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MEMORANDUM

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

TO: Beatrice Holloway, Responsible Partner Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS Practice

FROM: Lt. Col. (Ret.) David Caruso, Senior Counsel, Government Contracts & Export Controls Priya Venkataraman, Associate, International Trade & Sanctions

DATE: September 8, 2023

RE: Impact of Change in Ownership of Marlowe Asset Management Photonics Inc. on Active DSP-5 Export Licenses — Amendment Requirements and Interim Compliance Measures

MATTER: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. — CFIUS Filing & Mitigation

CFIUS Case No.: CFIUS-023-07-3841

I. Executive Summary

Calderwood & Harkness LLP has been engaged by Halcyon Semiconductor Aktiengesellschaft ("HSAG") in connection with HSAG's proposed acquisition of 100% of the outstanding equity of Marlowe Asset Management Photonics Inc. ("VPI") for $1.42 billion through its wholly-owned Delaware subsidiary, Halcyon US Holdings Inc. ("Halcyon US Holdings"). This memorandum addresses a discrete but critical regulatory issue arising from the transaction: the impact of the anticipated change of ownership of VPI on VPI's active export licenses issued by the U.S. Department of State, Directorate of Defense Trade Controls ("DDTC").

VPI currently holds three (3) active DSP-5 (Permanent Export License) authorizations issued by DDTC, permitting the export of defense articles and technical data controlled under Category XI(a)(3) of the United States Munitions List ("USML") to NATO allies and security partners in the United Kingdom and Australia. These licenses support ongoing defense programs involving the supply of advanced gallium nitride ("GaN") power amplifier technology to the UK Ministry of Defence and the Australian Department of Defence.

This memorandum analyzes the impact of the change in ownership of VPI — from its current U.S. shareholders, including Dr. Nathan Trevorrow (Co-Founder, Chairman, and Chief Technology Officer), Marissa Sung-Avila (Co-Founder and Chief Executive Officer), Ridgecrest Ventures Fund III, L.P., Cascadian Capital Partners Growth Fund II, L.P., and various other U.S.-person equity holders — to HSAG, a German publicly-traded Aktiengesellschaft listed on the Frankfurt Stock Exchange (XETRA: HLC), on these three active DSP-5 licenses.

Conclusion: All three DSP-5 licenses require amendment to reflect the change in ownership. The licenses do not automatically terminate upon the change of ownership, but failure to amend them renders continued exports under those licenses noncompliant with the International Traffic in Arms Regulations ("ITAR"), 22 C.F.R. Parts 120–130. VPI should cease exports under the existing licenses upon the closing of the acquisition until amendments are approved by DDTC or new licenses are obtained, unless interim compliance measures described in Section VI of this memorandum are implemented. The risk of disruption to VPI's export activities can be managed effectively through proactive amendment filings, pre-submission consultation with DDTC, and careful coordination with the ongoing CFIUS review and the anticipated National Security Agreement ("NSA").

This analysis should be read in conjunction with the separate memorandum prepared by this team entitled DDTC Registration Transfer Analysis: Impact of HSAG Acquisition on VPI's ITAR Registration (Registration No. M-24817) under ITAR § 122.4(a), dated August 25, 2023, which addresses the registration notification requirements arising from the same transaction. The two analyses are closely related but address distinct regulatory obligations.

II. Background

A. The Transaction

HSAG, a German Aktiengesellschaft with its principal offices at Industriestraße 44, 01099 Dresden, Saxony, Germany (XETRA: HLC; market capitalization approximately €14.8 billion as of June 1, 2023; fiscal year 2022 revenue of €6.12 billion), is acquiring 100% of the outstanding equity interests of VPI. HSAG is a leading European semiconductor company specializing in compound semiconductor materials, power electronics, and photonic components, with operations in 14 countries and approximately 22,000 employees worldwide. HSAG is subject to German corporate governance requirements and is registered with the German Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, "BAFA") for purposes of German and EU export control compliance.

The Stock Purchase Agreement (the "SPA") was executed on June 10, 2023. The purchase price is $1.42 billion, payable in all-cash on a cash-free, debt-free basis with a net working capital target of $34.6 million. The SPA also provides for a potential earnout of up to $85 million, contingent upon VPI's achievement of certain revenue and EBITDA milestones during the 24-month period following closing. The earnout structure was designed in part to incentivize the retention of VPI's key technical personnel during the post-closing integration period.

The acquisition is being effected through Halcyon US Holdings Inc., a Delaware C-corporation formed on June 5, 2023 (EIN: 93-2841067; registered agent: National Registered Agents of Delaware, 160 Greentree Drive, Suite 101, Dover, DE 19904). Halcyon US Holdings was incorporated for the sole purpose of serving as the U.S. acquisition vehicle for this transaction and currently has no employees, operations, or assets other than nominal capitalization. Post-closing, VPI will become a wholly-owned subsidiary of Halcyon US Holdings, which is in turn a wholly-owned subsidiary of HSAG. As a result, VPI will be a wholly-owned indirect subsidiary of HSAG, and HSAG — a foreign person under the ITAR — will be VPI's ultimate parent company and beneficial owner.

A CFIUS voluntary joint notice was filed on July 14, 2023, pursuant to 31 C.F.R. Part 800, by both HSAG and VPI. The CFIUS review period commenced on July 21, 2023. The transaction has been referred to a full 45-day investigation, which is ongoing as of the date of this memorandum. Based on our discussions with CFIUS staff counsel, we anticipate that CFIUS will require a mitigation agreement in the form of a National Security Agreement as a condition of clearance.

B. Marlowe Asset Management Photonics Inc. — Relevant ITAR Profile

VPI is a Delaware corporation, incorporated on February 14, 2009 (EIN: 26-4371885; DUNS: 07-812-4493), with its principal offices located at 7400 Ridgeline Parkway, Colorado Springs, Colorado 80919. VPI also operates a state-of-the-art semiconductor fabrication facility at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113 (the "Albuquerque Fab"), which was commissioned in 2016 and expanded in 2020. VPI designs and manufactures advanced gallium nitride ("GaN") power amplifier chips and related semiconductor devices used primarily in defense radar systems, satellite communications terminals, electronic warfare platforms, and, increasingly, civilian 5G telecommunications infrastructure.

VPI has been registered with DDTC as a manufacturer and exporter of defense articles since 2011, holding DDTC Registration No. M-24817. VPI's registration was most recently renewed in April 2023, covering the current registration period through April 2025. VPI's products include defense articles controlled under ITAR Category XI(a)(3) of the USML — specifically, defense electronics including GaN high-electron-mobility transistor ("HEMT") power amplifiers designed for military radar and communications systems. In addition to ITAR-controlled items, VPI also manufactures and exports dual-use items subject to the Export Administration Regulations ("EAR"), classified under Export Control Classification Numbers ("ECCNs") 3A001 (certain microwave and millimeter-wave components), 3A991 (less-sensitive electronic components), and 3E001 (technology for the development or production of items controlled under 3A001).

VPI holds a Facility Security Clearance ("FCL") at the SECRET level, assigned CAGE Code 7VK92, under the National Industrial Security Program ("NISP"). The FCL covers both the Colorado Springs headquarters and the Albuquerque Fab. Of VPI's approximately 486 employees, 212 currently hold active personnel security clearances at the SECRET level or above, reflecting the company's deep involvement in classified defense programs. Colonel (Retired) Bryce Hendrickson, USAF, serves as VPI's Vice President for Government Programs and Facility Security Officer ("FSO"). Col. Hendrickson holds an active TS/SCI clearance and has been with VPI since 2014. He also serves as VPI's empowered official for ITAR purposes and is the primary point of contact with DDTC, the Defense Counterintelligence and Security Agency ("DCSA"), and relevant DoD program offices.

VPI currently holds 14 active contracts with the U.S. Department of Defense, with an aggregate backlog of approximately $193 million. These contracts span multiple military services and agencies, including the U.S. Navy (Naval Sea Systems Command), the U.S. Air Force Research Laboratory ("AFRL"), the Missile Defense Agency, and the Defense Advanced Research Projects Agency ("DARPA"). Several of these contracts involve the development and production of GaN-based components that are the same or similar to the items exported under VPI's DSP-5 licenses.

C. VPI's Active DSP-5 Licenses

VPI currently holds three (3) active DSP-5 permanent export licenses, all authorizing the export of defense articles or technical data controlled under ITAR Category XI(a)(3) of the USML. These licenses are summarized below and described in detail in Appendix A.

License 1 (DDTC License No. 05-2019-M-48732): This license authorizes the permanent export of GaN HEMT power amplifier modules (VPI Part Nos. PA-4200X and PA-4201X) to Merrifield Defence Electronics Ltd. ("Merrifield"), a UK-incorporated defense electronics contractor located in Cheltenham, Gloucestershire, United Kingdom, for integration into ground-based multi-function radar systems. The designated end-user is the UK Ministry of Defence ("UK MoD"), and the items are being integrated into the UK's Next Generation Ground-Based Air Defence Radar ("NGBAD") program. The authorized value under the license is $38.5 million. The license was issued on September 12, 2019, and expires on September 11, 2023. A renewal application was submitted on July 28, 2023, and is currently pending with DDTC.

License 2 (DDTC License No. 05-2021-M-51204): This license authorizes the permanent export of GaN-based transmit/receive ("T/R") module subassemblies (VPI Part Nos. TR-7100 and TR-7101) to Austral Sovereign Defence Pty Ltd. ("Austral"), an Australian defense prime contractor headquartered in Canberra, Australian Capital Territory, for integration into military satellite communications terminals. The designated end-user is the Australian Department of Defence, and the items support the JP 9102 Satellite Communications Modernization Program. The authorized value under the license is $22.8 million. The license was issued on March 5, 2021, and expires on March 4, 2025.

License 3 (DDTC License No. 05-2022-M-53891): This license authorizes the permanent export of ITAR-controlled technical data — specifically, engineering drawings, electrical performance test data, environmental qualification reports, and system integration specifications — to Merrifield Defence Electronics Ltd. and to Pemberton Holdings (London, United Kingdom), in support of the UK-led Joint Radar Modernization Programme ("JRMP"), a collaborative defense program between the UK MoD and select allied partners. The designated end-user is the UK Ministry of Defence. The authorized value under the license is $4.2 million (reflecting the assessed value of the technical data package). The license was issued on January 18, 2022, and expires on January 17, 2026.

All three licenses are currently in good standing with DDTC. VPI has been making regular exports under Licenses 1 and 2 during calendar year 2023, with the most recent hardware shipment under License 1 occurring on August 3, 2023, and the most recent shipment under License 2 occurring on July 19, 2023. Technical data transmissions under License 3 have occurred on an ongoing basis, most recently on August 22, 2023, when VPI transmitted updated integration specifications to Merrifield via DDTC-approved secure electronic transmission.

Critically, all three licenses were applied for and issued based on VPI's representations regarding its ownership structure at the time of application — namely, that VPI was owned and controlled exclusively by U.S. persons. The license applications identified VPI's shareholders, directors, and officers, all of whom were U.S. citizens or U.S. permanent residents. The proposed transaction will fundamentally alter this ownership profile.

