1032-00004 · Client 1032 · Correspondence

letter-to-lohse-clearance-confirmation.docx DOCUMENT M&A / Corporate

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CALDERWOOD & HARKNESS LLP

1750 K Street NW, Suite 800 Washington, DC 20006 Telephone: (202) 551-4000	Facsimile: (202) 551-4001
399 Park Avenue, 31st Floor, New York, NY 10022 Telephone: (212) 848-6000	Facsimile: (212) 848-6001

www.calderwoodharkness.com

January 26, 2024

VIA ELECTRONIC MAIL AND SECURE FILE TRANSFER

Stefan Lohse, LL.M. General Counsel / Chefjustitiar Halcyon Semiconductor Aktiengesellschaft Industriestraße 44 01099 Dresden, Saxony Germany

Re: CFIUS Clearance — Acquisition of Marlowe Asset Management Photonics Inc. by Halcyon Semiconductor AG CFIUS Case No. CFIUS-023-07-3841 NSA Docket Reference: NSA-2024-0019

Dear Stefan:

1. Announcement of CFIUS Clearance

We are pleased to confirm that earlier today, January 26, 2024, we received the official clearance letter from the U.S. Department of the Treasury, acting in its capacity as Chair of the Committee on Foreign Investment in the United States ("CFIUS"). A copy of the clearance letter is enclosed with this correspondence as Enclosure 1 for your records and for distribution to the HSAG Vorstand as appropriate.

The clearance letter confirms that CFIUS has concluded its review and investigation of the proposed acquisition by Halcyon Semiconductor Aktiengesellschaft ("HSAG"), through its wholly owned subsidiary Halcyon US Holdings Inc. (EIN: 93-2841067), of 100% of the outstanding equity interests of Marlowe Asset Management Photonics Inc. ("VPI") (EIN: 26-4371885), a Delaware corporation headquartered in Albuquerque, New Mexico. Following a thorough assessment of the national security implications of the proposed transaction, CFIUS has determined that the transaction, as mitigated by the National Security Agreement executed on January 19, 2024 (NSA Docket Reference: NSA-2024-0019), does not present unresolved national security concerns and that no further action by the Committee is warranted at this time.

Importantly, the clearance constitutes a safe harbor under Section 721(b)(1)(D) of the Defense Production Act of 1950, as amended, codified at 50 U.S.C. § 4565(b)(1)(D). This means that the transaction, as described in the joint voluntary notice filed on July 14, 2023, is shielded from future CFIUS review, provided that there has been no material misstatement or material omission in the filing and provided further that HSAG and VPI remain in compliance with the terms and conditions of the executed National Security Agreement. In the event of a material breach of the NSA, CFIUS retains the authority to reopen its review or to take enforcement action as described in the penalty provisions of the NSA, which we address in greater detail below.

This clearance marks the successful conclusion of a CFIUS process that has spanned approximately seven and a half months. By way of summary, the key milestones of this process were as follows:

• June 12, 2023: Calderwood & Harkness LLP formally engaged by HSAG to represent the acquirer in connection with the CFIUS review of the proposed transaction.

• June 19, 2023: Pre-filing consultation meeting with CFIUS staff, including representatives from the Departments of Treasury, Defense, Commerce, Energy, and Homeland Security, as well as the Office of the Director of National intelligence. During this consultation, we provided an overview of HSAG's corporate structure, the strategic rationale for the acquisition, VPI's business operations and government contracts portfolio, and HSAG's preliminary mitigation proposals.

• July 14, 2023: Filing of the joint voluntary notice with CFIUS, prepared and submitted jointly on behalf of HSAG and VPI, with the cooperation of VPI's counsel, Wethersfield & Gale LLP.

• July 21, 2023: Commencement of the 45-day statutory review period following CFIUS's acceptance of the joint voluntary notice as complete.

• September 4, 2023: Conclusion of the initial 45-day review period and commencement of the 45-day statutory investigation period, reflecting the Committee's determination that additional time was needed to assess the national security implications of the transaction.

• October 20, 2023: Communication of CFIUS's preliminary national security concerns to the parties. As you will recall, these concerns centered principally on (i) the potential for unauthorized access to VPI's classified programs and ITAR-controlled technical data, (ii) cybersecurity vulnerabilities arising from the integration of VPI's IT infrastructure into HSAG's global network, and (iii) the continuity of key technical and security personnel at VPI following the change in ownership.

• November 3, 2023 – January 19, 2024: Intensive negotiation of the National Security Agreement with CFIUS's lead agencies (the Department of Defense and the Department of Commerce) and their designated outside counsel, culminating in the execution of the NSA on January 19, 2024.

• January 26, 2024: Receipt of the CFIUS clearance letter, confirming that the transaction, as mitigated by the NSA, does not present unresolved national security concerns.

We recognize that this has been a demanding process, and we wish to acknowledge the sustained commitment and responsiveness of the HSAG team throughout, which contributed materially to the successful outcome.

2. Summary of the National Security Agreement

For ease of reference, and as a reminder of the obligations that will activate immediately upon the closing of the transaction, we set forth below a summary of the principal terms and conditions of the executed National Security Agreement (NSA-2024-0019). A copy of the fully executed NSA, which was previously transmitted to you on January 19, 2024, is also enclosed as Enclosure 2 for completeness.

Board Composition. Pursuant to NSA §3.1, the board of directors of VPI will be reconstituted upon closing to consist of five (5) members. Three (3) of these directors will serve as "Security Board Members" and must be U.S. citizens who hold, or are eligible to hold, personnel security clearances at the TS/SCI level. The Security Board Members will include an independent Security Director who is not affiliated with either HSAG or VPI and who must be approved by CFIUS's lead monitoring agencies prior to appointment. The remaining two (2) directors will be HSAG designees; however, these HSAG designees may not hold or access any classified national security information, may not attend board sessions at which classified matters are discussed, and may not exercise any authority over VPI's classified programs or personnel security matters.

Government Security Committee. Pursuant to NSA §3.4, a Government Security Committee ("GSC") will be established, composed exclusively of the three (3) Security Board Members. The GSC will have exclusive authority and oversight responsibility over all classified and ITAR-controlled programs conducted by VPI, all personnel security matters (including the granting, denial, or revocation of access to classified information), and all facility security matters. The HSAG designees on the VPI board shall have no authority to override, direct, or interfere with any determination made by the GSC.

Facility Security Clearance. VPI currently holds a Facility Security Clearance ("FCL") at the SECRET level, issued under CAGE Code 7VK92. Pursuant to NSA §4.1, VPI will retain its existing FCL following the transaction, and the NSA will function as a Special Security Agreement ("SSA") equivalent for purposes of foreign ownership, control, or influence ("FOCI") mitigation under the National Industrial Security Program Operating Manual ("NISPOM," 32 C.F.R. Part 117). The Defense Counterintelligence and Security Agency ("DCSA") has been consulted throughout the NSA negotiation process and has indicated its concurrence with this approach, subject to the timely completion of the post-closing notifications described in Section 4.3 below.

Technology Control Plan. NSA Annex B sets forth a detailed Technology Control Plan ("TCP") that governs the handling, storage, access, and transfer of VPI technical data that is controlled under the International Traffic in Arms Regulations ("ITAR," 22 C.F.R. Parts 120–130) or the Export Administration Regulations ("EAR," 15 C.F.R. Parts 730–774). The TCP categorically prohibits the transfer of any such controlled technical data to any non-U.S. person — including HSAG employees, officers, and directors who are not U.S. persons — without prior authorization from the applicable U.S. government licensing authority (the Directorate of Defense Trade Controls ("DDTC") for ITAR-controlled items; the Bureau of Industry and Security ("BIS") for EAR-controlled items). The TCP further establishes physical and procedural controls for the segregation of controlled technical data within VPI's facilities, including badging and access-control protocols, clean-desk policies, and restrictions on the use of portable electronic devices in areas where controlled technical data is stored or processed.

