. However, as a practical matter, parties routinely file well in advance of the anticipated closing date in order to obtain CFIUS clearance (or, where applicable, negotiate and execute a National Security Agreement) before closing, particularly where CFIUS clearance is a condition to closing under the transaction agreement — as it is here under SPA § 7.1(c). We strongly recommend filing no later than mid-July 2023 to preserve adequate runway for the CFIUS review process and to avoid delaying the targeted closing.
B. Factors Weighing Against a Short-Form Declaration
We have identified six principal factors that, individually and collectively, strongly counsel against reliance on the short-form declaration format for this transaction.
1. Complexity of VPI's Classified and Controlled Programs. VPI holds a Facility Security Clearance at the SECRET level (CAGE Code: 7VK92) for its Albuquerque, New Mexico fabrication facility. The Albuquerque facility includes classified clean room Sections C-7 through C-12, where classified fabrication, testing, and development work is performed pursuant to applicable NISPOM requirements and classified contract specifications. The classified work performed in these sections supports multiple DoD programs of significant national security importance, including programs for the U.S. Army, the Air Force Research Laboratory, and the Missile Defense Agency.
Of VPI's approximately 486 total employees, 212 hold active U.S. government personnel security clearances — representing approximately 43.6% of the entire workforce. This is an exceptionally high proportion of cleared employees, reflecting VPI's deep integration into classified defense programs. Moreover, a significant number of these employees hold clearances at the TS/SCI level, indicating involvement in compartmented intelligence programs that receive the highest levels of classification protection.
VPI maintains 14 active DoD contracts with an aggregate remaining backlog of approximately $193 million, spanning multiple military services and defense agencies, including the U.S. Army PEO IEW&S, AFRL, MDA, NAVSEA (through a subcontract to Ironclad Defense Systems Inc.), and DHS S&T. These contracts encompass a range of critical defense technologies, from advanced radar components to electronic warfare systems to missile defense subsystems.
The five-page declaration format is simply incapable of adequately describing the scope, nature, classification levels, and national security sensitivity of VPI's classified programs. Nor can a short-form declaration meaningfully address the security implications of a foreign acquisition of a company with this classified work portfolio, the impact on existing classified contracts, or the proposed mitigation framework that CFIUS will need to evaluate. Any attempt to compress this information into five pages of narrative would inevitably result in oversimplification, omission of material details, and an incomplete picture that would not serve CFIUS's analytical needs.
2. ITAR/EAR Regulatory Complexity. VPI's product portfolio straddles two of the most significant U.S. export control regimes: the ITAR and the EAR. VPI's defense-specific GaN power amplifier modules are controlled under USML Category XI(a)(3) as defense articles, while its dual-use GaN semiconductor components are classified under EAR ECCN 3A001, 3A991, and 3E001. This dual-regime profile creates a complex regulatory landscape that requires detailed exposition in any CFIUS filing.
VPI is registered with DDTC as a manufacturer and exporter of defense articles (Registration No. M-24817), a registration it has maintained continuously since 2011. VPI currently holds three active DSP-5 export licenses authorizing the permanent export of certain ITAR-controlled components to end-users in the United Kingdom and Australia. These existing export authorizations — and VPI's compliance history under them — are relevant to CFIUS's assessment of the national security risk profile of the transaction.
The interplay between the ITAR, the EAR, and the foreign ownership dimension of the acquisition creates additional analytical complexity. Post-acquisition, HSAG (through Halcyon US Holdings) will own VPI, raising questions about deemed exports of controlled technology to HSAG personnel who may have access to VPI's facilities, systems, or technical data. The ITAR's broad "defense article" controls, which apply to any transfer of ITAR-controlled technical data to a foreign person regardless of location, create particular challenges in the context of a foreign acquisition. These issues require extensive analysis and proposed mitigation measures — including Technology Control Plans, physical access restrictions, IT system segregation, and compliance monitoring — that cannot be meaningfully presented within a five-page declaration.
3. Foreign Ownership, Control, or Influence (FOCI) Implications. The acquisition of VPI by HSAG will result in VPI being owned and controlled by a German parent company, creating Foreign Ownership, Control, or Influence ("FOCI") considerations that directly affect VPI's ability to maintain its facility security clearance and to continue performing classified work under existing and future DoD contracts.