III. Legal Framework — ITAR Licensing and Change of Ownership

A. ITAR DSP-5 Licensing Authority

The Arms Export Control Act ("AECA"), 22 U.S.C. § 2778, authorizes the President to control the export of defense articles and defense services enumerated on the United States Munitions List. The President has delegated this authority to the Secretary of State, who exercises it through the Directorate of Defense Trade Controls within the Bureau of Political-Military Affairs. DDTC implements this authority through the International Traffic in Arms Regulations, codified at 22 C.F.R. Parts 120–130.

Under the ITAR, any person who intends to permanently export a defense article listed on the USML must obtain a license from DDTC, unless an exemption applies. The standard license for permanent export of defense articles is the DSP-5, which is submitted to DDTC via the agency's electronic D-Trade licensing system. A DSP-5 license application requires detailed information about the applicant (the U.S. exporter), the defense articles to be exported (including USML category, quantity, and value), the foreign consignee, the end-user, the end-use, and various certifications and assurances regarding the disposition of the items.

DSP-5 licenses are granted to specific applicants and are nontransferable. This principle is codified at 22 C.F.R. § 123.9, which provides that "[a] license for the permanent export of a defense article is not transferable without the prior written approval of the Directorate of Defense Trade Controls." The nontransferability of ITAR licenses reflects the fundamental principle that DDTC's licensing decisions are made based on the specific facts presented in the application, including — critically — the identity, ownership, corporate structure, and control of the applicant. When those facts change materially, the factual predicate upon which the license was issued no longer exists, and the license can no longer be relied upon for future exports absent DDTC's affirmative approval of the changed circumstances.

It bears emphasis that DSP-5 licenses have a statutory maximum validity period of four (4) years from the date of issuance, pursuant to 22 C.F.R. § 123.18(a). Licenses may be renewed upon application, and any pending renewal application (such as VPI's pending renewal of License 1) would also need to reflect the changed ownership circumstances.

B. Effect of Change in Ownership on Existing DSP-5 Licenses

The ITAR does not contain an express provision stating that a DSP-5 license is automatically revoked or terminated upon a change in the applicant's ownership. This silence has occasionally caused confusion among regulated entities, some of whom have mistakenly assumed that existing licenses remain valid following a corporate transaction. That assumption is incorrect as a practical matter, for the reasons discussed below.

First, ITAR § 122.4(a) imposes an affirmative obligation on any ITAR-registered entity to notify DDTC at least 60 days in advance of "any intended sale or transfer to a foreign person of ownership or control of the registrant or any entity thereof." This notification requirement serves as a gatekeeper, ensuring that DDTC has the opportunity to assess the implications of a change in ownership before the transaction closes. When DDTC receives such a notification, it will review the registrant's existing licenses and other authorizations to determine whether they remain appropriate in light of the new ownership structure.

Second, 22 C.F.R. § 123.22 addresses amendments to licenses. Under this provision, a licensee is obligated to request an amendment to an existing DSP-5 license when there are "material changes" to the facts stated in the original application. DDTC has consistently interpreted a change in the applicant's corporate ownership or control — and particularly a change resulting in foreign ownership, control, or influence ("FOCI") — as a material change requiring license amendment. This interpretation is reflected in DDTC's publicly available guidance, including the DDTC Guidelines for Preparing Agreements and the DDTC Licensing FAQ, as well as in DDTC's informal guidance provided to exporters and their counsel during pre-submission consultations.

Third, DDTC policy and long-standing practice treat a change from U.S. ownership to foreign ownership as among the most significant material changes that can occur with respect to a licensee. The reason is straightforward: DDTC's licensing decisions weigh the identity and nationality of the applicant as a key factor in the risk assessment. A company owned and controlled by U.S. persons presents a fundamentally different risk profile than the same company owned by a foreign person, even if the foreign parent is located in a friendly, allied nation. The introduction of foreign ownership creates additional vectors for potential diversion, unauthorized retransfer, or deemed export of controlled technology — risks that DDTC must assess and, if appropriate, mitigate through additional license conditions.

The practical consequence is clear: while existing DSP-5 licenses do not automatically lapse upon a change of ownership, they become legally unreliable for purposes of new exports. An exporter that continues to make exports under an unamended license following a material change in ownership does so at significant legal risk. DDTC may view such exports as unauthorized, and the exporter could be subject to enforcement action.

Failure to amend or obtain a new license before continuing exports following a change of ownership could constitute a violation of ITAR, potentially subjecting VPI and its responsible officers to both civil and criminal penalties. Civil penalties under 22 C.F.R. § 127.10 may be assessed at up to $1,213,423 per violation (as adjusted for inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015). Criminal penalties under 22 U.S.C. § 2778(c) include fines of up to $1,000,000 and imprisonment for up to 20 years per violation. In addition, ITAR violations can result in debarment from future export privileges under 22 C.F.R. § 127.7, which would be catastrophic for VPI's defense business.

Beyond the direct enforcement consequences, unauthorized exports under unamended licenses could have severe collateral consequences in the CFIUS context. CFIUS monitors the compliance behavior of transaction parties during the pendency of a review, and evidence of export control noncompliance could undermine CFIUS's confidence in the parties' willingness and ability to comply with the terms of any mitigation agreement. This, in turn, could delay or jeopardize CFIUS clearance.

C. Interaction with DDTC Registration Requirements

As addressed in detail in the companion DDTC Registration Transfer Analysis memorandum, VPI must file a change-of-ownership notification with DDTC under ITAR § 122.4(a) at least 60 days before the anticipated closing date of the acquisition. This notification is a prerequisite to DDTC's assessment of VPI's continuing eligibility for ITAR registration following the transaction.

The DSP-5 amendment process is separate from but closely related to the § 122.4(a) registration notification. Both processes arise from the same triggering event — the change in VPI's ownership — and both will be reviewed by the same office within DDTC. As a practical matter, DDTC will likely evaluate the registration notification and the license amendment requests concurrently, and the outcome of the registration review will inform the license amendment review and vice versa. For this reason, we recommend that the amendment requests be filed concurrently with or shortly after the § 122.4(a) notification to ensure that DDTC has a complete picture of VPI's regulatory posture.

Additionally, DDTC may coordinate its review with other U.S. government agencies, including CFIUS itself (through the Department of State's representative on the CFIUS committee) and DCSA (which oversees VPI's Facility Security Clearance). The inter-agency coordination reflects the U.S. government's increasingly integrated approach to foreign investment review and export control enforcement, particularly in cases involving critical defense technologies such as advanced GaN semiconductor devices.

IV. Analysis — Impact on Each DSP-5 License

A. License 1 — GaN HEMT Power Amplifier Modules to United Kingdom (DDTC License No. 05-2019-M-48732)

Current Status: License 1 is active, with a renewal application pending before DDTC. VPI has been making regular exports under this license throughout 2023, with the most recent shipment on August 3, 2023. The license is currently within its four-year validity period but is approaching its expiration date of September 11, 2023; hence the pending renewal application.

Impact of Change of Ownership: The change in VPI's ultimate beneficial ownership from U.S. persons (Dr. Trevorrow, Ms. Sung-Avila, Ridgecrest Ventures Fund III, L.P., Cascadian Capital Partners Growth Fund II, L.P., and other U.S.-person shareholders) to HSAG (a German Aktiengesellschaft) constitutes a material change to the facts stated in the license application within the meaning of 22 C.F.R. § 123.22. The original license application identified VPI as a U.S.-owned and U.S.-controlled company, and DDTC's decision to issue the license was predicated in part on that ownership profile. Following the acquisition, VPI will be ultimately owned by a foreign person, fundamentally altering the factual predicate of the license.

Accordingly, License 1 must be amended — or, given the pending renewal, the renewal application must be updated — to reflect HSAG's ownership of VPI through Halcyon US Holdings Inc. If the renewal is approved before closing, the renewed license will still need to be amended post-closing. Alternatively, the renewal application currently pending could be withdrawn and resubmitted with the updated ownership information, though this approach risks further delay.

Additional Considerations: The United Kingdom is a NATO ally and is listed among the countries for which certain ITAR exemptions and favorable treatment provisions apply under 22 C.F.R. § 126.1(a). The UK is also party to the U.S.-UK Defense Trade Cooperation Treaty (entered into force April 13, 2012), which establishes an approved community of entities authorized to receive certain defense articles without individual export licenses. However, neither the § 126.1(a) favorable treatment designation nor the Defense Trade Cooperation Treaty eliminates the requirement to amend an existing DSP-5 license upon a material change in the applicant's ownership. These provisions relate to the eligibility of the destination country and the scope of available exemptions, not to the identity or ownership of the U.S. exporter.

A mitigating factor is that the end-user (UK Ministry of Defence) and the foreign consignee (Merrifield Defence Electronics Ltd.) will remain unchanged following the acquisition. DDTC's review of the amendment request is therefore simplified in certain respects: the downstream recipients, the defense articles, the end-use, and the program context all remain as previously approved. The only material change is VPI's ownership — and the fact that the new owner is a German company (Germany being a close NATO ally with a robust export control regime of its own) is a further mitigating factor.

Risk Assessment: Moderate. UK destinations generally receive favorable DDTC review. The German parentage of VPI (HSAG being headquartered in a NATO-ally nation with strong export control and nonproliferation credentials) is a mitigating factor. However, the introduction of foreign ownership — regardless of the foreign owner's nationality — triggers heightened DDTC scrutiny and requires DDTC's affirmative approval. There is no assurance that DDTC will approve the amendment on the same terms as the original license.

B. License 2 — GaN T/R Module Subassemblies to Australia (DDTC License No. 05-2021-M-51204)

Current Status: License 2 is active and not approaching expiration (expiration date: March 4, 2025). VPI has been making regular exports under this license during 2023, with the most recent shipment on July 19, 2023. The license remains well within its validity period and has substantial remaining authorized value.

Impact of Change of Ownership: The analysis is the same as for License 1. The change from U.S. to foreign ownership constitutes a material change to the facts stated in the license application, requiring amendment under 22 C.F.R. § 123.22. The original application identified VPI as U.S.-owned, and the license must be amended to reflect the new ownership structure.

Additional Considerations: Australia occupies a uniquely favorable position in the U.S. defense trade and export control framework. Australia is a Five Eyes intelligence-sharing partner, a member of the AUKUS trilateral security partnership (alongside the United States and the United Kingdom), and is listed under 22 C.F.R. § 126.1(a) among the countries receiving the most favorable treatment under ITAR. The AUKUS partnership, in particular, has generated significant momentum toward streamlining defense trade between the United States, the United Kingdom, and Australia, including potential new ITAR exemptions and licensing arrangements currently under development by the State Department.

Nevertheless, as with the UK analysis above, the favorable treatment of Australia as a destination country does not affect the requirement to amend the license upon a change in the U.S. exporter's ownership. The amendment requirement derives from the change in the applicant's circumstances, not from any issue with the destination or end-user.

The DSP-5 license authorizing hardware exports to Australia may also require coordination with Australia's Defence Trade Controls Act 2012 (Cth) and associated regulations, which constitute Australia's equivalent of the ITAR and govern the import of controlled defense goods into Australia. VPI should coordinate with Austral Sovereign Defence Pty Ltd. to ensure that any changes to the U.S. export authorization are communicated to the relevant Australian authorities, including the Australian Defence Export Controls Office within the Department of Defence. Additionally, the bilateral defense trade cooperation arrangements between the United States and Australia, including the Australia-U.S. Defense Trade Cooperation Treaty, may offer streamlined procedures for certain categories of defense trade that could be relevant if the DSP-5 amendment encounters delays.