Visitation and Access Restrictions. Pursuant to NSA §5.2, HSAG personnel — including directors, officers, employees, and agents of HSAG and its non-U.S. affiliates — may not access VPI's classified facilities, including specifically the fabrication clean room Sections C-7 through C-12 located at VPI's principal facility at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113, without the prior written approval of both DCSA and the GSC. Requests for such access must be submitted at least thirty (30) calendar days in advance, must identify the specific individuals seeking access and the purpose of the visit, and must be accompanied by a certification from the GSC that appropriate security measures will be in place during the visit.

Cybersecurity Requirements. NSA §6 imposes robust cybersecurity obligations on VPI following the closing of the transaction. VPI must maintain compliance with the National Institute of Standards and Technology ("NIST") Special Publication 800-171, Revision 2 (Protecting Controlled Unclassified Information in Nonfederal Systems and Organizations), or any successor publication. VPI must engage a qualified third-party cybersecurity firm to conduct annual penetration testing of VPI's IT systems, with the results reported to both the GSC and DCSA. In the event of any cybersecurity incident affecting VPI's systems — including any unauthorized access, data exfiltration, or malware intrusion — VPI must report the incident to DCSA within seventy-two (72) hours of detection. Critically, VPI's IT systems, including all servers, workstations, network infrastructure, email systems, and data storage, must be physically and logically separated from HSAG's global network. No shared cloud infrastructure, common authentication systems, or interconnected data repositories are permitted between VPI and HSAG or any HSAG affiliate.

Third-Party Compliance Monitor. Pursuant to NSA §8.1, CFIUS has designated Whitmore Compliance Group LLC as the independent third-party compliance monitor responsible for conducting annual audits of HSAG's and VPI's compliance with the terms and conditions of the NSA. The monitor will be led by Gerald Whitmore, Principal, and will operate from offices at 1300 Crystal Drive, Suite 710, Arlington, Virginia 22202. The annual compliance audit will encompass, among other things, a review of the TCP implementation, cybersecurity controls, board composition and GSC operations, access restrictions, and personnel continuity requirements. The compliance monitor will prepare a written report following each annual audit, which will be submitted to the CFIUS lead monitoring agencies and to HSAG's and VPI's respective counsel. The monitor fee is set at $1.2 million per annum, payable quarterly in installments of $300,000 per quarter by HSAG, with such fee subject to adjustment based on changes in the Consumer Price Index ("CPI") as published by the U.S. Bureau of Labor Statistics.

Personnel Continuity. NSA §9.1 identifies certain key VPI personnel who must remain employed by VPI for a minimum period of twenty-four (24) months following the closing of the transaction. The designated key personnel are: (i) Dr. Nathan Trevorrow, President and Chief Executive Officer of VPI; (ii) Marissa Sung-Avila, Vice President of Engineering and Chief Technology Officer of VPI; and (iii) Col. (Ret.) Bryce Hendrickson, Vice President of Security and Facility Security Officer of VPI. If any of these individuals departs VPI's employment during the 24-month period (whether voluntarily or involuntarily), HSAG must propose a replacement candidate, and such replacement must be approved by the GSC and by DCSA before the replacement may assume the relevant role. Failure to maintain the designated key personnel, or to obtain timely approval for replacements, constitutes a reportable event under the NSA and may trigger the penalty provisions described below.

Pre-Notification Obligations. Pursuant to NSA §10.1, HSAG must notify CFIUS at least thirty (30) calendar days before implementing any material change to VPI's business, organizational structure, or operations. Material changes triggering this pre-notification obligation include, without limitation, divestitures of any VPI business unit or product line, entry into new foreign subcontracts or teaming agreements, changes to cleared personnel or facility security arrangements, relocation of VPI's facilities, and any proposed amendment to VPI's articles of incorporation or bylaws that would affect the composition or authority of the VPI board or the GSC.

Penalty Provisions. NSA §12.3 provides that any violation of the terms and conditions of the NSA may result in the imposition of civil monetary penalties of up to $250,000 per violation per day for each day the violation continues. In addition to monetary penalties, the CFIUS lead monitoring agencies may seek injunctive relief in federal court to compel compliance, and in the most severe cases, CFIUS retains the authority to recommend to the President of the United States that HSAG be required to divest VPI. We emphasize these provisions not to cause alarm but to underscore the critical importance of strict and ongoing compliance with all NSA obligations from the moment of closing forward.

3. Target Closing Date and SPA Condition Satisfaction

With the CFIUS clearance letter now in hand, the final regulatory condition precedent set forth in Section 7.1(c) of the Stock Purchase Agreement dated June 5, 2023, as amended (the "SPA"), has been satisfied. As you are aware, Section 7.1(c) required, as a condition to each party's obligation to consummate the closing, the receipt of clearance from CFIUS, including any required mitigation measures, without the imposition of conditions that would constitute a "Burdensome Condition" as defined in SPA §1.1. Based on our review of the executed NSA and the CFIUS clearance letter, we are satisfied that the mitigation terms do not constitute a Burdensome Condition within the meaning of the SPA, and we understand that VPI's counsel at Wethersfield & Gale LLP shares this assessment. Accordingly, there is no impediment under the SPA to proceeding to closing.

We are actively coordinating with Wethersfield & Gale LLP — specifically, Harrison Whitfield, Sandra Niehaus, and their team — as counsel to VPI and the selling stockholders, to target a transaction closing date of February 9, 2024. This date provides adequate time to finalize all closing deliverables, execute the remaining ancillary agreements, and coordinate the funding mechanics. We will, of course, keep you apprised if any developments require an adjustment to this targeted date.

As a reminder, the aggregate purchase price for 100% of the outstanding equity of VPI is $1.42 billion, calculated on a cash-free, debt-free basis with a normalized net working capital target of $34.6 million, subject to the customary post-closing true-up adjustment mechanism set forth in SPA §2.4. The purchase price will be funded at closing from two principal sources:

(a) HSAG Equity Contribution: $520 million, sourced from a combination of HSAG's existing balance sheet cash and a draw of approximately €300 million on HSAG's revolving credit facility with Rheinische Handelsbank AG, Frankfurt am Main (Facility Agreement dated March 15, 2022, as amended). We understand that Schilling Frey Rechtsanwälte in Berlin is coordinating the German-law corporate authorizations necessary for the drawdown and the cross-border transfer of funds, and we will be in contact with Prof. Dr. Ulrich Schilling's team to confirm the timeline for the availability of these funds.

(b) Senior Secured Term Loan: $900 million, pursuant to the Credit Agreement dated June 8, 2023, among Halcyon US Holdings Inc. as Borrower, Meridian National Bank, N.A. as Administrative Agent, and the lenders party thereto, with Atlas Commercial Lending AG and Pacific Basin Credit Corp. serving as co-lead arrangers and joint bookrunners. The Credit Agreement was executed on June 8, 2023 as a commitment, and the term loan will fund at closing upon satisfaction of certain customary conditions to funding, including delivery of executed copies of the SPA, evidence of CFIUS clearance, and a solvency certificate. We are coordinating with Thomas Nyström, Senior Vice President at Meridian National Bank, to confirm that all conditions to funding will be satisfied in advance of the February 9, 2024 target closing date.

At closing, an escrow holdback of $71 million (representing 5% of the aggregate purchase price) will be deposited into an escrow account maintained by Pinnacle Trust Company, N.A. (escrow officer: Lisa Trujillo), in accordance with the terms of the Escrow Agreement executed concurrently with the SPA. The escrowed funds will be available to satisfy any post-closing purchase price adjustment obligations and any indemnification claims by HSAG under SPA Article IX, subject to the basket, cap, and time limitations set forth therein.

We are continuing to confirm that all financing arrangements are in order for the targeted closing date and will provide a further update once we have received written confirmation from Meridian National Bank that all conditions to term loan funding have been satisfied or waived.

4. Immediate Next Steps — Pre-Closing Actions

The following pre-closing and post-closing actions must be completed in connection with the CFIUS clearance and the anticipated closing of the transaction. We address each in turn.