Under the National Industrial Security Program Operating Manual ("NISPOM"), 32 C.F.R. Part 117, a U.S. contractor that is subject to FOCI may not be granted or maintain a facility security clearance unless appropriate FOCI mitigation measures are implemented and approved by DCSA. The specific FOCI mitigation instrument required depends on the nature and extent of the foreign ownership, control, or influence. For a transaction involving 100% foreign ownership, as here, the typical FOCI mitigation options include a Special Security Agreement ("SSA"), a Proxy Agreement, or a Voting Trust Agreement. Given that HSAG is domiciled in Germany — a close NATO ally with an existing General Security of Information Agreement ("GSOIA") with the United States — an SSA is likely the most appropriate FOCI mitigation instrument, as it allows the foreign parent to retain a degree of involvement in the subsidiary's commercial operations while insulating classified programs through a Government Security Committee ("GSC") and related safeguards.
The FOCI mitigation arrangement will need to be developed in close coordination with DCSA and will likely be incorporated into, or referenced by, the National Security Agreement negotiated with CFIUS. These issues require detailed disclosure and proposed mitigation that goes far beyond the scope of a short-form declaration.
4. Near-Certainty of CFIUS Requesting a Full Notice. Based on Calderwood & Harkness's extensive experience representing parties before CFIUS and our analysis of recent semiconductor-sector transaction precedents (which is set forth in detail in the Comparative NSA Precedent Analysis memorandum currently in preparation), we believe it is virtually certain that CFIUS would request the parties to file a full voluntary notice if the transaction were initially presented through a short-form declaration.
In the 12 recent semiconductor-sector precedent transactions surveyed by our team — which include transactions involving acquirors from allied nations (Germany, the United Kingdom, Japan, and South Korea), as well as transactions involving acquirors from countries of greater CFIUS concern — none were resolved through a short-form declaration alone. In every case, the transaction proceeded through the full voluntary notice process, and the substantial majority resulted in the negotiation and execution of a National Security Agreement. The common characteristics that drove these outcomes — which are all present in the HSAG/VPI transaction — include:
(a) classified government contracts; (b) ITAR-controlled defense articles or defense services; (c) facility security clearances held by the target; (d) semiconductor or related critical technologies produced by the target; and (e) significant cleared employee populations.
VPI's profile encompasses all five of these characteristics. It would be unprecedented, in our experience, for CFIUS to resolve a transaction with this national security profile through a short-form declaration without requesting a full notice. Filing a declaration in these circumstances would therefore serve only to add approximately 30 days of procedural delay — the time required for CFIUS to assess the declaration and issue the inevitable request for a full notice — before the substantive review process could even begin. This delay would be incurred without any offsetting benefit to the parties.
5. No Safe-Harbor Protection from Declaration Alone. As discussed in Section IV.C above, a short-form declaration, even if CFIUS concludes its assessment without requesting a full notice (an outcome we consider extremely unlikely here), does not result in the issuance of a safe-harbor letter under 50 U.S.C. § 4565(b)(1)(D). The safe-harbor provision is available only upon CFIUS's completion of all action following a full review initiated by a voluntary notice or a unilateral CFIUS review.
For a $1.42 billion acquisition with the national security dimensions present in this transaction, safe-harbor protection is not merely desirable — it is essential. Without a safe-harbor letter, CFIUS would retain the authority to initiate a review of the transaction at any time after closing, including years after the acquisition is completed, if new information or changed circumstances come to the attention of the Committee. This would create an ongoing overhang of regulatory risk that would be unacceptable from HSAG's perspective as a long-term investor and operator of VPI's business. The possibility of a post-closing CFIUS review — which could potentially result in a forced divestiture under 50 U.S.C. § 4565(d) — would undermine the certainty of HSAG's investment, create valuation uncertainty, and potentially impair VPI's ability to win new government contracts if its customers are uncertain about the stability of its ownership structure.
Moreover, VPI's DoD customers — including the prime contractors and program offices that award contracts to VPI — are likely to require assurance that the acquisition has received full CFIUS clearance before continuing to award new work to VPI under its new foreign ownership. A declaration clearance (without safe-harbor protection) would not provide this assurance and could jeopardize VPI's competitive position for future contract awards.
6. SPA Closing Conditions. The Stock Purchase Agreement, executed on June 10, 2023, contains closing conditions at Section 7.1(c) that require CFIUS clearance as a condition precedent to the parties' obligations to consummate the transaction. "CFIUS Clearance" is defined in the SPA to include the receipt of written confirmation from CFIUS — specifically, a safe-harbor letter — that CFIUS has concluded all action with respect to the transaction and that there are no unresolved national security concerns (or, alternatively, that the parties have executed a National Security Agreement satisfactory to CFIUS and that CFIUS has issued a safe-harbor letter in connection therewith).