The end-user (Australian Department of Defence) and the foreign consignee (Austral Sovereign Defence Pty Ltd.) will remain unchanged following the acquisition, which — as with License 1 — should facilitate DDTC's review of the amendment request.

Risk Assessment: Moderate — the analysis is similar to License 1. Australia's status as a Five Eyes and AUKUS partner, combined with the unchanged end-user and the German parent's NATO-ally status, are favorable factors. However, the amendment still requires DDTC's affirmative approval, and processing timelines are uncertain.

C. License 3 — Technical Data to United Kingdom (DDTC License No. 05-2022-M-53891)

Current Status: License 3 is active, with an expiration date of January 17, 2026. Technical data transmissions under this license have been ongoing, most recently on August 22, 2023.

Impact of Change of Ownership: As with Licenses 1 and 2, the material change in VPI's ownership requires amendment of this license. However, License 3 presents additional and more complex considerations because it authorizes the export of technical data rather than hardware.

Technical data exports are subject to heightened scrutiny under ITAR for several interrelated reasons. First, technical data — unlike hardware — can be replicated and retransmitted instantaneously and at virtually no cost, making unauthorized diversion or retransfer more difficult to detect and prevent. Second, the introduction of a foreign owner (HSAG) into VPI's corporate structure creates additional deemed-export concerns under 22 C.F.R. § 120.17: if HSAG personnel (who are foreign nationals) gain access to ITAR-controlled technical data held by VPI, such access would constitute a deemed export requiring separate DDTC authorization, even if the access occurs within the United States. Third, the technical data authorized under License 3 — including engineering drawings, electrical performance test data, environmental qualification reports, and system integration specifications — represents some of VPI's most sensitive intellectual property and, if diverted, could provide significant insight into the design and performance characteristics of defense systems employed by the UK MoD.

Additional Considerations: DDTC may impose additional conditions on the amended License 3 that go beyond the conditions attached to the original license. Such conditions could include, for example:

(a) A requirement that technical data exported under the license not be further shared with HSAG personnel, directors, or affiliates without separate DDTC authorization, regardless of whether such sharing occurs within or outside the United States;

(b) A requirement that VPI implement specific technical data access controls (e.g., classified or controlled-access networks, role-based access restrictions, physical segregation of technical data storage) that prevent unauthorized access by HSAG-affiliated personnel;

(c) A requirement that VPI certify compliance with the Technology Control Plan ("TCP") provisions anticipated under the National Security Agreement being negotiated with CFIUS; and

(d) A requirement for periodic reporting to DDTC regarding technical data transmissions under the amended license.

These potential conditions are consistent with the approach DDTC has taken in analogous transactions involving the acquisition of ITAR-registered technical data exporters by foreign persons. They are also consistent with the anticipated terms of the NSA, which is expected to include a comprehensive TCP that restricts HSAG's access to VPI's ITAR- and EAR-controlled technical data and imposes affirmative compliance obligations on both VPI and HSAG.

Risk Assessment: Moderate to High. Technical data licenses receive materially closer scrutiny from DDTC than hardware licenses, particularly when the U.S. exporter is undergoing a change to foreign ownership. DDTC may condition the amendment on robust assurances regarding the TCP and NSA provisions restricting HSAG access to ITAR-controlled data. There is a meaningful possibility that DDTC will require the amended license to include new conditions that were not present in the original license, adding compliance complexity. There is also a possibility — though we assess it as unlikely — that DDTC could decline to amend License 3 and instead require VPI to apply for a new license reflecting the post-acquisition ownership structure, which would involve a longer processing timeline.

V. Amendment Filing Procedures

A. Timing. Amendment requests should be filed with DDTC as early as practicable to minimize the duration of the compliance gap described in Section VI below. We recommend the following approach:

The three DSP-5 amendment requests should be filed concurrently with, or within one week after, the ITAR § 122.4(a) change-of-ownership notification to DDTC. Filing the amendment requests in close temporal proximity to the § 122.4(a) notification ensures that DDTC can review both matters in an integrated fashion and avoids the inefficiency of sequential reviews.

As discussed in the companion DDTC Registration Transfer Analysis memorandum, the § 122.4(a) notification must be filed at least 60 days before the anticipated closing date. Based on the current transaction timeline — which projects CFIUS clearance in late January 2024 and closing in early to mid-February 2024 — the § 122.4(a) notification should be filed no later than early December 2023. The DSP-5 amendment requests should therefore be filed no later than mid-December 2023, and ideally by December 8, 2023, to allow maximum processing time.

DDTC processing times for DSP-5 amendments vary considerably depending on the complexity of the case and DDTC's workload at the time of filing. Routine amendments (e.g., quantity adjustments, minor changes to foreign consignee information) are typically processed within 30 to 60 days. However, complex amendments involving a change from U.S. to foreign ownership of the licensee may take significantly longer — potentially 60 to 120 days or more — particularly if DDTC determines that inter-agency consultation (e.g., with the Department of Defense, the intelligence community, or CFIUS) is warranted. In our experience with comparable transactions, processing times in the range of 60 to 90 days are realistic if the application package is complete and well-documented.

Coordination Recommendation: We strongly recommend engaging DDTC informally through a pre-submission consultation before filing the amendment requests. A pre-submission consultation — similar to the pre-filing approach taken with CFIUS — allows counsel to preview the amendment requests with the DDTC Licensing Division, identify any concerns or additional information requirements in advance, and establish a working relationship with the assigned licensing officer. Pre-submission consultations can be arranged through DDTC's Office of Defense Trade Controls Licensing, typically on two to three weeks' notice. We recommend scheduling this consultation for late October or early November 2023, before the amendment filings are submitted.

B. Content of Amendment Requests

Each amendment request will be submitted through DDTC's online D-Trade electronic licensing system. The amendment requests must include the following information and supporting materials:

1. Updated corporate ownership information. The amendment must identify the new ownership chain: HSAG (ultimate parent, Germany) → Halcyon US Holdings Inc. (intermediate holding company, Delaware) → VPI (licensee, Delaware/Colorado). The amendment should include HSAG's corporate details (jurisdiction of incorporation, principal office address, registration numbers, stock exchange listing) and Halcyon US Holdings' corporate details (state of incorporation, EIN, registered agent).

2. Description of the transaction and its effect on VPI's ITAR-registered status. The amendment should provide a concise description of the acquisition, including the execution date of the SPA, the purchase price (to the extent not commercially sensitive), and the anticipated closing date. The amendment should explain that VPI will continue to operate as a separate U.S. legal entity following the acquisition and will maintain its existing ITAR registration.

3. Confirmation that VPI will continue to operate as a U.S. entity with U.S. management for export-control purposes. This is a critical element of the amendment. The application should confirm that VPI's day-to-day operations, including all export-related functions, will continue to be managed by U.S. persons; that VPI's empowered official will remain a U.S. person; and that VPI's ITAR compliance program will operate independently of HSAG's corporate structure.

4. Reference to the CFIUS review and anticipated NSA, including TCP provisions. The amendment should reference CFIUS Case No. CFIUS-023-07-3841 and describe the anticipated NSA and TCP provisions in sufficient detail to give DDTC confidence that the U.S. government is imposing a comprehensive mitigation framework on the transaction. If the NSA has been executed by the time the amendment is filed, a copy (or relevant excerpts) should be included. If the NSA has not yet been executed, the amendment should describe the anticipated framework based on the ongoing negotiations.

5. Updated organizational charts. The amendment should include corporate organizational charts showing VPI's pre- and post-transaction ownership structure, consistent with Exhibit D to the CFIUS joint voluntary notice. The charts should identify all entities in the ownership chain, their jurisdictions of incorporation, and the percentage of ownership at each level.

6. Updated certifications from VPI's empowered official. The empowered official must certify that all information in the amendment request is accurate and complete; that VPI will comply with all conditions of the amended license; and that VPI's ITAR compliance program is adequate to ensure ongoing compliance with the terms of the license and applicable ITAR requirements.

7. Reference to VPI's DDTC Registration No. M-24817. The amendment should confirm VPI's current ITAR registration status and reference the pending or approved § 122.4(a) change-of-ownership notification.

8. Confirmation that end-users, foreign consignees, quantities, and values remain unchanged. For each of the three licenses, the amendment should confirm that the only material change is to VPI's ownership structure and that all other terms and conditions of the license — including the identity of the foreign consignee, the end-user, the description and quantity of defense articles, the authorized value, and the authorized end-use — remain unchanged.

C. Designation of Empowered Official

Under ITAR § 120.67, every ITAR-registered entity must designate a U.S.-person empowered official who has the independent authority to sign export license applications and other ITAR-related documents on behalf of the company, inquire into any export activity of the company, and verify the legality of such activities. The empowered official must be a U.S. citizen or a lawful permanent resident of the United States.

Currently, VPI's empowered official is Col. (Ret.) Bryce Hendrickson. Following the acquisition, VPI must ensure that its empowered official remains a U.S. person who is independent from HSAG's corporate management and who has genuine authority over VPI's export activities. Based on our discussions with VPI's management, Col. Hendrickson is expected to remain in his current role following the closing, and the NSA is expected to include provisions confirming the independence and authority of VPI's empowered official.

The empowered official designation should be confirmed or updated as part of the amendment filings. If Col. Hendrickson's status changes for any reason before the amendments are filed, VPI must designate a successor empowered official who meets the requirements of § 120.67, and the amendment applications must reflect the new designation.

D. Supporting Documentation

In addition to the information described in Section V.B above, each amendment request should be accompanied by the following supporting documentation:

• A copy of the Stock Purchase Agreement, redacted as necessary to protect proprietary commercial terms (e.g., earnout calculations, representations and warranties, indemnification provisions) that are not relevant to DDTC's review;

• A copy of the executed National Security Agreement, if available at the time of filing. If the amendment is filed before the NSA is executed, the filing should include a detailed description of the anticipated NSA and TCP provisions, based on the ongoing negotiations with CFIUS, along with a commitment to supplement the amendment application with a copy of the executed NSA when available;

• Updated Form DSP-83 (Nontransfer and Use Certificate), if required by DDTC for any of the three licenses. DDTC may require an updated DSP-83 reflecting the change in VPI's ownership, particularly for Licenses 2 and 3. The DSP-83 requires the signature of both the U.S. exporter and the foreign end-user, and VPI should coordinate with Merrifield, Austral, and BAE Systems Applied intelligence to obtain the necessary foreign-party signatures in advance of the filing;

• A letter from VPI's empowered official (Col. Hendrickson) confirming VPI's continued compliance with all conditions of each license, certifying that no unauthorized exports have occurred, and affirming VPI's commitment to maintaining a robust ITAR compliance program following the change of ownership; and

• Any additional documentation requested by DDTC during the pre-submission consultation or the review process.

VI. Interim Compliance Measures

A. Period of Concern

The period between the closing of the acquisition (the date on which HSAG, through Halcyon US Holdings, assumes ownership of VPI) and DDTC's approval of the three DSP-5 license amendments creates a compliance gap during which VPI's existing DSP-5 licenses may not be valid for new exports. During this interim period, the licenses will reflect VPI's pre-transaction ownership structure (U.S. persons as ultimate beneficial owners), which will no longer be accurate. Exports made under licenses that do not accurately reflect the licensee's ownership could be deemed unauthorized and could expose VPI to the civil and criminal penalties described in Section III.B above.