4.1 Officer's Certificates

We are in the process of finalizing draft officer's certificates for execution by the appropriate officers of each party. Dr. Maximilian Ehrhardt, as Chief Executive Officer of HSAG and sole director of Halcyon US Holdings Inc., will execute an officer's certificate on behalf of the acquirer, certifying, among other things, the satisfaction of all CFIUS-related closing conditions, the execution and delivery of the NSA, the receipt of the CFIUS clearance letter, and the implementation of the compliance infrastructure required by the NSA. Separately, Dr. Nathan Trevorrow, as President and Chief Executive Officer of VPI, will execute a corresponding officer's certificate on behalf of the target company, certifying the same matters from VPI's perspective and confirming VPI's readiness to comply with the NSA obligations upon closing.

These certificates will specifically reference (i) the execution of the National Security Agreement on January 19, 2024, (ii) the receipt of the CFIUS clearance letter dated January 26, 2024, and (iii) the status of compliance infrastructure implementation, including IT system segregation, TCP readiness, and the designation of Security Board Members and GSC composition. We expect to circulate the substantially final drafts to you and to Wethersfield & Gale for review within the next three business days.

4.2 Board Resolutions

Two sets of board resolutions must be prepared and adopted in connection with the closing:

Halcyon US Holdings Inc. Board Resolution. A resolution of the sole director of Halcyon US Holdings Inc. authorizing (i) the consummation of the acquisition of 100% of VPI's outstanding equity pursuant to the SPA, (ii) the execution and delivery of the NSA and all ancillary agreements and instruments required thereunder, (iii) the engagement of Whitmore Compliance Group LLC as the third-party compliance monitor, including authorization of the quarterly fee payments, and (iv) the appointment of HSAG's two (2) designees to the reconstituted VPI board of directors. We will circulate a draft of this resolution for Dr. Ehrhardt's review within the next several days.

VPI Post-Closing Board Reconstitution Resolution. A resolution of the reconstituted VPI board of directors, to be effective immediately upon the closing of the transaction, reflecting the new five-member board composition. The resolution will identify the three Security Board Members — Col. (Ret.) Bryce Hendrickson, Adrienne Delacroix, and the independent Security Director (whose identity we understand has been provisionally approved by the CFIUS lead monitoring agencies, subject to final confirmation) — as well as the two HSAG designees. The resolution will also establish the Government Security Committee, formally adopt the Technology Control Plan (NSA Annex B), adopt the Cybersecurity Annex (NSA Annex C), and delegate to the GSC the authorities and responsibilities prescribed by the NSA. We are coordinating the drafting of this resolution with Wethersfield & Gale, who will ensure its consistency with VPI's governing documents and Delaware corporate law requirements.

4.3 DCSA Notification

A post-closing notification letter must be submitted promptly to the Defense Counterintelligence and Security Agency ("DCSA") following the closing of the transaction. This notification is a critical regulatory step, as DCSA serves as the cognizant security agency for VPI's Facility Security Clearance and is responsible for oversight of FOCI mitigation arrangements.

The notification letter will advise DCSA of the completed change in ownership of VPI (CAGE Code: 7VK92), confirm the maintenance of VPI's Facility Security Clearance at the SECRET level under the FOCI mitigation framework established by the NSA, identify Col. (Ret.) Bryce Hendrickson as the continuing Facility Security Officer, and provide DCSA with a copy of the executed NSA (NSA-2024-0019) and the CFIUS clearance letter. The letter will also identify the members of the reconstituted VPI board and the Government Security Committee.

Lt. Col. (Ret.) David Caruso and Priya Venkataraman of our firm are preparing this notification letter and coordinating with DCSA's Industrial Security Division to ensure that all required information is included and that the submission complies with DCSA's current procedural requirements. We expect to submit the DCSA notification within five (5) business days of the closing date.

4.4 DDTC Change-of-Ownership Filing

VPI is currently registered with the Directorate of Defense Trade Controls ("DDTC") of the U.S. Department of State under Registration No. M-24817. Under ITAR § 122.4(a), a registrant is required to notify DDTC of any change in the information previously provided in its Statement of Registration, including changes in ownership or control, within sixty (60) days of such change. Accordingly, VPI must file a change-of-ownership notification with DDTC following the closing of the transaction.

The filing will disclose HSAG's acquisition of 100% of VPI's outstanding equity interests, provide updated corporate structure information reflecting the Halcyon Semiconductor AG — Halcyon US Holdings Inc. — Marlowe Asset Management Photonics Inc. ownership chain, and identify the members of the reconstituted VPI board of directors. The filing must also address VPI's continuing eligibility to engage in the manufacture and export of defense articles and defense services.

In addition, VPI currently holds three (3) active DSP-5 export licenses issued by DDTC, which authorize the export of certain defense articles to end-users and consignees in the United Kingdom and Australia. These licenses will require amendment to reflect the new ownership structure. We will coordinate with VPI's export compliance personnel, including VPI's Empowered Official, and with Wethersfield & Gale to prepare and submit these license amendment requests promptly following closing. Delays in updating these licenses could affect VPI's ability to fulfill existing delivery obligations, and we will therefore prioritize this workstream accordingly.

4.5 Initiation of FAR 42.12 Novation Proceedings

VPI currently holds fourteen (14) active contracts with the U.S. Department of Defense, comprising both prime contracts and subcontracts, with an aggregate remaining backlog of approximately $193 million. These contracts represent a significant and strategically important revenue stream for VPI, and the continuity of these contractual relationships is essential to the ongoing viability of VPI's defense business.

Our analysis has identified eight (8) of these contracts that will require formal novation agreements under Federal Acquisition Regulation ("FAR") 42.12, which governs the recognition of successor entities following a change in ownership of a government contractor. The remaining six (6) contracts may be addressed through change-of-name agreements or informal notifications to the contracting officers, depending on the specific contractual and regulatory circumstances.

The key contracts requiring formal novation include:

(a) U.S. Army CERDEC GaN HEMT Module Contract (Contract No. W15QKN-21-C-0047): remaining backlog of approximately $52.3 million; contracting officer located at Aberdeen Proving Ground, Maryland.

(b) AFRL Next-Generation mmWave Power Amplifier Contract (Contract No. FA8650-22-C-1138): remaining backlog of approximately $41.7 million; contracting officer located at Wright-Patterson Air Force Base, Ohio.

(c) MDA GaN-Based T/R Module Contract (Contract No. HQ0147-22-C-0093): remaining backlog of approximately $38.9 million; contracting officer located at the Missile Defense Agency headquarters in Redstone Arsenal, Alabama.

(d) Subcontract to Ironclad Defense Systems Inc. under USN NAVSEA Prime (Subcontract No. IDS-SC-2021-0412, under Prime Contract No. N00024-20-C-5519): remaining backlog of approximately $34.1 million; novation of the subcontract will require the concurrence of both Ironclad Defense Systems Inc. and the NAVSEA contracting officer.

David Caruso will lead outreach to the contracting officers to initiate the novation process for each of these contracts. Based on our experience with similar proceedings, we anticipate that the novation process will take approximately three to six months to complete for each contract, although the timeline may vary depending on the responsiveness of the individual contracting officers and the complexity of each contract. During the pendency of the novation proceedings, VPI will continue to perform under its existing contracts, and we do not anticipate any disruption to ongoing contract performance.

In addition, DFARS 252.209-7002 (Disclosure of Ownership or Control by a Foreign Government) requires VPI to submit disclosures to each contracting officer regarding HSAG's foreign ownership of VPI. Although HSAG is not owned or controlled by a foreign government, the disclosure obligation applies to all contractors that are owned or controlled by a foreign entity, and the required disclosures must be submitted in connection with the change-of-ownership notification. David Caruso and Priya Venkataraman will prepare these disclosures for submission in coordination with the novation filings.