A declaration-only process that does not result in a safe-harbor letter would not satisfy this closing condition. The parties would be unable to close the transaction without either (a) amending the SPA to modify the CFIUS clearance closing condition (which would require the consent of the selling shareholders, including the private equity investors Ridgecrest Ventures and Cascadian Capital Partners, who are unlikely to agree to a weakening of the CFIUS clearance condition), or (b) proceeding to file a full voluntary notice in any event. This SPA-level requirement independently compels the parties to pursue the voluntary notice pathway.
C. Factors Weighing in Favor of a Full Voluntary Joint Notice
In addition to the factors identified in Section V.B that weigh against a short-form declaration, multiple affirmative considerations support the filing of a full voluntary joint notice.
1. Initiates the Formal Statutory Review Clock. Filing a full voluntary joint notice immediately triggers the 45-day statutory review period upon CFIUS acceptance of the notice, rather than the 30-day declaration assessment period. Given our conclusion that a declaration would almost certainly result in a request for a full notice, the declaration pathway would effectively require two sequential filing processes before substantive review could begin: first, the 30-day declaration assessment, and then the 45-day review following the subsequently filed notice. By proceeding directly with a voluntary notice, the parties eliminate the unnecessary first step and begin the substantive review process immediately.
Based on our current assessment, the projected timeline for the voluntary notice pathway is as follows:
• Notice Filing Target: July 14, 2023
• Anticipated CFIUS Acceptance: On or about July 21, 2023 (assuming no pre-acceptance deficiency questions requiring supplementation)
• 45-Day Review Period: July 21, 2023 — September 4, 2023
• Potential 45-Day Investigation Period (if initiated): September 4, 2023 — October 19, 2023
• NSA Negotiation (if required): November — December 2023
• Final NSA Execution and Safe-Harbor Letter: January 2024 (estimated)
This timeline provides a realistic path to CFIUS clearance within approximately six to seven months from the engagement opening, which is consistent with the closing timeline anticipated by the SPA (which provides for a long-stop date of March 31, 2024, with a three-month extension if CFIUS review has not been completed).
2. Enables Comprehensive Presentation of Mitigation Proposals. The voluntary notice format provides the space and framework necessary for HSAG to present a comprehensive proposed mitigation framework from the outset of the filing. This is a significant strategic advantage. By proactively proposing specific mitigation measures in the notice — rather than waiting for CFIUS to identify concerns and propose its own mitigation — HSAG can shape the direction of the review and potentially narrow the scope and intrusiveness of the National Security Agreement that is ultimately negotiated.
The mitigation proposals that we anticipate including in the notice, drawing on our analysis of precedent National Security Agreements in the semiconductor sector, include:
• Board Restructuring: Establishment of a Government Security Committee or Security Board composed exclusively of U.S. citizen directors with appropriate security clearances, with authority over classified programs, FOCI mitigation, and government contract compliance;
• Technology Control Plan: Implementation of a comprehensive Technology Control Plan ("TCP") to prevent unauthorized access by HSAG personnel to ITAR-controlled technical data, EAR-controlled technology, and classified information;
• Compliance Monitor: Willingness to accept a third-party compliance monitor (approved by CFIUS) to oversee VPI's compliance with the NSA and the TCP for a specified initial period;
• Facility Access Restrictions: Physical and logical access restrictions at VPI's Albuquerque facility to prevent unauthorized access by foreign nationals to classified areas and controlled technology;
• Cybersecurity Commitments: Enhanced cybersecurity measures to protect VPI's networks, systems, and data from unauthorized access, including network segregation, access controls, and incident reporting obligations;
• Personnel Requirements: Maintenance of a U.S. citizen Facility Security Officer ("FSO") and key management positions for classified programs; and
• Supply Chain and Customer Protections: Commitments to maintain VPI's existing customer relationships and to continue performing existing government contracts without disruption.
3. Demonstrates Good Faith and Cooperation. Filing a full voluntary notice rather than the minimum mandatory declaration sends a clear and important signal to CFIUS that HSAG takes the national security review seriously and is fully committed to a cooperative and transparent engagement with the Committee. This posture is strategically significant for several reasons.
First, HSAG is a German company — Germany is a close NATO ally of the United States with a deep bilateral security relationship, and CFIUS's assessment of risk is influenced by the acquiror's country of origin and the strength of the U.S.-acquiror bilateral security relationship. Filing a comprehensive voluntary notice reinforces HSAG's posture as a responsible allied-nation acquiror that is prepared to work constructively with CFIUS.
Second, CFIUS staff members have consistently communicated — both formally in published guidance and informally in pre-filing consultations — that they view voluntary notices as more productive than declarations for complex transactions, because voluntary notices provide the comprehensive information necessary for meaningful engagement. Filing a notice rather than a declaration avoids creating any initial impression that HSAG is attempting to minimize its disclosure obligations or to use the declaration process to delay or limit the scope of review.