Based on DDTC's typical processing times for complex amendment requests, this interim period could last 30 to 90 days or more. If the amendment requests are filed in December 2023 and the closing occurs in February 2024, the amendments may not be approved until March or April 2024 — creating an interim period of approximately two to three months during which VPI cannot export under the existing licenses absent implementation of the interim measures described below.

This compliance gap has real commercial and programmatic consequences. VPI's UK and Australian customers have delivery schedules tied to their respective defense programs, and a two-to-three-month hiatus in deliveries could disrupt those programs and damage VPI's commercial relationships. Moreover, delays in VPI's deliveries could trigger default or cure-period provisions under VPI's subcontracts and supply agreements with Merrifield, Austral, and their respective government customers.

B. Recommended Interim Measures

To manage the compliance risk during the interim period and minimize disruption to VPI's defense programs and customer relationships, we recommend the following measures:

1. Pre-Closing Acceleration of Deliveries.

To the extent commercially feasible and consistent with contract schedules and production timelines, VPI should accelerate any pending exports under the current DSP-5 licenses to complete them before the closing date, while VPI remains U.S.-owned and the licenses accurately reflect VPI's ownership structure. This acceleration strategy requires coordination with the foreign consignees (Merrifield, Austral, and BAE Systems Applied intelligence) and end-users (UK MoD and Australian Department of Defence) to confirm their ability to receive and accept early deliveries. VPI's production and logistics teams should prepare a detailed delivery schedule showing all planned export shipments under each license through the anticipated closing date, with identification of shipments that can be advanced without disrupting downstream integration schedules.

2. Suspension of New Exports Effective as of Closing.

VPI should implement an internal compliance hold on all new exports under the three DSP-5 licenses, effective as of the closing date of the acquisition, pending receipt of DDTC-approved amendments. VPI's export compliance team, under Col. Hendrickson's supervision as FSO and empowered official, should issue a formal compliance directive to all relevant program managers, engineering leads, shipping personnel, and any other employees involved in the preparation, handling, or transmission of ITAR-controlled defense articles or technical data destined for export. The compliance directive should:

(a) Identify each of the three DSP-5 licenses by number and describe the scope of authorized exports under each;

(b) State that, effective as of the closing date, no new exports may be made under any of the three licenses without the prior written authorization of the empowered official;

(c) Provide clear instructions for the handling of items and data that are in the export pipeline as of the closing date, including procedures for segregation of manufactured goods and suspension of technical data transmissions;

(d) Identify the point of contact for questions regarding the compliance hold (Col. Hendrickson or his designee); and

(e) State that violations of the compliance directive may result in disciplinary action and may constitute violations of federal law.

3. Customer Notification.

VPI should notify its UK and Australian customers and end-users of the potential for temporary export delays arising from the ownership transition and associated license amendment process. These notifications should be carefully drafted in consultation with counsel to accomplish two objectives: (i) providing sufficient information to allow the customers to plan for potential delivery delays, and (ii) avoiding unauthorized disclosure of ITAR-controlled information about the transaction or about VPI's specific licensing status. The notifications should not disclose the specific license numbers, authorized values, or other ITAR-sensitive details; rather, they should communicate in general terms that VPI is undergoing a corporate transaction that requires certain regulatory approvals and that deliveries may be temporarily affected.

VPI should also coordinate with the relevant DoD program offices — including the NAVSEA and AFRL contracting officer's representatives — to ensure that the U.S. government is aware of the potential for delivery delays on contracts that feed into the export programs.

4. Segregation of Pending Export Shipments.

Any manufactured defense articles destined for export under the DSP-5 licenses that are not shipped before the closing date should be physically segregated and held in VPI's controlled inventory at the Colorado Springs or Albuquerque facilities, pending license amendment approval. The segregated items should be clearly labeled and tracked in VPI's inventory management system, and access to the segregated items should be restricted to authorized U.S.-person employees. This segregation measure ensures that the items are not inadvertently shipped or released during the interim period.

5. Technical Data Access Controls.

For License 3, which authorizes the export of technical data to the UK, VPI should ensure that no new transmissions of ITAR-controlled technical data occur after the closing date until the license amendment is approved by DDTC. This measure is particularly important because the introduction of HSAG's foreign ownership creates additional deemed-export and retransfer concerns. Specifically, VPI should:

(a) Suspend all scheduled and ad hoc transmissions of technical data to Merrifield and BAE Systems Applied intelligence under License 3, effective as of the closing date;

(b) Implement access controls on VPI's electronic systems (including secure file transfer platforms, engineering databases, and email systems) to prevent unauthorized transmission of technical data covered by License 3;

(c) Ensure that HSAG personnel do not gain access to the technical data covered by License 3 — or any other ITAR-controlled technical data held by VPI — at any time before or after the closing, absent separate DDTC authorization. This measure should be implemented as part of the broader TCP framework being established under the NSA; and

(d) Document all access control measures and retain records for audit purposes.

6. Alternative Authorization Assessment.

As a contingency measure, VPI should evaluate whether any of the three license authorizations could alternatively be conducted under an existing ITAR exemption during the interim period. Potentially relevant exemptions include:

• 22 C.F.R. § 126.4, which provides an exemption for exports to NATO governments and NATO agencies for official use. This exemption is narrow: it applies only to exports to NATO governments (not to commercial entities, even if they are acting on behalf of a NATO government), and the defense articles must be for the official use of the NATO government. To the extent that VPI's exports are to commercial foreign consignees (Merrifield, Austral, and BAE Systems Applied intelligence) rather than directly to the UK MoD or Australian Department of Defence, this exemption may not be available.

• 22 C.F.R. § 125.4, which provides certain exemptions for the export of technical data, including an exemption for technical data that is furnished pursuant to an official request or directive from a U.S. government agency. This exemption is also narrow and would need to be carefully analyzed in light of the specific circumstances of License 3.

We note that these exemptions are generally not adequate substitutes for DSP-5 authorization in the context of commercial exports of defense articles or technical data. However, they should be analyzed as potential fallbacks for any time-critical deliveries that cannot be delayed without unacceptable consequences for allied defense programs. Any reliance on an ITAR exemption should be documented in a written legal analysis prepared by VPI's empowered official, with review by outside counsel.

C. Impact on Government Contracts

Several of VPI's active DoD contracts involve the production of components that are also exported under the DSP-5 licenses. The interrelationship between VPI's domestic defense contracts and its export programs creates a risk that delays in the DSP-5 amendment process could have cascading effects on VPI's contract performance.

Two contracts are of particular concern:

Ironclad Defense Systems Inc. Subcontract. VPI is a subcontractor to Ironclad Defense Systems Inc. under a prime contract with the U.S. Navy, Naval Sea Systems Command ("NAVSEA"), with a VPI subcontract backlog of approximately $34.1 million. This subcontract involves the production and delivery of GaN T/R module subassemblies that may, in turn, be incorporated into systems destined for export to allied navies under Foreign Military Sales ("FMS") or direct commercial sale arrangements. If VPI's deliveries under License 2 feed into the same production line or share common components with deliveries under the Ironclad subcontract, a suspension of exports under License 2 could create production scheduling conflicts, component allocation disputes, or inventory management challenges that affect VPI's ability to perform under the Ironclad subcontract.

AFRL Contract. VPI holds a contract with the U.S. Air Force Research Laboratory ("AFRL") with a backlog of approximately $41.7 million. This contract involves the development of next-generation GaN power amplifier technology that may incorporate AFRL-developed technical data or government-purpose rights data. If AFRL-developed technology is being shared with UK or Australian partners under any of the DSP-5 licenses, the suspension of exports could affect the collaborative technology development program and could raise additional issues regarding the disposition of government-funded technical data.

Any delay in DSP-5 amendment approval that affects VPI's contract performance should be flagged for the government contracts team. The companion Government Contracts Novation/Change-of-Name Analysis memorandum addresses the separate but related issues of contract novation and name-change agreements that may be required as a result of the acquisition. The government contracts and export controls workstreams should be closely coordinated to avoid situations in which a contract novation is approved but the underlying export license has not yet been amended, or vice versa.

VII. Coordination with CFIUS Process and NSA Provisions

A. CFIUS Considerations

The CFIUS review (Case No. CFIUS-023-07-3841) is evaluating, among other things, the risk that the transaction could result in the unauthorized transfer of ITAR-controlled technology — specifically, VPI's advanced GaN power amplifier designs and related technical data — to non-U.S. persons following the closing. VPI's ITAR-controlled products are used in critical defense systems (radar, satellite communications, electronic warfare), and CFIUS has identified VPI's technology as a significant national security concern warranting mitigation.

The DSP-5 license amendment process is complementary to, and should be coordinated with, the CFIUS mitigation framework. From CFIUS's perspective, HSAG's proactive engagement with DDTC on license amendments demonstrates a commitment to export-control compliance that should be viewed favorably. We recommend that the CFIUS filing team (led by Peggy Ashworth) coordinate with the DDTC filing team (led by David Caruso) to ensure that CFIUS is kept informed of the status of DDTC filings and vice versa. Specifically, the CFIUS joint voluntary notice (Exhibit E) has already disclosed VPI's three active DSP-5 licenses and their scope, and any updates regarding the amendment process should be communicated to CFIUS staff counsel at appropriate intervals.

It is worth noting that the Department of State is a member of the CFIUS committee and participates in CFIUS reviews through its representative on the committee. The State Department's CFIUS representative may coordinate informally with the DDTC Licensing Division regarding VPI's license amendment requests, which could facilitate or complicate the DDTC review depending on the State Department's assessment of the transaction's export control implications. We should be prepared for the possibility that DDTC will defer action on the license amendments until CFIUS has reached a determination on the transaction, or will condition the amendments on the execution of the NSA.

B. NSA Technology Control Plan Integration

The anticipated National Security Agreement is expected to include, as a central component, a Technology Control Plan governing VPI's handling of ITAR-controlled and EAR-controlled technical data and defense articles following the closing of the acquisition. Based on our discussions with CFIUS staff counsel and our review of NSA precedents in comparable transactions, the TCP is expected to include the following key provisions:

(a) A prohibition on the transfer, disclosure, or provision of access to any ITAR-controlled or EAR-controlled technical data, defense articles, or defense services by VPI to any non-U.S. person — including HSAG, Halcyon US Holdings, and their respective directors, officers, employees, and affiliates — without prior authorization from the U.S. government (DDTC for ITAR-controlled items, BIS for EAR-controlled items);

(b) Requirements for physical, electronic, and procedural security measures to prevent unauthorized access to controlled items, including network segmentation, access badge restrictions, visitor escort requirements, and classified information handling protocols;

(c) Requirements for annual compliance audits by an independent third-party compliance monitor (Whitmore Compliance Group LLC has been identified as the anticipated monitor, subject to CFIUS approval);

(d) Requirements for the establishment of a Government Security Committee ("GSC") composed of U.S.-person directors with security clearances, responsible for overseeing VPI's compliance with the NSA, the TCP, and applicable export control and security regulations; and

(e) Reporting obligations to CFIUS, DCSA, and DDTC regarding any actual or suspected breaches of the TCP or NSA.