4.6 NSA Compliance Infrastructure Activation

We are separately providing to HSAG management a comprehensive NSA Summary & Compliance Obligations Memorandum, which details in full the obligations arising under the NSA and the recommended compliance infrastructure, policies, and procedures to be implemented by HSAG and VPI. That memorandum should be treated as the authoritative reference document for NSA compliance and should be distributed to all relevant HSAG and VPI personnel with responsibility for compliance functions.

For purposes of this letter, we wish to highlight the following critical near-term deadlines and compliance milestones that must be met in the period immediately following closing:

(i) First Quarterly Monitor Fee Payment: The first quarterly payment of $300,000 to Whitmore Compliance Group LLC is due on April 19, 2024 (ninety (90) days following the execution of the NSA on January 19, 2024). HSAG should ensure that the appropriate accounts payable processes are established to facilitate timely payment. Subsequent quarterly payments will be due on July 19, October 19, and January 19 of each year.

(ii) First Annual Compliance Audit: The first annual compliance audit by Whitmore Compliance Group LLC must be completed by January 19, 2025 (one year from the date of NSA execution). We recommend engaging with Whitmore Compliance Group no later than the third quarter of 2024 to establish the audit scope, schedule, and information request protocols.

(iii) VPI IT System Segregation: The physical and logical separation of VPI's IT systems from HSAG's global network must be confirmed and documented at the time of closing. No VPI systems may be connected to, or share infrastructure with, any HSAG system as of the closing date. We understand that VPI's Chief Information Officer, in coordination with HSAG's IT department, has been working on the segregation architecture, and we will need a written certification confirming completion at or prior to closing.

(iv) TCP Implementation and Employee Training: The Technology Control Plan (NSA Annex B) must be fully implemented, and all relevant VPI employees must complete TCP training, within thirty (30) calendar days of the closing date. This includes the deployment of physical access controls, the updating of badging and visitor protocols, and the distribution and acknowledgment of the TCP by all personnel with access to controlled technical data.

(v) 72-Hour Cybersecurity Incident Reporting: The obligation to report cybersecurity incidents to DCSA within seventy-two (72) hours of detection becomes effective immediately upon closing. VPI's cybersecurity team must have the necessary incident detection, assessment, and reporting procedures in place as of the closing date. Any delay in implementing these procedures could expose HSAG and VPI to significant liability under the NSA's penalty provisions.

We cannot overemphasize the importance of ensuring that these compliance milestones are met on time. The CFIUS lead monitoring agencies and the third-party compliance monitor will be closely scrutinizing HSAG's and VPI's compliance efforts in the initial post-closing period, and any early failures or deficiencies — even if inadvertent — could create significant reputational and legal risk.

5. Coordination with Other Counsel and Advisors

To ensure a seamless closing process, we are actively coordinating with the following counsel and advisors:

• Wethersfield & Gale LLP (Harrison Whitfield, Sandra Niehaus, and Tobias Kwan): As counsel to VPI and the selling stockholders, Wethersfield & Gale is coordinating on all seller-side closing deliverables, including the VPI officer's certificate, the VPI post-closing board reconstitution resolution, third-party consents, and estoppel certificates. We are in regular communication with their team and have established a shared closing checklist to track the status of all deliverables.

• Schilling Frey Rechtsanwälte (Prof. Dr. Ulrich Schilling, Berlin): As HSAG's German counsel, Schilling Frey is coordinating on any German-law corporate actions required for HSAG to authorize and fund the equity contribution, including any Vorstand and Aufsichtsrat resolutions required under HSAG's articles of association and applicable provisions of the Aktiengesetz, as well as the mechanics of the drawdown on the Rheinische Handelsbank AG revolving credit facility and the cross-border transfer of funds to the United States.

• Ashgrove Capital Group (Philippe Beaumont): As HSAG's financial advisor, Camberwell Equity Partners is coordinating on closing mechanics, including the preparation of the closing funds flow memorandum, the allocation of the purchase price among the selling stockholders, and the coordination of wire transfers on the closing date.

• Meridian National Bank, N.A. (Thomas Nyström, Senior Vice President): As administrative agent for the senior secured term loan facility, Meridian National Bank is coordinating on the mechanics for the funding of the $900 million term loan at closing, including the satisfaction of conditions precedent to funding under the Credit Agreement and the delivery of the borrowing request and related documentation.

• Ashford Gallagher & Co. (Patricia Noonan): As HSAG's insurance broker, Ashford Gallagher is confirming that the representations and warranties insurance policy issued by Graystone Specialty Insurance Company (Policy No. GSI-RW-2023-04821) — providing a limit of liability of $142 million and a retention of $14.2 million — is bound, in full force and effect, and will become effective as of the closing date. We will need to provide the insurer with copies of the CFIUS clearance letter and the executed NSA, as these may be required to satisfy conditions under the policy.

6. Remaining Calderwood & Harkness Engagement Matters

As a housekeeping matter, we wish to note that the CFIUS engagement undertaken by this firm on behalf of HSAG will formally close on January 30, 2024, following the completion of the closing deliverables described in this letter. Kenneth Morales is coordinating with the broader M&A transaction closing workstream, which is being led by Beatrice Holloway and James Prentice, to ensure that all CFIUS-related deliverables are integrated into the master closing checklist and closing binder.

Following the formal closure of the CFIUS engagement, Peggy Ashworth and David Caruso will remain available to assist with post-closing regulatory matters on an ongoing basis, including the DCSA notification, DDTC change-of-ownership filing and license amendments, FAR 42.12 novation proceedings, and ongoing NSA compliance advisory and monitoring. These post-closing services would be provided under separate engagement terms, which we will discuss with you at your convenience.

We also wish to confirm that the total fees incurred in connection with the CFIUS engagement remain within the $3.8 million fee cap agreed upon at the commencement of the engagement, exclusive of disbursements and third-party costs. A final invoice, together with a detailed engagement closing memorandum summarizing all work performed and deliverables produced in connection with the CFIUS engagement, will be transmitted to your attention within the coming weeks.

7. Closing Remarks

On behalf of the entire Calderwood & Harkness team, we wish to extend our sincere congratulations to Dr. Maximilian Ehrhardt, Katarina Brückner, you, and the entire HSAG team on the successful conclusion of the CFIUS review process. Obtaining CFIUS clearance for an acquisition of this magnitude and sensitivity — involving a foreign acquirer, classified programs, ITAR-controlled technology, and a substantial DoD contracts portfolio — is a significant achievement, and one that reflects the strength and credibility of HSAG's cooperative approach throughout the review process.

The outcome — clearance with a manageable and well-defined mitigation framework — is a testament to the thoughtful mitigation proposals that HSAG presented to the Committee, the transparency and responsiveness that the HSAG team demonstrated in responding to CFIUS's information requests and concerns, and the collaborative effort across multiple workstreams and jurisdictions that brought this process to a successful conclusion.

We remain fully at your disposal to discuss any questions you may have regarding the contents of this letter, the NSA compliance obligations, or the pre-closing action items described herein. We are also available to participate in a call with the HSAG Vorstand at any time that is convenient to discuss the path to closing and the post-closing integration workstreams.

We look forward to working with you through the closing and beyond.