Third, a cooperative posture at the filing stage tends to carry forward into the mitigation negotiation phase, potentially resulting in a less adversarial and more efficient NSA negotiation process.
4. Satisfies the Mandatory Filing Obligation. Under 31 C.F.R. § 800.401(a), the filing of a voluntary notice under § 800.501 expressly satisfies the mandatory declaration requirement imposed by § 800.401(b). By filing a voluntary notice, the parties simultaneously (i) comply with the mandatory filing obligation and (ii) initiate the comprehensive review process necessary to achieve safe-harbor protection. The parties need not file both a declaration and a notice; the notice alone is sufficient.
5. Alignment with Anticipated CFIUS Outcome. Based on our precedent analysis and our assessment of the transaction's national security profile, we believe that the most likely outcome of the CFIUS review is clearance conditioned on the negotiation and execution of a National Security Agreement. As noted above, in the 12 recent semiconductor-sector precedent transactions surveyed, the substantial majority resulted in a National Security Agreement. The common features of those transactions — classified government contracts, ITAR/EAR-controlled technologies, facility security clearances, and critical semiconductor technologies — are all present in the HSAG/VPI transaction.
The voluntary notice process is the appropriate and intended mechanism for reaching this outcome. The comprehensive information provided in the notice enables CFIUS to identify the specific national security concerns that require mitigation, to assess the adequacy of the parties' proposed mitigation measures, and to negotiate a National Security Agreement that addresses those concerns while allowing the transaction to proceed. Attempting to reach this outcome through a declaration-first approach would only add procedural delay and friction to a process that is, in substance, designed for the voluntary notice pathway.
VI. Timeline Comparison
To illustrate the practical implications of the filing choice, the following sections present estimated timelines under each pathway.
A. Short-Form Declaration Pathway (Estimated)
Under the short-form declaration pathway, the estimated timeline from engagement opening to CFIUS clearance is approximately 8 to 9 months, based on the following sequential steps:
This timeline reflects our assumption, discussed at length above, that CFIUS would almost certainly request a full voluntary notice following the declaration assessment. The 30-day declaration assessment period therefore adds approximately one month of delay to the overall process without contributing to the substantive review. Moreover, the notice preparation period following a declaration request is likely to be somewhat longer than it would be if the parties had prepared the notice from the outset, because the parties would need to pivot from a declaration-focused preparation to a full notice preparation, potentially requiring additional information gathering and coordination with VPI's management team.
B. Full Voluntary Notice Pathway (Recommended; Estimated)
Under the full voluntary notice pathway, the estimated timeline from engagement opening to CFIUS clearance is approximately 6 to 7 months, based on the following steps:
The voluntary notice pathway thus offers an estimated time savings of approximately 1 to 2 months relative to the declaration pathway. This time savings is attributable primarily to the elimination of the 30-day declaration assessment period and the avoidance of the additional notice preparation time that would be required following a CFIUS request for a full notice. Additionally, the voluntary notice pathway may yield further time savings in the NSA negotiation phase, because the comprehensive information and proactive mitigation proposals included in the notice will enable CFIUS and the parties to begin substantive mitigation discussions earlier in the process.
The voluntary notice pathway also provides greater certainty and predictability with respect to the overall timeline, because it eliminates the contingency of waiting for CFIUS's response to a declaration and the uncertainty of whether CFIUS will request a full notice, initiate a unilateral review, or take some other action. Under the voluntary notice pathway, the parties know from the outset that the 45-day review clock begins upon acceptance and can plan their closing timeline accordingly.
VII. Coordination with Seller's Counsel
The CFIUS filing will be a joint submission by both HSAG and VPI, as required by 31 C.F.R. § 800.501(a). Accordingly, preparation of the Joint Voluntary Notice will require close coordination between buyer's counsel and seller's counsel.
VPI and the selling shareholders are represented in this transaction by Wethersfield & Gale LLP, with Harrison Whitfield (Partner, National Security) serving as lead partner for CFIUS-related matters. Wethersfield & Gale has significant CFIUS experience and has represented targets in several recent defense-sector transactions. We have had preliminary discussions with Mr. Whitfield regarding the CFIUS filing approach and the anticipated division of preparation responsibilities.
Under our proposed division of responsibilities, Wethersfield & Gale will be responsible for preparing the following components of the Joint Voluntary Notice:
• VPI business descriptions, including detailed descriptions of VPI's products, services, customers, suppliers, and market position;
• Government contract summaries, including contract numbers, contracting agencies, work descriptions, performance periods, and dollar values;
• Cleared personnel information, including aggregate clearance data and detailed information required by CFIUS regarding cleared employees;
• Facility security clearance documen