The DSP-5 license amendments should reference the TCP and NSA provisions explicitly, as DDTC is likely to condition amended licenses on VPI's compliance with the NSA/TCP framework. The conditions of the amended licenses and the terms of the TCP should be mutually consistent and reinforcing — for example, if the TCP prohibits HSAG access to ITAR-controlled technical data, the amended License 3 should reference that prohibition and confirm that technical data exported under the license will not be accessible to HSAG personnel.

The TCP will establish VPI-specific procedures for the handling, storage, transmission, and accounting of ITAR-controlled items that should align with — and in many cases will exceed — the conditions of any amended DSP-5 licenses. We recommend that the license amendment applications be drafted with the TCP provisions in mind, and that the TCP be drafted with the license conditions in mind, to ensure seamless integration of the two compliance frameworks.

C. Coordination with DCSA

The Defense Counterintelligence and Security Agency serves as the cognizant security agency ("CSA") for VPI's Facility Security Clearance (CAGE Code 7VK92) and is expected to serve as the monitoring agency under the anticipated NSA. DCSA has oversight responsibility for VPI's compliance with the National Industrial Security Program Operating Manual ("NISPOM"), 32 C.F.R. Part 117, and will be the primary U.S. government point of contact for day-to-day security compliance issues at VPI's facilities.

Changes to VPI's export activities and license status should be communicated to DCSA promptly and transparently. DCSA may have views on how the DSP-5 amendment process interacts with VPI's FCL status — for example, DCSA may require that VPI's Standard Practice Procedures ("SPPs") be updated to reflect the change in ownership and the new compliance framework under the NSA before DCSA will concur in the DSP-5 amendments. At a minimum, VPI should notify its DCSA Industrial Security Representative ("IS Rep") of the pending DSP-5 amendment requests and provide DCSA with copies of the amendment applications (or summaries thereof) for its records.

Additionally, DCSA's review of VPI's FCL status under the FOCI mitigation framework (likely a Special Security Agreement or Voting Trust Agreement) will be conducted in parallel with the DDTC license amendment process. The two reviews should be coordinated to ensure consistency between the FCL determination, the NSA, and the ITAR licensing outcomes. VPI should not assume that DDTC approval of license amendments will be forthcoming if DCSA has not yet approved the FOCI mitigation plan for VPI's FCL.

VIII. Risk Assessment and Recommendations

A. Summary of Risks

The following table summarizes the key risks associated with the DSP-5 license amendment process and the interim compliance gap, together with an assessment of likelihood, severity, and recommended mitigation measures:

B. Recommendations. Based on the foregoing analysis, we recommend the following actions:

1. Immediate Action — Begin Preparing Amendment Applications. VPI should begin preparing the three DSP-5 amendment applications and all supporting documentation immediately, in parallel with the ongoing CFIUS review and NSA negotiation. The amendment applications are document-intensive, and early preparation will allow sufficient time for internal review, empowered official certification, and counsel review before filing. We recommend assigning a dedicated project manager within VPI's export

MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
TO: Beatrice Holloway, Responsible Partner Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS Practice
FROM: Lt. Col. (Ret.) David Caruso, Senior Counsel, Government Contracts & Export Controls Priya Venkataraman, Associate, International Trade & Sanctions
DATE: September 8, 2023
RE: Impact of Change in Ownership of Marlowe Asset Management Photonics Inc. on Active DSP-5 Export Licenses — Amendment Requirements and Interim Compliance Measures
MATTER: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. — CFIUS Filing & Mitigation
CFIUS Case No.: CFIUS-023-07-3841
I. Executive Summary
Calderwood & Harkness LLP has been engaged by Halcyon Semiconductor Aktiengesellschaft ("HSAG") in connection with HSAG's proposed acquisition of 100% of the outstanding equity of Marlowe Asset Management Photonics Inc. ("VPI") for $1.42 billion through its wholly-owned Delaware subsidiary, Halcyon US Holdings Inc. ("Halcyon US Holdings"). This memorandum addresses a discrete but critical regulatory issue arising from the transaction: the impact of the anticipated change of ownership of VPI on VPI's active export licenses issued by the U.S. Department of State, Directorate of Defense Trade Controls ("DDTC").
VPI currently holds three (3) active DSP-5 (Permanent Export License) authorizations issued by DDTC, permitting the export of defense articles and technical data controlled under Category XI(a)(3) of the United States Munitions List ("USML") to NATO allies and security partners in the United Kingdom and Australia. These licenses support ongoing defense programs involving the supply of advanced gallium nitride ("GaN") power amplifier technology to the UK Ministry of Defence and the Australian Department of Defence.
This memorandum analyzes the impact of the change in ownership of VPI — from its current U.S. shareholders, including Dr. Nathan Trevorrow (Co-Founder, Chairman, and Chief Technology Officer), Marissa Sung-Avila (Co-Founder and Chief Executive Officer), Ridgecrest Ventures Fund III, L.P., Cascadian Capital Partners Growth Fund II, L.P., and various other U.S.-person equity holders — to HSAG, a German publicly-traded Aktiengesellschaft listed on the Frankfurt Stock Exchange (XETRA: HLC), on these three active DSP-5 licenses.
Conclusion: All three DSP-5 licenses require amendment to reflect the change in ownership. The licenses do not automatically terminate upon the change of ownership, but failure to amend them renders continued exports under those licenses noncompliant with the International Traffic in Arms Regulations ("ITAR"), 22 C.F.R. Parts 120–130. VPI should cease exports under the existing licenses upon the closing of the acquisition until amendments are approved by DDTC or new licenses are obtained, unless interim compliance measures described in Section VI of this memorandum are implemented. The risk of disruption to VPI's export activities can be managed effectively through proactive amendment filings, pre-submission consultation with DDTC, and careful coordination with the ongoing CFIUS review and the anticipated National Security Agreement ("NSA").
This analysis should be read in conjunction with the separate memorandum prepared by this team entitled DDTC Registration Transfer Analysis: Impact of HSAG Acquisition on VPI's ITAR Registration (Registration No. M-24817) under ITAR § 122.4(a), dated August 25, 2023, which addresses the registration notification requirements arising from the same transaction. The two analyses are closely related but address distinct regulatory obligations.
II. Background
A. The Transaction
HSAG, a German Aktiengesellschaft with its principal offices at Industriestraße 44, 01099 Dresden, Saxony, Germany (XETRA: HLC; market capitalization approximately €14.8 billion as of June 1, 2023; fiscal year 2022 revenue of €6.12 billion), is acquiring 100% of the outstanding equity interests of VPI. HSAG is a leading European semiconductor company specializing in compound semiconductor materials, power electronics, and photonic components, with operations in 14 countries and approximately 22,000 employees worldwide. HSAG is subject to German corporate governance requirements and is registered with the German Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, "BAFA") for purposes of German and EU export control compliance.
The Stock Purchase Agreement (the "SPA") was executed on June 10, 2023. The purchase price is $1.42 billion, payable in all-cash on a cash-free, debt-free basis with a net working capital target of $34.6 million. The SPA also provides for a potential earnout of up to $85 million, contingent upon VPI's achievement of certain revenue and EBITDA milestones during the 24-month period following closing. The earnout structure was designed in part to incentivize the retention of VPI's key technical personnel during the post-closing integration period.
The acquisition is being effected through Halcyon US Holdings Inc., a Delaware C-corporation formed on June 5, 2023 (EIN: 93-2841067; registered agent: National Registered Agents of Delaware, 160 Greentree Drive, Suite 101, Dover, DE 19904). Halcyon US Holdings was incorporated for the sole purpose of serving as the U.S. acquisition vehicle for this transaction and currently has no employees, operations, or assets other than nominal capitalization. Post-closing, VPI will become a wholly-owned subsidiary of Halcyon US Holdings, which is in turn a wholly-owned subsidiary of HSAG. As a result, VPI will be a wholly-owned indirect subsidiary of HSAG, and HSAG — a foreign person under the ITAR — will be VPI's ultimate parent company and beneficial owner.
A CFIUS voluntary joint notice was filed on July 14, 2023, pursuant to 31 C.F.R. Part 800, by both HSAG and VPI. The CFIUS review period commenced on July 21, 2023. The transaction has been referred to a full 45-day investigation, which is ongoing as of the date of this memorandum. Based on our discussions with CFIUS staff counsel, we anticipate that CFIUS will require a mitigation agreement in the form of a National Security Agreement as a condition of clearance.
B. Marlowe Asset Management Photonics Inc. — Relevant ITAR Profile
VPI is a Delaware corporation, incorporated on February 14, 2009 (EIN: 26-4371885; DUNS: 07-812-4493), with its principal offices located at 7400 Ridgeline Parkway, Colorado Springs, Colorado 80919. VPI also operates a state-of-the-art semiconductor fabrication facility at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113 (the "Albuquerque Fab"), which was commissioned in 2016 and expanded in 2020. VPI designs and manufactures advanced gallium nitride ("GaN") power amplifier chips and related semiconductor devices used primarily in defense radar systems, satellite communications terminals, electronic warfare platforms, and, increasingly, civilian 5G telecommunications infrastructure.
VPI has been registered with DDTC as a manufacturer and exporter of defense articles since 2011, holding DDTC Registration No. M-24817. VPI's registration was most recently renewed in April 2023, covering the current registration period through April 2025. VPI's products include defense articles controlled under ITAR Category XI(a)(3) of the USML — specifically, defense electronics including GaN high-electron-mobility transistor ("HEMT") power amplifiers designed for military radar and communications systems. In addition to ITAR-controlled items, VPI also manufactures and exports dual-use items subject to the Export Administration Regulations ("EAR"), classified under Export Control Classification Numbers ("ECCNs") 3A001 (certain microwave and millimeter-wave components), 3A991 (less-sensitive electronic components), and 3E001 (technology for the development or production of items controlled under 3A001).
VPI holds a Facility Security Clearance ("FCL") at the SECRET level, assigned CAGE Code 7VK92, under the National Industrial Security Program ("NISP"). The FCL covers both the Colorado Springs headquarters and the Albuquerque Fab. Of VPI's approximately 486 employees, 212 currently hold active personnel security clearances at the SECRET level or above, reflecting the company's deep involvement in classified defense programs. Colonel (Retired) Bryce Hendrickson, USAF, serves as VPI's Vice President for Government Programs and Facility Security Officer ("FSO"). Col. Hendrickson holds an active TS/SCI clearance and has been with VPI since 2014. He also serves as VPI's empowered official for ITAR purposes and is the primary point of contact with DDTC, the Defense Counterintelligence and Security Agency ("DCSA"), and relevant DoD program offices.
VPI currently holds 14 active contracts with the U.S. Department of Defense, with an aggregate backlog of approximately $193 million. These contracts span multiple military services and agencies, including the U.S. Navy (Naval Sea Systems Command), the U.S. Air Force Research Laboratory ("AFRL"), the Missile Defense Agency, and the Defense Advanced Research Projects Agency ("DARPA"). Several of these contracts involve the development and production of GaN-based components that are the same or similar to the items exported under VPI's DSP-5 licenses.
C. VPI's Active DSP-5 Licenses
VPI currently holds three (3) active DSP-5 permanent export licenses, all authorizing the export of defense articles or technical data controlled under ITAR Category XI(a)(3) of the USML. These licenses are summarized below and described in detail in Appendix A.
License 1 (DDTC License No. 05-2019-M-48732): This license authorizes the permanent export of GaN HEMT power amplifier modules (VPI Part Nos. PA-4200X and PA-4201X) to Merrifield Defence Electronics Ltd. ("Merrifield"), a UK-incorporated defense electronics contractor located in Cheltenham, Gloucestershire, United Kingdom, for integration into ground-based multi-function radar systems. The designated end-user is the UK Ministry of Defence ("UK MoD"), and the items are being integrated into the UK's Next Generation Ground-Based Air Defence Radar ("NGBAD") program. The authorized value under the license is $38.5 million. The license was issued on September 12, 2019, and expires on September 11, 2023. A renewal application was submitted on July 28, 2023, and is currently pending with DDTC.
License 2 (DDTC License No. 05-2021-M-51204): This license authorizes the permanent export of GaN-based transmit/receive ("T/R") module subassemblies (VPI Part Nos. TR-7100 and TR-7101) to Austral Sovereign Defence Pty Ltd. ("Austral"), an Australian defense prime contractor headquartered in Canberra, Australian Capital Territory, for integration into military satellite communications terminals. The designated end-user is the Australian Department of Defence, and the items support the JP 9102 Satellite Communications Modernization Program. The authorized value under the license is $22.8 million. The license was issued on March 5, 2021, and expires on March 4, 2025.
License 3 (DDTC License No. 05-2022-M-53891): This license authorizes the permanent export of ITAR-controlled technical data — specifically, engineering drawings, electrical performance test data, environmental qualification reports, and system integration specifications — to Merrifield Defence Electronics Ltd. and to Pemberton Holdings (London, United Kingdom), in support of the UK-led Joint Radar Modernization Programme ("JRMP"), a collaborative defense program between the UK MoD and select allied partners. The designated end-user is the UK Ministry of Defence. The authorized value under the license is $4.2 million (reflecting the assessed value of the technical data package). The license was issued on January 18, 2022, and expires on January 17, 2026.
All three licenses are currently in good standing with DDTC. VPI has been making regular exports under Licenses 1 and 2 during calendar year 2023, with the most recent hardware shipment under License 1 occurring on August 3, 2023, and the most recent shipment under License 2 occurring on July 19, 2023. Technical data transmissions under License 3 have occurred on an ongoing basis, most recently on August 22, 2023, when VPI transmitted updated integration specifications to Merrifield via DDTC-approved secure electronic transmission.
Critically, all three licenses were applied for and issued based on VPI's representations regarding its ownership structure at the time of application — namely, that VPI was owned and controlled exclusively by U.S. persons. The license applications identified VPI's shareholders, directors, and officers, all of whom were U.S. citizens or U.S. permanent residents. The proposed transaction will fundamentally alter this ownership profile.
III. Legal Framework — ITAR Licensing and Change of Ownership
A. ITAR DSP-5 Licensing Authority
The Arms Export Control Act ("AECA"), 22 U.S.C. § 2778, authorizes the President to control the export of defense articles and defense services enumerated on the United States Munitions List. The President has delegated this authority to the Secretary of State, who exercises it through the Directorate of Defense Trade Controls within the Bureau of Political-Military Affairs. DDTC implements this authority through the International Traffic in Arms Regulations, codified at 22 C.F.R. Parts 120–130.
Under the ITAR, any person who intends to permanently export a defense article listed on the USML must obtain a license from DDTC, unless an exemption applies. The standard license for permanent export of defense articles is the DSP-5, which is submitted to DDTC via the agency's electronic D-Trade licensing system. A DSP-5 license application requires detailed information about the applicant (the U.S. exporter), the defense articles to be exported (including USML category, quantity, and value), the foreign consignee, the end-user, the end-use, and various certifications and assurances regarding the disposition of the items.
DSP-5 licenses are granted to specific applicants and are nontransferable. This principle is codified at 22 C.F.R. § 123.9, which provides that "[a] license for the permanent export of a defense article is not transferable without the prior written approval of the Directorate of Defense Trade Controls." The nontransferability of ITAR licenses reflects the fundamental principle that DDTC's licensing decisions are made based on the specific facts presented in the application, including — critically — the identity, ownership, corporate structure, and control of the applicant. When those facts change materially, the factual predicate upon which the license was issued no longer exists, and the license can no longer be relied upon for future exports absent DDTC's affirmative approval of the changed circumstances.
It bears emphasis that DSP-5 licenses have a statutory maximum validity period of four (4) years from the date of issuance, pursuant to 22 C.F.R. § 123.18(a). Licenses may be renewed upon application, and any pending renewal application (such as VPI's pending renewal of License 1) would also need to reflect the changed ownership circumstances.
B. Effect of Change in Ownership on Existing DSP-5 Licenses
The ITAR does not contain an express provision stating that a DSP-5 license is automatically revoked or terminated upon a change in the applicant's ownership. This silence has occasionally caused confusion among regulated entities, some of whom have mistakenly assumed that existing licenses remain valid following a corporate transaction. That assumption is incorrect as a practical matter, for the reasons discussed below.
First, ITAR § 122.4(a) imposes an affirmative obligation on any ITAR-registered entity to notify DDTC at least 60 days in advance of "any intended sale or transfer to a foreign person of ownership or control of the registrant or any entity thereof." This notification requirement serves as a gatekeeper, ensuring that DDTC has the opportunity to assess the implications of a change in ownership before the transaction closes. When DDTC receives such a notification, it will review the registrant's existing licenses and other authorizations to determine whether they remain appropriate in light of the new ownership structure.
Second, 22 C.F.R. § 123.22 addresses amendments to licenses. Under this provision, a licensee is obligated to request an amendment to an existing DSP-5 license when there are "material changes" to the facts stated in the original application. DDTC has consistently interpreted a change in the applicant's corporate ownership or control — and particularly a change resulting in foreign ownership, control, or influence ("FOCI") — as a material change requiring license amendment. This interpretation is reflected in DDTC's publicly available guidance, including the DDTC Guidelines for Preparing Agreements and the DDTC Licensing FAQ, as well as in DDTC's informal guidance provided to exporters and their counsel during pre-submission consultations.
Third, DDTC policy and long-standing practice treat a change from U.S. ownership to foreign ownership as among the most significant material changes that can occur with respect to a licensee. The reason is straightforward: DDTC's licensing decisions weigh the identity and nationality of the applicant as a key factor in the risk assessment. A company owned and controlled by U.S. persons presents a fundamentally different risk profile than the same company owned by a foreign person, even if the foreign parent is located in a friendly, allied nation. The introduction of foreign ownership creates additional vectors for potential diversion, unauthorized retransfer, or deemed export of controlled technology — risks that DDTC must assess and, if appropriate, mitigate through additional license conditions.