With kind regards,

CALDERWOOD & HARKNESS LLP

By: ________

Beatrice Holloway Partner

By: ________

Margaret "Peggy" Ashworth Of Counsel

cc: (via electronic mail)

Dr. Maximilian Ehrhardt, Chief Executive Officer, Halcyon Semiconductor AG Katarina Brückner, Chief Financial Officer, Halcyon Semiconductor AG James Prentice, Partner, Calderwood & Harkness LLP Lt. Col. (Ret.) David Caruso, Senior Counsel, Calderwood & Harkness LLP Priya Venkataraman, Associate, Calderwood & Harkness LLP Kenneth Morales, Associate, Calderwood & Harkness LLP

Enclosures:

Enclosure 1: Copy of CFIUS Clearance Letter dated January 26, 2024 (Case No. CFIUS-023-07-3841)

Enclosure 2: Executed National Security Agreement dated January 19, 2024 (NSA Docket Reference: NSA-2024-0019) (previously transmitted; included for completeness)

Enclosure 3: Closing Conditions Checklist — CFIUS & Regulatory (updated as of January 26, 2024)

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ATTORNEY-CLIENT PRIVILEGED COMMUNICATION — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP
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www.calderwoodharkness.com
January 26, 2024
VIA ELECTRONIC MAIL AND SECURE FILE TRANSFER
Stefan Lohse, LL.M. General Counsel / Chefjustitiar Halcyon Semiconductor Aktiengesellschaft Industriestraße 44 01099 Dresden, Saxony Germany
Re: CFIUS Clearance — Acquisition of Marlowe Asset Management Photonics Inc. by Halcyon Semiconductor AG CFIUS Case No. CFIUS-023-07-3841 NSA Docket Reference: NSA-2024-0019
Dear Stefan:
1. Announcement of CFIUS Clearance
We are pleased to confirm that earlier today, January 26, 2024, we received the official clearance letter from the U.S. Department of the Treasury, acting in its capacity as Chair of the Committee on Foreign Investment in the United States ("CFIUS"). A copy of the clearance letter is enclosed with this correspondence as Enclosure 1 for your records and for distribution to the HSAG Vorstand as appropriate.
The clearance letter confirms that CFIUS has concluded its review and investigation of the proposed acquisition by Halcyon Semiconductor Aktiengesellschaft ("HSAG"), through its wholly owned subsidiary Halcyon US Holdings Inc. (EIN: 93-2841067), of 100% of the outstanding equity interests of Marlowe Asset Management Photonics Inc. ("VPI") (EIN: 26-4371885), a Delaware corporation headquartered in Albuquerque, New Mexico. Following a thorough assessment of the national security implications of the proposed transaction, CFIUS has determined that the transaction, as mitigated by the National Security Agreement executed on January 19, 2024 (NSA Docket Reference: NSA-2024-0019), does not present unresolved national security concerns and that no further action by the Committee is warranted at this time.
Importantly, the clearance constitutes a safe harbor under Section 721(b)(1)(D) of the Defense Production Act of 1950, as amended, codified at 50 U.S.C. § 4565(b)(1)(D). This means that the transaction, as described in the joint voluntary notice filed on July 14, 2023, is shielded from future CFIUS review, provided that there has been no material misstatement or material omission in the filing and provided further that HSAG and VPI remain in compliance with the terms and conditions of the executed National Security Agreement. In the event of a material breach of the NSA, CFIUS retains the authority to reopen its review or to take enforcement action as described in the penalty provisions of the NSA, which we address in greater detail below.
This clearance marks the successful conclusion of a CFIUS process that has spanned approximately seven and a half months. By way of summary, the key milestones of this process were as follows:
• June 12, 2023: Calderwood & Harkness LLP formally engaged by HSAG to represent the acquirer in connection with the CFIUS review of the proposed transaction.
• June 19, 2023: Pre-filing consultation meeting with CFIUS staff, including representatives from the Departments of Treasury, Defense, Commerce, Energy, and Homeland Security, as well as the Office of the Director of National intelligence. During this consultation, we provided an overview of HSAG's corporate structure, the strategic rationale for the acquisition, VPI's business operations and government contracts portfolio, and HSAG's preliminary mitigation proposals.
• July 14, 2023: Filing of the joint voluntary notice with CFIUS, prepared and submitted jointly on behalf of HSAG and VPI, with the cooperation of VPI's counsel, Wethersfield & Gale LLP.
• July 21, 2023: Commencement of the 45-day statutory review period following CFIUS's acceptance of the joint voluntary notice as complete.
• September 4, 2023: Conclusion of the initial 45-day review period and commencement of the 45-day statutory investigation period, reflecting the Committee's determination that additional time was needed to assess the national security implications of the transaction.
• October 20, 2023: Communication of CFIUS's preliminary national security concerns to the parties. As you will recall, these concerns centered principally on (i) the potential for unauthorized access to VPI's classified programs and ITAR-controlled technical data, (ii) cybersecurity vulnerabilities arising from the integration of VPI's IT infrastructure into HSAG's global network, and (iii) the continuity of key technical and security personnel at VPI following the change in ownership.
• November 3, 2023 – January 19, 2024: Intensive negotiation of the National Security Agreement with CFIUS's lead agencies (the Department of Defense and the Department of Commerce) and their designated outside counsel, culminating in the execution of the NSA on January 19, 2024.
• January 26, 2024: Receipt of the CFIUS clearance letter, confirming that the transaction, as mitigated by the NSA, does not present unresolved national security concerns.
We recognize that this has been a demanding process, and we wish to acknowledge the sustained commitment and responsiveness of the HSAG team throughout, which contributed materially to the successful outcome.
2. Summary of the National Security Agreement
For ease of reference, and as a reminder of the obligations that will activate immediately upon the closing of the transaction, we set forth below a summary of the principal terms and conditions of the executed National Security Agreement (NSA-2024-0019). A copy of the fully executed NSA, which was previously transmitted to you on January 19, 2024, is also enclosed as Enclosure 2 for completeness.
Board Composition. Pursuant to NSA §3.1, the board of directors of VPI will be reconstituted upon closing to consist of five (5) members. Three (3) of these directors will serve as "Security Board Members" and must be U.S. citizens who hold, or are eligible to hold, personnel security clearances at the TS/SCI level. The Security Board Members will include an independent Security Director who is not affiliated with either HSAG or VPI and who must be approved by CFIUS's lead monitoring agencies prior to appointment. The remaining two (2) directors will be HSAG designees; however, these HSAG designees may not hold or access any classified national security information, may not attend board sessions at which classified matters are discussed, and may not exercise any authority over VPI's classified programs or personnel security matters.
Government Security Committee. Pursuant to NSA §3.4, a Government Security Committee ("GSC") will be established, composed exclusively of the three (3) Security Board Members. The GSC will have exclusive authority and oversight responsibility over all classified and ITAR-controlled programs conducted by VPI, all personnel security matters (including the granting, denial, or revocation of access to classified information), and all facility security matters. The HSAG designees on the VPI board shall have no authority to override, direct, or interfere with any determination made by the GSC.
Facility Security Clearance. VPI currently holds a Facility Security Clearance ("FCL") at the SECRET level, issued under CAGE Code 7VK92. Pursuant to NSA §4.1, VPI will retain its existing FCL following the transaction, and the NSA will function as a Special Security Agreement ("SSA") equivalent for purposes of foreign ownership, control, or influence ("FOCI") mitigation under the National Industrial Security Program Operating Manual ("NISPOM," 32 C.F.R. Part 117). The Defense Counterintelligence and Security Agency ("DCSA") has been consulted throughout the NSA negotiation process and has indicated its concurrence with this approach, subject to the timely completion of the post-closing notifications described in Section 4.3 below.
Technology Control Plan. NSA Annex B sets forth a detailed Technology Control Plan ("TCP") that governs the handling, storage, access, and transfer of VPI technical data that is controlled under the International Traffic in Arms Regulations ("ITAR," 22 C.F.R. Parts 120–130) or the Export Administration Regulations ("EAR," 15 C.F.R. Parts 730–774). The TCP categorically prohibits the transfer of any such controlled technical data to any non-U.S. person — including HSAG employees, officers, and directors who are not U.S. persons — without prior authorization from the applicable U.S. government licensing authority (the Directorate of Defense Trade Controls ("DDTC") for ITAR-controlled items; the Bureau of Industry and Security ("BIS") for EAR-controlled items). The TCP further establishes physical and procedural controls for the segregation of controlled technical data within VPI's facilities, including badging and access-control protocols, clean-desk policies, and restrictions on the use of portable electronic devices in areas where controlled technical data is stored or processed.