The practical consequence is clear: while existing DSP-5 licenses do not automatically lapse upon a change of ownership, they become legally unreliable for purposes of new exports. An exporter that continues to make exports under an unamended license following a material change in ownership does so at significant legal risk. DDTC may view such exports as unauthorized, and the exporter could be subject to enforcement action.
Failure to amend or obtain a new license before continuing exports following a change of ownership could constitute a violation of ITAR, potentially subjecting VPI and its responsible officers to both civil and criminal penalties. Civil penalties under 22 C.F.R. § 127.10 may be assessed at up to $1,213,423 per violation (as adjusted for inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015). Criminal penalties under 22 U.S.C. § 2778(c) include fines of up to $1,000,000 and imprisonment for up to 20 years per violation. In addition, ITAR violations can result in debarment from future export privileges under 22 C.F.R. § 127.7, which would be catastrophic for VPI's defense business.
Beyond the direct enforcement consequences, unauthorized exports under unamended licenses could have severe collateral consequences in the CFIUS context. CFIUS monitors the compliance behavior of transaction parties during the pendency of a review, and evidence of export control noncompliance could undermine CFIUS's confidence in the parties' willingness and ability to comply with the terms of any mitigation agreement. This, in turn, could delay or jeopardize CFIUS clearance.
C. Interaction with DDTC Registration Requirements
As addressed in detail in the companion DDTC Registration Transfer Analysis memorandum, VPI must file a change-of-ownership notification with DDTC under ITAR § 122.4(a) at least 60 days before the anticipated closing date of the acquisition. This notification is a prerequisite to DDTC's assessment of VPI's continuing eligibility for ITAR registration following the transaction.
The DSP-5 amendment process is separate from but closely related to the § 122.4(a) registration notification. Both processes arise from the same triggering event — the change in VPI's ownership — and both will be reviewed by the same office within DDTC. As a practical matter, DDTC will likely evaluate the registration notification and the license amendment requests concurrently, and the outcome of the registration review will inform the license amendment review and vice versa. For this reason, we recommend that the amendment requests be filed concurrently with or shortly after the § 122.4(a) notification to ensure that DDTC has a complete picture of VPI's regulatory posture.
Additionally, DDTC may coordinate its review with other U.S. government agencies, including CFIUS itself (through the Department of State's representative on the CFIUS committee) and DCSA (which oversees VPI's Facility Security Clearance). The inter-agency coordination reflects the U.S. government's increasingly integrated approach to foreign investment review and export control enforcement, particularly in cases involving critical defense technologies such as advanced GaN semiconductor devices.
IV. Analysis — Impact on Each DSP-5 License
A. License 1 — GaN HEMT Power Amplifier Modules to United Kingdom (DDTC License No. 05-2019-M-48732)
Current Status: License 1 is active, with a renewal application pending before DDTC. VPI has been making regular exports under this license throughout 2023, with the most recent shipment on August 3, 2023. The license is currently within its four-year validity period but is approaching its expiration date of September 11, 2023; hence the pending renewal application.
Impact of Change of Ownership: The change in VPI's ultimate beneficial ownership from U.S. persons (Dr. Trevorrow, Ms. Sung-Avila, Ridgecrest Ventures Fund III, L.P., Cascadian Capital Partners Growth Fund II, L.P., and other U.S.-person shareholders) to HSAG (a German Aktiengesellschaft) constitutes a material change to the facts stated in the license application within the meaning of 22 C.F.R. § 123.22. The original license application identified VPI as a U.S.-owned and U.S.-controlled company, and DDTC's decision to issue the license was predicated in part on that ownership profile. Following the acquisition, VPI will be ultimately owned by a foreign person, fundamentally altering the factual predicate of the license.
Accordingly, License 1 must be amended — or, given the pending renewal, the renewal application must be updated — to reflect HSAG's ownership of VPI through Halcyon US Holdings Inc. If the renewal is approved before closing, the renewed license will still need to be amended post-closing. Alternatively, the renewal application currently pending could be withdrawn and resubmitted with the updated ownership information, though this approach risks further delay.
Additional Considerations: The United Kingdom is a NATO ally and is listed among the countries for which certain ITAR exemptions and favorable treatment provisions apply under 22 C.F.R. § 126.1(a). The UK is also party to the U.S.-UK Defense Trade Cooperation Treaty (entered into force April 13, 2012), which establishes an approved community of entities authorized to receive certain defense articles without individual export licenses. However, neither the § 126.1(a) favorable treatment designation nor the Defense Trade Cooperation Treaty eliminates the requirement to amend an existing DSP-5 license upon a material change in the applicant's ownership. These provisions relate to the eligibility of the destination country and the scope of available exemptions, not to the identity or ownership of the U.S. exporter.
A mitigating factor is that the end-user (UK Ministry of Defence) and the foreign consignee (Merrifield Defence Electronics Ltd.) will remain unchanged following the acquisition. DDTC's review of the amendment request is therefore simplified in certain respects: the downstream recipients, the defense articles, the end-use, and the program context all remain as previously approved. The only material change is VPI's ownership — and the fact that the new owner is a German company (Germany being a close NATO ally with a robust export control regime of its own) is a further mitigating factor.
Risk Assessment: Moderate. UK destinations generally receive favorable DDTC review. The German parentage of VPI (HSAG being headquartered in a NATO-ally nation with strong export control and nonproliferation credentials) is a mitigating factor. However, the introduction of foreign ownership — regardless of the foreign owner's nationality — triggers heightened DDTC scrutiny and requires DDTC's affirmative approval. There is no assurance that DDTC will approve the amendment on the same terms as the original license.
B. License 2 — GaN T/R Module Subassemblies to Australia (DDTC License No. 05-2021-M-51204)
Current Status: License 2 is active and not approaching expiration (expiration date: March 4, 2025). VPI has been making regular exports under this license during 2023, with the most recent shipment on July 19, 2023. The license remains well within its validity period and has substantial remaining authorized value.
Impact of Change of Ownership: The analysis is the same as for License 1. The change from U.S. to foreign ownership constitutes a material change to the facts stated in the license application, requiring amendment under 22 C.F.R. § 123.22. The original application identified VPI as U.S.-owned, and the license must be amended to reflect the new ownership structure.
Additional Considerations: Australia occupies a uniquely favorable position in the U.S. defense trade and export control framework. Australia is a Five Eyes intelligence-sharing partner, a member of the AUKUS trilateral security partnership (alongside the United States and the United Kingdom), and is listed under 22 C.F.R. § 126.1(a) among the countries receiving the most favorable treatment under ITAR. The AUKUS partnership, in particular, has generated significant momentum toward streamlining defense trade between the United States, the United Kingdom, and Australia, including potential new ITAR exemptions and licensing arrangements currently under development by the State Department.
Nevertheless, as with the UK analysis above, the favorable treatment of Australia as a destination country does not affect the requirement to amend the license upon a change in the U.S. exporter's ownership. The amendment requirement derives from the change in the applicant's circumstances, not from any issue with the destination or end-user.
The DSP-5 license authorizing hardware exports to Australia may also require coordination with Australia's Defence Trade Controls Act 2012 (Cth) and associated regulations, which constitute Australia's equivalent of the ITAR and govern the import of controlled defense goods into Australia. VPI should coordinate with Austral Sovereign Defence Pty Ltd. to ensure that any changes to the U.S. export authorization are communicated to the relevant Australian authorities, including the Australian Defence Export Controls Office within the Department of Defence. Additionally, the bilateral defense trade cooperation arrangements between the United States and Australia, including the Australia-U.S. Defense Trade Cooperation Treaty, may offer streamlined procedures for certain categories of defense trade that could be relevant if the DSP-5 amendment encounters delays.
The end-user (Australian Department of Defence) and the foreign consignee (Austral Sovereign Defence Pty Ltd.) will remain unchanged following the acquisition, which — as with License 1 — should facilitate DDTC's review of the amendment request.
Risk Assessment: Moderate — the analysis is similar to License 1. Australia's status as a Five Eyes and AUKUS partner, combined with the unchanged end-user and the German parent's NATO-ally status, are favorable factors. However, the amendment still requires DDTC's affirmative approval, and processing timelines are uncertain.
C. License 3 — Technical Data to United Kingdom (DDTC License No. 05-2022-M-53891)
Current Status: License 3 is active, with an expiration date of January 17, 2026. Technical data transmissions under this license have been ongoing, most recently on August 22, 2023.
Impact of Change of Ownership: As with Licenses 1 and 2, the material change in VPI's ownership requires amendment of this license. However, License 3 presents additional and more complex considerations because it authorizes the export of technical data rather than hardware.
Technical data exports are subject to heightened scrutiny under ITAR for several interrelated reasons. First, technical data — unlike hardware — can be replicated and retransmitted instantaneously and at virtually no cost, making unauthorized diversion or retransfer more difficult to detect and prevent. Second, the introduction of a foreign owner (HSAG) into VPI's corporate structure creates additional deemed-export concerns under 22 C.F.R. § 120.17: if HSAG personnel (who are foreign nationals) gain access to ITAR-controlled technical data held by VPI, such access would constitute a deemed export requiring separate DDTC authorization, even if the access occurs within the United States. Third, the technical data authorized under License 3 — including engineering drawings, electrical performance test data, environmental qualification reports, and system integration specifications — represents some of VPI's most sensitive intellectual property and, if diverted, could provide significant insight into the design and performance characteristics of defense systems employed by the UK MoD.
Additional Considerations: DDTC may impose additional conditions on the amended License 3 that go beyond the conditions attached to the original license. Such conditions could include, for example:
(a) A requirement that technical data exported under the license not be further shared with HSAG personnel, directors, or affiliates without separate DDTC authorization, regardless of whether such sharing occurs within or outside the United States;
(b) A requirement that VPI implement specific technical data access controls (e.g., classified or controlled-access networks, role-based access restrictions, physical segregation of technical data storage) that prevent unauthorized access by HSAG-affiliated personnel;
(c) A requirement that VPI certify compliance with the Technology Control Plan ("TCP") provisions anticipated under the National Security Agreement being negotiated with CFIUS; and
(d) A requirement for periodic reporting to DDTC regarding technical data transmissions under the amended license.
These potential conditions are consistent with the approach DDTC has taken in analogous transactions involving the acquisition of ITAR-registered technical data exporters by foreign persons. They are also consistent with the anticipated terms of the NSA, which is expected to include a comprehensive TCP that restricts HSAG's access to VPI's ITAR- and EAR-controlled technical data and imposes affirmative compliance obligations on both VPI and HSAG.
Risk Assessment: Moderate to High. Technical data licenses receive materially closer scrutiny from DDTC than hardware licenses, particularly when the U.S. exporter is undergoing a change to foreign ownership. DDTC may condition the amendment on robust assurances regarding the TCP and NSA provisions restricting HSAG access to ITAR-controlled data. There is a meaningful possibility that DDTC will require the amended license to include new conditions that were not present in the original license, adding compliance complexity. There is also a possibility — though we assess it as unlikely — that DDTC could decline to amend License 3 and instead require VPI to apply for a new license reflecting the post-acquisition ownership structure, which would involve a longer processing timeline.
V. Amendment Filing Procedures
A. Timing. Amendment requests should be filed with DDTC as early as practicable to minimize the duration of the compliance gap described in Section VI below. We recommend the following approach:
The three DSP-5 amendment requests should be filed concurrently with, or within one week after, the ITAR § 122.4(a) change-of-ownership notification to DDTC. Filing the amendment requests in close temporal proximity to the § 122.4(a) notification ensures that DDTC can review both matters in an integrated fashion and avoids the inefficiency of sequential reviews.
As discussed in the companion DDTC Registration Transfer Analysis memorandum, the § 122.4(a) notification must be filed at least 60 days before the anticipated closing date. Based on the current transaction timeline — which projects CFIUS clearance in late January 2024 and closing in early to mid-February 2024 — the § 122.4(a) notification should be filed no later than early December 2023. The DSP-5 amendment requests should therefore be filed no later than mid-December 2023, and ideally by December 8, 2023, to allow maximum processing time.
DDTC processing times for DSP-5 amendments vary considerably depending on the complexity of the case and DDTC's workload at the time of filing. Routine amendments (e.g., quantity adjustments, minor changes to foreign consignee information) are typically processed within 30 to 60 days. However, complex amendments involving a change from U.S. to foreign ownership of the licensee may take significantly longer — potentially 60 to 120 days or more — particularly if DDTC determines that inter-agency consultation (e.g., with the Department of Defense, the intelligence community, or CFIUS) is warranted. In our experience with comparable transactions, processing times in the range of 60 to 90 days are realistic if the application package is complete and well-documented.
Coordination Recommendation: We strongly recommend engaging DDTC informally through a pre-submission consultation before filing the amendment requests. A pre-submission consultation — similar to the pre-filing approach taken with CFIUS — allows counsel to preview the amendment requests with the DDTC Licensing Division, identify any concerns or additional information requirements in advance, and establish a working relationship with the assigned licensing officer. Pre-submission consultations can be arranged through DDTC's Office of Defense Trade Controls Licensing, typically on two to three weeks' notice. We recommend scheduling this consultation for late October or early November 2023, before the amendment filings are submitted.
B. Content of Amendment Requests
Each amendment request will be submitted through DDTC's online D-Trade electronic licensing system. The amendment requests must include the following information and supporting materials:
1. Updated corporate ownership information. The amendment must identify the new ownership chain: HSAG (ultimate parent, Germany) → Halcyon US Holdings Inc. (intermediate holding company, Delaware) → VPI (licensee, Delaware/Colorado). The amendment should include HSAG's corporate details (jurisdiction of incorporation, principal office address, registration numbers, stock exchange listing) and Halcyon US Holdings' corporate details (state of incorporation, EIN, registered agent).