Visitation and Access Restrictions. Pursuant to NSA §5.2, HSAG personnel — including directors, officers, employees, and agents of HSAG and its non-U.S. affiliates — may not access VPI's classified facilities, including specifically the fabrication clean room Sections C-7 through C-12 located at VPI's principal facility at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113, without the prior written approval of both DCSA and the GSC. Requests for such access must be submitted at least thirty (30) calendar days in advance, must identify the specific individuals seeking access and the purpose of the visit, and must be accompanied by a certification from the GSC that appropriate security measures will be in place during the visit.
Cybersecurity Requirements. NSA §6 imposes robust cybersecurity obligations on VPI following the closing of the transaction. VPI must maintain compliance with the National Institute of Standards and Technology ("NIST") Special Publication 800-171, Revision 2 (Protecting Controlled Unclassified Information in Nonfederal Systems and Organizations), or any successor publication. VPI must engage a qualified third-party cybersecurity firm to conduct annual penetration testing of VPI's IT systems, with the results reported to both the GSC and DCSA. In the event of any cybersecurity incident affecting VPI's systems — including any unauthorized access, data exfiltration, or malware intrusion — VPI must report the incident to DCSA within seventy-two (72) hours of detection. Critically, VPI's IT systems, including all servers, workstations, network infrastructure, email systems, and data storage, must be physically and logically separated from HSAG's global network. No shared cloud infrastructure, common authentication systems, or interconnected data repositories are permitted between VPI and HSAG or any HSAG affiliate.
Third-Party Compliance Monitor. Pursuant to NSA §8.1, CFIUS has designated Whitmore Compliance Group LLC as the independent third-party compliance monitor responsible for conducting annual audits of HSAG's and VPI's compliance with the terms and conditions of the NSA. The monitor will be led by Gerald Whitmore, Principal, and will operate from offices at 1300 Crystal Drive, Suite 710, Arlington, Virginia 22202. The annual compliance audit will encompass, among other things, a review of the TCP implementation, cybersecurity controls, board composition and GSC operations, access restrictions, and personnel continuity requirements. The compliance monitor will prepare a written report following each annual audit, which will be submitted to the CFIUS lead monitoring agencies and to HSAG's and VPI's respective counsel. The monitor fee is set at $1.2 million per annum, payable quarterly in installments of $300,000 per quarter by HSAG, with such fee subject to adjustment based on changes in the Consumer Price Index ("CPI") as published by the U.S. Bureau of Labor Statistics.
Personnel Continuity. NSA §9.1 identifies certain key VPI personnel who must remain employed by VPI for a minimum period of twenty-four (24) months following the closing of the transaction. The designated key personnel are: (i) Dr. Nathan Trevorrow, President and Chief Executive Officer of VPI; (ii) Marissa Sung-Avila, Vice President of Engineering and Chief Technology Officer of VPI; and (iii) Col. (Ret.) Bryce Hendrickson, Vice President of Security and Facility Security Officer of VPI. If any of these individuals departs VPI's employment during the 24-month period (whether voluntarily or involuntarily), HSAG must propose a replacement candidate, and such replacement must be approved by the GSC and by DCSA before the replacement may assume the relevant role. Failure to maintain the designated key personnel, or to obtain timely approval for replacements, constitutes a reportable event under the NSA and may trigger the penalty provisions described below.
Pre-Notification Obligations. Pursuant to NSA §10.1, HSAG must notify CFIUS at least thirty (30) calendar days before implementing any material change to VPI's business, organizational structure, or operations. Material changes triggering this pre-notification obligation include, without limitation, divestitures of any VPI business unit or product line, entry into new foreign subcontracts or teaming agreements, changes to cleared personnel or facility security arrangements, relocation of VPI's facilities, and any proposed amendment to VPI's articles of incorporation or bylaws that would affect the composition or authority of the VPI board or the GSC.
Penalty Provisions. NSA §12.3 provides that any violation of the terms and conditions of the NSA may result in the imposition of civil monetary penalties of up to $250,000 per violation per day for each day the violation continues. In addition to monetary penalties, the CFIUS lead monitoring agencies may seek injunctive relief in federal court to compel compliance, and in the most severe cases, CFIUS retains the authority to recommend to the President of the United States that HSAG be required to divest VPI. We emphasize these provisions not to cause alarm but to underscore the critical importance of strict and ongoing compliance with all NSA obligations from the moment of closing forward.
3. Target Closing Date and SPA Condition Satisfaction
With the CFIUS clearance letter now in hand, the final regulatory condition precedent set forth in Section 7.1(c) of the Stock Purchase Agreement dated June 5, 2023, as amended (the "SPA"), has been satisfied. As you are aware, Section 7.1(c) required, as a condition to each party's obligation to consummate the closing, the receipt of clearance from CFIUS, including any required mitigation measures, without the imposition of conditions that would constitute a "Burdensome Condition" as defined in SPA §1.1. Based on our review of the executed NSA and the CFIUS clearance letter, we are satisfied that the mitigation terms do not constitute a Burdensome Condition within the meaning of the SPA, and we understand that VPI's counsel at Wethersfield & Gale LLP shares this assessment. Accordingly, there is no impediment under the SPA to proceeding to closing.
We are actively coordinating with Wethersfield & Gale LLP — specifically, Harrison Whitfield, Sandra Niehaus, and their team — as counsel to VPI and the selling stockholders, to target a transaction closing date of February 9, 2024. This date provides adequate time to finalize all closing deliverables, execute the remaining ancillary agreements, and coordinate the funding mechanics. We will, of course, keep you apprised if any developments require an adjustment to this targeted date.
As a reminder, the aggregate purchase price for 100% of the outstanding equity of VPI is $1.42 billion, calculated on a cash-free, debt-free basis with a normalized net working capital target of $34.6 million, subject to the customary post-closing true-up adjustment mechanism set forth in SPA §2.4. The purchase price will be funded at closing from two principal sources:
(a) HSAG Equity Contribution: $520 million, sourced from a combination of HSAG's existing balance sheet cash and a draw of approximately €300 million on HSAG's revolving credit facility with Rheinische Handelsbank AG, Frankfurt am Main (Facility Agreement dated March 15, 2022, as amended). We understand that Schilling Frey Rechtsanwälte in Berlin is coordinating the German-law corporate authorizations necessary for the drawdown and the cross-border transfer of funds, and we will be in contact with Prof. Dr. Ulrich Schilling's team to confirm the timeline for the availability of these funds.
(b) Senior Secured Term Loan: $900 million, pursuant to the Credit Agreement dated June 8, 2023, among Halcyon US Holdings Inc. as Borrower, Meridian National Bank, N.A. as Administrative Agent, and the lenders party thereto, with Atlas Commercial Lending AG and Pacific Basin Credit Corp. serving as co-lead arrangers and joint bookrunners. The Credit Agreement was executed on June 8, 2023 as a commitment, and the term loan will fund at closing upon satisfaction of certain customary conditions to funding, including delivery of executed copies of the SPA, evidence of CFIUS clearance, and a solvency certificate. We are coordinating with Thomas Nyström, Senior Vice President at Meridian National Bank, to confirm that all conditions to funding will be satisfied in advance of the February 9, 2024 target closing date.
At closing, an escrow holdback of $71 million (representing 5% of the aggregate purchase price) will be deposited into an escrow account maintained by Pinnacle Trust Company, N.A. (escrow officer: Lisa Trujillo), in accordance with the terms of the Escrow Agreement executed concurrently with the SPA. The escrowed funds will be available to satisfy any post-closing purchase price adjustment obligations and any indemnification claims by HSAG under SPA Article IX, subject to the basket, cap, and time limitations set forth therein.
We are continuing to confirm that all financing arrangements are in order for the targeted closing date and will provide a further update once we have received written confirmation from Meridian National Bank that all conditions to term loan funding have been satisfied or waived.
4. Immediate Next Steps — Pre-Closing Actions
The following pre-closing and post-closing actions must be completed in connection with the CFIUS clearance and the anticipated closing of the transaction. We address each in turn.
4.1 Officer's Certificates
We are in the process of finalizing draft officer's certificates for execution by the appropriate officers of each party. Dr. Maximilian Ehrhardt, as Chief Executive Officer of HSAG and sole director of Halcyon US Holdings Inc., will execute an officer's certificate on behalf of the acquirer, certifying, among other things, the satisfaction of all CFIUS-related closing conditions, the execution and delivery of the NSA, the receipt of the CFIUS clearance letter, and the implementation of the compliance infrastructure required by the NSA. Separately, Dr. Nathan Trevorrow, as President and Chief Executive Officer of VPI, will execute a corresponding officer's certificate on behalf of the target company, certifying the same matters from VPI's perspective and confirming VPI's readiness to comply with the NSA obligations upon closing.
These certificates will specifically reference (i) the execution of the National Security Agreement on January 19, 2024, (ii) the receipt of the CFIUS clearance letter dated January 26, 2024, and (iii) the status of compliance infrastructure implementation, including IT system segregation, TCP readiness, and the designation of Security Board Members and GSC composition. We expect to circulate the substantially final drafts to you and to Wethersfield & Gale for review within the next three business days.
4.2 Board Resolutions
Two sets of board resolutions must be prepared and adopted in connection with the closing:
Halcyon US Holdings Inc. Board Resolution. A resolution of the sole director of Halcyon US Holdings Inc. authorizing (i) the consummation of the acquisition of 100% of VPI's outstanding equity pursuant to the SPA, (ii) the execution and delivery of the NSA and all ancillary agreements and instruments required thereunder, (iii) the engagement of Whitmore Compliance Group LLC as the third-party compliance monitor, including authorization of the quarterly fee payments, and (iv) the appointment of HSAG's two (2) designees to the reconstituted VPI board of directors. We will circulate a draft of this resolution for Dr. Ehrhardt's review within the next several days.
VPI Post-Closing Board Reconstitution Resolution. A resolution of the reconstituted VPI board of directors, to be effective immediately upon the closing of the transaction, reflecting the new five-member board composition. The resolution will identify the three Security Board Members — Col. (Ret.) Bryce Hendrickson, Adrienne Delacroix, and the independent Security Director (whose identity we understand has been provisionally approved by the CFIUS lead monitoring agencies, subject to final confirmation) — as well as the two HSAG designees. The resolution will also establish the Government Security Committee, formally adopt the Technology Control Plan (NSA Annex B), adopt the Cybersecurity Annex (NSA Annex C), and delegate to the GSC the authorities and responsibilities prescribed by the NSA. We are coordinating the drafting of this resolution with Wethersfield & Gale, who will ensure its consistency with VPI's governing documents and Delaware corporate law requirements.
4.3 DCSA Notification
A post-closing notification letter must be submitted promptly to the Defense Counterintelligence and Security Agency ("DCSA") following the closing of the transaction. This notification is a critical regulatory step, as DCSA serves as the cognizant security agency for VPI's Facility Security Clearance and is responsible for oversight of FOCI mitigation arrangements.
The notification letter will advise DCSA of the completed change in ownership of VPI (CAGE Code: 7VK92), confirm the maintenance of VPI's Facility Security Clearance at the SECRET level under the FOCI mitigation framework established by the NSA, identify Col. (Ret.) Bryce Hendrickson as the continuing Facility Security Officer, and provide DCSA with a copy of the executed NSA (NSA-2024-0019) and the CFIUS clearance letter. The letter will also identify the members of the reconstituted VPI board and the Government Security Committee.
Lt. Col. (Ret.) David Caruso and Priya Venkataraman of our firm are preparing this notification letter and coordinating with DCSA's Industrial Security Division to ensure that all required information is included and that the submission complies with DCSA's current procedural requirements. We expect to submit the DCSA notification within five (5) business days of the closing date.
4.4 DDTC Change-of-Ownership Filing
VPI is currently registered with the Directorate of Defense Trade Controls ("DDTC") of the U.S. Department of State under Registration No. M-24817. Under ITAR § 122.4(a), a registrant is required to notify DDTC of any change in the information previously provided in its Statement of Registration, including changes in ownership or control, within sixty (60) days of such change. Accordingly, VPI must file a change-of-ownership notification with DDTC following the closing of the transaction.
The filing will disclose HSAG's acquisition of 100% of VPI's outstanding equity interests, provide updated corporate structure information reflecting the Halcyon Semiconductor AG — Halcyon US Holdings Inc. — Marlowe Asset Management Photonics Inc. ownership chain, and identify the members of the reconstituted VPI board of directors. The filing must also address VPI's continuing eligibility to engage in the manufacture and export of defense articles and defense services.
In addition, VPI currently holds three (3) active DSP-5 export licenses issued by DDTC, which authorize the export of certain defense articles to end-users and consignees in the United Kingdom and Australia. These licenses will require amendment to reflect the new ownership structure. We will coordinate with VPI's export compliance personnel, including VPI's Empowered Official, and with Wethersfield & Gale to prepare and submit these license amendment requests promptly following closing. Delays in updating these licenses could affect VPI's ability to fulfill existing delivery obligations, and we will therefore prioritize this workstream accordingly.
4.5 Initiation of FAR 42.12 Novation Proceedings
VPI currently holds fourteen (14) active contracts with the U.S. Department of Defense, comprising both prime contracts and subcontracts, with an aggregate remaining backlog of approximately $193 million. These contracts represent a significant and strategically important revenue stream for VPI, and the continuity of these contractual relationships is essential to the ongoing viability of VPI's defense business.
Our analysis has identified eight (8) of these contracts that will require formal novation agreements under Federal Acquisition Regulation ("FAR") 42.12, which governs the recognition of successor entities following a change in ownership of a government contractor. The remaining six (6) contracts may be addressed through change-of-name agreements or informal notifications to the contracting officers, depending on the specific contractual and regulatory circumstances.
The key contracts requiring formal novation include:
(a) U.S. Army CERDEC GaN HEMT Module Contract (Contract No. W15QKN-21-C-0047): remaining backlog of approximately $52.3 million; contracting officer located at Aberdeen Proving Ground, Maryland.
(b) AFRL Next-Generation mmWave Power Amplifier Contract (Contract No. FA8650-22-C-1138): remaining backlog of approximately $41.7 million; contracting officer located at Wright-Patterson Air Force Base, Ohio.
(c) MDA GaN-Based T/R Module Contract (Contract No. HQ0147-22-C-0093): remaining backlog of approximately $38.9 million; contracting officer located at the Missile Defense Agency headquarters in Redstone Arsenal, Alabama.
(d) Subcontract to Ironclad Defense Systems Inc. under USN NAVSEA Prime (Subcontract No. IDS-SC-2021-0412, under Prime Contract No. N00024-20-C-5519): remaining backlog of approximately $34.1 million; novation of the subcontract will require the concurrence of both Ironclad Defense Systems Inc. and the NAVSEA contracting officer.
David Caruso will lead outreach to the contracting officers to initiate the novation process for each of these contracts. Based on our experience with similar proceedings, we anticipate that the novation process will take approximately three to six months to complete for each contract, although the timeline may vary depending on the responsiveness of the individual contracting officers and the complexity of each contract. During the pendency of the novation proceedings, VPI will continue to perform under its existing contracts, and we do not anticipate any disruption to ongoing contract performance.
In addition, DFARS 252.209-7002 (Disclosure of Ownership or Control by a Foreign Government) requires VPI to submit disclosures to each contracting officer regarding HSAG's foreign ownership of VPI. Although HSAG is not owned or controlled by a foreign government, the disclosure obligation applies to all contractors that are owned or controlled by a foreign entity, and the required disclosures must be submitted in connection with the change-of-ownership notification. David Caruso and Priya Venkataraman will prepare these disclosures for submission in coordination with the novation filings.
4.6 NSA Compliance Infrastructure Activation
We are separately providing to HSAG management a comprehensive NSA Summary & Compliance Obligations Memorandum, which details in full the obligations arising under the NSA and the recommended compliance infrastructure, policies, and procedures to be implemented by HSAG and VPI. That memorandum should be treated as the authoritative reference document for NSA compliance and should be distributed to all relevant HSAG and VPI personnel with responsibility for compliance functions.
For purposes of this letter, we wish to highlight the following critical near-term deadlines and compliance milestones that must be met in the period immediately following closing:
(i) First Quarterly Monitor Fee Payment: The first quarterly payment of $300,000 to Whitmore Compliance Group LLC is due on April 19, 2024 (ninety (90) days following the execution of the NSA on January 19, 2024). HSAG should ensure that the appropriate accounts payable processes are established to facilitate timely payment. Subsequent quarterly payments will be due on July 19, October 19, and January 19 of each year.
(ii) First Annual Compliance Audit: The first annual compliance audit by Whitmore Compliance Group LLC must be completed by January 19, 2025 (one year from the date of NSA execution). We recommend engaging with Whitmore Compliance Group no later than the third quarter of 2024 to establish the audit scope, schedule, and information request protocols.
(iii) VPI IT System Segregation: The physical and logical separation of VPI's IT systems from HSAG's global network must be confirmed and documented at the time of closing. No VPI systems may be connected to, or share infrastructure with, any HSAG system as of the closing date. We understand that VPI's Chief Information Officer, in coordination with HSAG's IT department, has been working on the segregation architecture, and we will need a written certification confirming completion at or prior to closing.
(iv) TCP Implementation and Employee Training: The Technology Control Plan (NSA Annex B) must be fully implemented, and all relevant VPI employees must complete TCP training, within thirty (30) calendar days of the closing date. This includes the deployment of physical access controls, the updating of badging and visitor protocols, and the distribution and acknowledgment of the TCP by all personnel with access to controlled technical data.
(v) 72-Hour Cybersecurity Incident Reporting: The obligation to report cybersecurity incidents to DCSA within seventy-two (72) hours of detection becomes effective immediately upon closing. VPI's cybersecurity team must have the necessary incident detection, assessment, and reporting procedures in place as of the closing date. Any delay in implementing these procedures could expose HSAG and VPI to significant liability under the NSA's penalty provisions.
We cannot overemphasize the importance of ensuring that these compliance milestones are met on time. The CFIUS lead monitoring agencies and the third-party compliance monitor will be closely scrutinizing HSAG's and VPI's compliance efforts in the initial post-closing period, and any early failures or deficiencies — even if inadvertent — could create significant reputational and legal risk.
5. Coordination with Other Counsel and Advisors
To ensure a seamless closing process, we are actively coordinating with the following counsel and advisors:
• Wethersfield & Gale LLP (Harrison Whitfield, Sandra Niehaus, and Tobias Kwan): As counsel to VPI and the selling stockholders, Wethersfield & Gale is coordinating on all seller-side closing deliverables, including the VPI officer's certificate, the VPI post-closing board reconstitution resolution, third-party consents, and estoppel certificates. We are in regular communication with their team and have established a shared closing checklist to track the status of all deliverables.
• Schilling Frey Rechtsanwälte (Prof. Dr. Ulrich Schilling, Berlin): As HSAG's German counsel, Schilling Frey is coordinating on any German-law corporate actions required for HSAG to authorize and fund the equity contribution, including any Vorstand and Aufsichtsrat resolutions required under HSAG's articles of association and applicable provisions of the Aktiengesetz, as well as the mechanics of the drawdown on the Rheinische Handelsbank AG revolving credit facility and the cross-border transfer of funds to the United States.
• Ashgrove Capital Group (Philippe Beaumont): As HSAG's financial advisor, Camberwell Equity Partners is coordinating on closing mechanics, including the preparation of the closing funds flow memorandum, the allocation of the purchase price among the selling stockholders, and the coordination of wire transfers on the closing date.
• Meridian National Bank, N.A. (Thomas Nyström, Senior Vice President): As administrative agent for the senior secured term loan facility, Meridian National Bank is coordinating on the mechanics for the funding of the $900 million term loan at closing, including the satisfaction of conditions precedent to funding under the Credit Agreement and the delivery of the borrowing request and related documentation.
• Ashford Gallagher & Co. (Patricia Noonan): As HSAG's insurance broker, Ashford Gallagher is confirming that the representations and warranties insurance policy issued by Graystone Specialty Insurance Company (Policy No. GSI-RW-2023-04821) — providing a limit of liability of $142 million and a retention of $14.2 million — is bound, in full force and effect, and will become effective as of the closing date. We will need to provide the insurer with copies of the CFIUS clearance letter and the executed NSA, as these may be required to satisfy conditions under the policy.
6. Remaining Calderwood & Harkness Engagement Matters
As a housekeeping matter, we wish to note that the CFIUS engagement undertaken by this firm on behalf of HSAG will formally close on January 30, 2024, following the completion of the closing deliverables described in this letter. Kenneth Morales is coordinating with the broader M&A transaction closing workstream, which is being led by Beatrice Holloway and James Prentice, to ensure that all CFIUS-related deliverables are integrated into the master closing checklist and closing binder.
Following the formal closure of the CFIUS engagement, Peggy Ashworth and David Caruso will remain available to assist with post-closing regulatory matters on an ongoing basis, including the DCSA notification, DDTC change-of-ownership filing and license amendments, FAR 42.12 novation proceedings, and ongoing NSA compliance advisory and monitoring. These post-closing services would be provided under separate engagement terms, which we will discuss with you at your convenience.
We also wish to confirm that the total fees incurred in connection with the CFIUS engagement remain within the $3.8 million fee cap agreed upon at the commencement of the engagement, exclusive of disbursements and third-party costs. A final invoice, together with a detailed engagement closing memorandum summarizing all work performed and deliverables produced in connection with the CFIUS engagement, will be transmitted to your attention within the coming weeks.
7. Closing Remarks
On behalf of the entire Calderwood & Harkness team, we wish to extend our sincere congratulations to Dr. Maximilian Ehrhardt, Katarina Brückner, you, and the entire HSAG team on the successful conclusion of the CFIUS review process. Obtaining CFIUS clearance for an acquisition of this magnitude and sensitivity — involving a foreign acquirer, classified programs, ITAR-controlled technology, and a substantial DoD contracts portfolio — is a significant achievement, and one that reflects the strength and credibility of HSAG's cooperative approach throughout the review process.
The outcome — clearance with a manageable and well-defined mitigation framework — is a testament to the thoughtful mitigation proposals that HSAG presented to the Committee, the transparency and responsiveness that the HSAG team demonstrated in responding to CFIUS's information requests and concerns, and the collaborative effort across multiple workstreams and jurisdictions that brought this process to a successful conclusion.
We remain fully at your disposal to discuss any questions you may have regarding the contents of this letter, the NSA compliance obligations, or the pre-closing action items described herein. We are also available to participate in a call with the HSAG Vorstand at any time that is convenient to discuss the path to closing and the post-closing integration workstreams.
We look forward to working with you through the closing and beyond.
With kind regards,
CALDERWOOD & HARKNESS LLP
By: ________
Beatrice Holloway Partner
By: ________
Margaret "Peggy" Ashworth Of Counsel
cc: (via electronic mail)
Dr. Maximilian Ehrhardt, Chief Executive Officer, Halcyon Semiconductor AG Katarina Brückner, Chief Financial Officer, Halcyon Semiconductor AG James Prentice, Partner, Calderwood & Harkness LLP Lt. Col. (Ret.) David Caruso, Senior Counsel, Calderwood & Harkness LLP Priya Venkataraman, Associate, Calderwood & Harkness LLP Kenneth Morales, Associate, Calderwood & Harkness LLP
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Enclosure 1: Copy of CFIUS Clearance Letter dated January 26, 2024 (Case No. CFIUS-023-07-3841)
Enclosure 2: Executed National Security Agreement dated January 19, 2024 (NSA Docket Reference: NSA-2024-0019) (previously transmitted; included for completeness)
Enclosure 3: Closing Conditions Checklist — CFIUS & Regulatory (updated as of January 26, 2024)
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