2. Description of the transaction and its effect on VPI's ITAR-registered status. The amendment should provide a concise description of the acquisition, including the execution date of the SPA, the purchase price (to the extent not commercially sensitive), and the anticipated closing date. The amendment should explain that VPI will continue to operate as a separate U.S. legal entity following the acquisition and will maintain its existing ITAR registration.
3. Confirmation that VPI will continue to operate as a U.S. entity with U.S. management for export-control purposes. This is a critical element of the amendment. The application should confirm that VPI's day-to-day operations, including all export-related functions, will continue to be managed by U.S. persons; that VPI's empowered official will remain a U.S. person; and that VPI's ITAR compliance program will operate independently of HSAG's corporate structure.
4. Reference to the CFIUS review and anticipated NSA, including TCP provisions. The amendment should reference CFIUS Case No. CFIUS-023-07-3841 and describe the anticipated NSA and TCP provisions in sufficient detail to give DDTC confidence that the U.S. government is imposing a comprehensive mitigation framework on the transaction. If the NSA has been executed by the time the amendment is filed, a copy (or relevant excerpts) should be included. If the NSA has not yet been executed, the amendment should describe the anticipated framework based on the ongoing negotiations.
5. Updated organizational charts. The amendment should include corporate organizational charts showing VPI's pre- and post-transaction ownership structure, consistent with Exhibit D to the CFIUS joint voluntary notice. The charts should identify all entities in the ownership chain, their jurisdictions of incorporation, and the percentage of ownership at each level.
6. Updated certifications from VPI's empowered official. The empowered official must certify that all information in the amendment request is accurate and complete; that VPI will comply with all conditions of the amended license; and that VPI's ITAR compliance program is adequate to ensure ongoing compliance with the terms of the license and applicable ITAR requirements.
7. Reference to VPI's DDTC Registration No. M-24817. The amendment should confirm VPI's current ITAR registration status and reference the pending or approved § 122.4(a) change-of-ownership notification.
8. Confirmation that end-users, foreign consignees, quantities, and values remain unchanged. For each of the three licenses, the amendment should confirm that the only material change is to VPI's ownership structure and that all other terms and conditions of the license — including the identity of the foreign consignee, the end-user, the description and quantity of defense articles, the authorized value, and the authorized end-use — remain unchanged.
C. Designation of Empowered Official
Under ITAR § 120.67, every ITAR-registered entity must designate a U.S.-person empowered official who has the independent authority to sign export license applications and other ITAR-related documents on behalf of the company, inquire into any export activity of the company, and verify the legality of such activities. The empowered official must be a U.S. citizen or a lawful permanent resident of the United States.
Currently, VPI's empowered official is Col. (Ret.) Bryce Hendrickson. Following the acquisition, VPI must ensure that its empowered official remains a U.S. person who is independent from HSAG's corporate management and who has genuine authority over VPI's export activities. Based on our discussions with VPI's management, Col. Hendrickson is expected to remain in his current role following the closing, and the NSA is expected to include provisions confirming the independence and authority of VPI's empowered official.
The empowered official designation should be confirmed or updated as part of the amendment filings. If Col. Hendrickson's status changes for any reason before the amendments are filed, VPI must designate a successor empowered official who meets the requirements of § 120.67, and the amendment applications must reflect the new designation.
D. Supporting Documentation
In addition to the information described in Section V.B above, each amendment request should be accompanied by the following supporting documentation:
• A copy of the Stock Purchase Agreement, redacted as necessary to protect proprietary commercial terms (e.g., earnout calculations, representations and warranties, indemnification provisions) that are not relevant to DDTC's review;
• A copy of the executed National Security Agreement, if available at the time of filing. If the amendment is filed before the NSA is executed, the filing should include a detailed description of the anticipated NSA and TCP provisions, based on the ongoing negotiations with CFIUS, along with a commitment to supplement the amendment application with a copy of the executed NSA when available;
• Updated Form DSP-83 (Nontransfer and Use Certificate), if required by DDTC for any of the three licenses. DDTC may require an updated DSP-83 reflecting the change in VPI's ownership, particularly for Licenses 2 and 3. The DSP-83 requires the signature of both the U.S. exporter and the foreign end-user, and VPI should coordinate with Merrifield, Austral, and BAE Systems Applied intelligence to obtain the necessary foreign-party signatures in advance of the filing;
• A letter from VPI's empowered official (Col. Hendrickson) confirming VPI's continued compliance with all conditions of each license, certifying that no unauthorized exports have occurred, and affirming VPI's commitment to maintaining a robust ITAR compliance program following the change of ownership; and
• Any additional documentation requested by DDTC during the pre-submission consultation or the review process.
VI. Interim Compliance Measures
A. Period of Concern
The period between the closing of the acquisition (the date on which HSAG, through Halcyon US Holdings, assumes ownership of VPI) and DDTC's approval of the three DSP-5 license amendments creates a compliance gap during which VPI's existing DSP-5 licenses may not be valid for new exports. During this interim period, the licenses will reflect VPI's pre-transaction ownership structure (U.S. persons as ultimate beneficial owners), which will no longer be accurate. Exports made under licenses that do not accurately reflect the licensee's ownership could be deemed unauthorized and could expose VPI to the civil and criminal penalties described in Section III.B above.
Based on DDTC's typical processing times for complex amendment requests, this interim period could last 30 to 90 days or more. If the amendment requests are filed in December 2023 and the closing occurs in February 2024, the amendments may not be approved until March or April 2024 — creating an interim period of approximately two to three months during which VPI cannot export under the existing licenses absent implementation of the interim measures described below.
This compliance gap has real commercial and programmatic consequences. VPI's UK and Australian customers have delivery schedules tied to their respective defense programs, and a two-to-three-month hiatus in deliveries could disrupt those programs and damage VPI's commercial relationships. Moreover, delays in VPI's deliveries could trigger default or cure-period provisions under VPI's subcontracts and supply agreements with Merrifield, Austral, and their respective government customers.
B. Recommended Interim Measures
To manage the compliance risk during the interim period and minimize disruption to VPI's defense programs and customer relationships, we recommend the following measures:
1. Pre-Closing Acceleration of Deliveries.
To the extent commercially feasible and consistent with contract schedules and production timelines, VPI should accelerate any pending exports under the current DSP-5 licenses to complete them before the closing date, while VPI remains U.S.-owned and the licenses accurately reflect VPI's ownership structure. This acceleration strategy requires coordination with the foreign consignees (Merrifield, Austral, and BAE Systems Applied intelligence) and end-users (UK MoD and Australian Department of Defence) to confirm their ability to receive and accept early deliveries. VPI's production and logistics teams should prepare a detailed delivery schedule showing all planned export shipments under each license through the anticipated closing date, with identification of shipments that can be advanced without disrupting downstream integration schedules.
2. Suspension of New Exports Effective as of Closing.
VPI should implement an internal compliance hold on all new exports under the three DSP-5 licenses, effective as of the closing date of the acquisition, pending receipt of DDTC-approved amendments. VPI's export compliance team, under Col. Hendrickson's supervision as FSO and empowered official, should issue a formal compliance directive to all relevant program managers, engineering leads, shipping personnel, and any other employees involved in the preparation, handling, or transmission of ITAR-controlled defense articles or technical data destined for export. The compliance directive should:
(a) Identify each of the three DSP-5 licenses by number and describe the scope of authorized exports under each;
(b) State that, effective as of the closing date, no new exports may be made under any of the three licenses without the prior written authorization of the empowered official;
(c) Provide clear instructions for the handling of items and data that are in the export pipeline as of the closing date, including procedures for segregation of manufactured goods and suspension of technical data transmissions;
(d) Identify the point of contact for questions regarding the compliance hold (Col. Hendrickson or his designee); and
(e) State that violations of the compliance directive may result in disciplinary action and may constitute violations of federal law.
3. Customer Notification.
VPI should notify its UK and Australian customers and end-users of the potential for temporary export delays arising from the ownership transition and associated license amendment process. These notifications should be carefully drafted in consultation with counsel to accomplish two objectives: (i) providing sufficient information to allow the customers to plan for potential delivery delays, and (ii) avoiding unauthorized disclosure of ITAR-controlled information about the transaction or about VPI's specific licensing status. The notifications should not disclose the specific license numbers, authorized values, or other ITAR-sensitive details; rather, they should communicate in general terms that VPI is undergoing a corporate transaction that requires certain regulatory approvals and that deliveries may be temporarily affected.
VPI should also coordinate with the relevant DoD program offices — including the NAVSEA and AFRL contracting officer's representatives — to ensure that the U.S. government is aware of the potential for delivery delays on contracts that feed into the export programs.
4. Segregation of Pending Export Shipments.
Any manufactured defense articles destined for export under the DSP-5 licenses that are not shipped before the closing date should be physically segregated and held in VPI's controlled inventory at the Colorado Springs or Albuquerque facilities, pending license amendment approval. The segregated items should be clearly labeled and tracked in VPI's inventory management system, and access to the segregated items should be restricted to authorized U.S.-person employees. This segregation measure ensures that the items are not inadvertently shipped or released during the interim period.
5. Technical Data Access Controls.
For License 3, which authorizes the export of technical data to the UK, VPI should ensure that no new transmissions of ITAR-controlled technical data occur after the closing date until the license amendment is approved by DDTC. This measure is particularly important because the introduction of HSAG's foreign ownership creates additional deemed-export and retransfer concerns. Specifically, VPI should:
(a) Suspend all scheduled and ad hoc transmissions of technical data to Merrifield and BAE Systems Applied intelligence under License 3, effective as of the closing date;
(b) Implement access controls on VPI's electronic systems (including secure file transfer platforms, engineering databases, and email systems) to prevent unauthorized transmission of technical data covered by License 3;
(c) Ensure that HSAG personnel do not gain access to the technical data covered by License 3 — or any other ITAR-controlled technical data held by VPI — at any time before or after the closing, absent separate DDTC authorization. This measure should be implemented as part of the broader TCP framework being established under the NSA; and
(d) Document all access control measures and retain records for audit purposes.
6. Alternative Authorization Assessment.
As a contingency measure, VPI should evaluate whether any of the three license authorizations could alternatively be conducted under an existing ITAR exemption during the interim period. Potentially relevant exemptions include:
• 22 C.F.R. § 126.4, which provides an exemption for exports to NATO governments and NATO agencies for official use. This exemption is narrow: it applies only to exports to NATO governments (not to commercial entities, even if they are acting on behalf of a NATO government), and the defense articles must be for the official use of the NATO government. To the extent that VPI's exports are to commercial foreign consignees (Merrifield, Austral, and BAE Systems Applied intelligence) rather than directly to the UK MoD or Australian Department of Defence, this exemption may not be available.
• 22 C.F.R. § 125.4, which provides certain exemptions for the export of technical data, including an exemption for technical data that is furnished pursuant to an official request or directive from a U.S. government agency. This exemption is also narrow and would need to be carefully analyzed in light of the specific circumstances of License 3.
We note that these exemptions are generally not adequate substitutes for DSP-5 authorization in the context of commercial exports of defense articles or technical data. However, they should be analyzed as potential fallbacks for any time-critical deliveries that cannot be delayed without unacceptable consequences for allied defense programs. Any reliance on an ITAR exemption should be documented in a written legal analysis prepared by VPI's empowered official, with review by outside counsel.
C. Impact on Government Contracts
Several of VPI's active DoD contracts involve the production of components that are also exported under the DSP-5 licenses. The interrelationship between VPI's domestic defense contracts and its export programs creates a risk that delays in the DSP-5 amendment process could have cascading effects on VPI's contract performance.
Two contracts are of particular concern:
Ironclad Defense Systems Inc. Subcontract. VPI is a subcontractor to Ironclad Defense Systems Inc. under a prime contract with the U.S. Navy, Naval Sea Systems Command ("NAVSEA"), with a VPI subcontract backlog of approximately $34.1 million. This subcontract involves the production and delivery of GaN T/R module subassemblies that may, in turn, be incorporated into systems destined for export to allied navies under Foreign Military Sales ("FMS") or direct commercial sale arrangements. If VPI's deliveries under License 2 feed into the same production line or share common components with deliveries under the Ironclad subcontract, a suspension of exports under License 2 could create production scheduling conflicts, component allocation disputes, or inventory management challenges that affect VPI's ability to perform under the Ironclad subcontract.
AFRL Contract. VPI holds a contract with the U.S. Air Force Research Laboratory ("AFRL") with a backlog of approximately $41.7 million. This contract involves the development of next-generation GaN power amplifier technology that may incorporate AFRL-developed technical data or government-purpose rights data. If AFRL-developed technology is being shared with UK or Australian partners under any of the DSP-5 licenses, the suspension of exports could affect the collaborative technology development program and could raise additional issues regarding the disposition of government-funded technical data.
Any delay in DSP-5 amendment approval that affects VPI's contract performance should be flagged for the government contracts team. The companion Government Contracts Novation/Change-of-Name Analysis memorandum addresses the separate but related issues of contract novation and name-change agreements that may be required as a result of the acquisition. The government contracts and export controls workstreams should be closely coordinated to avoid situations in which a contract novation is approved but the underlying export license has not yet been amended, or vice versa.
VII. Coordination with CFIUS Process and NSA Provisions
A. CFIUS Considerations
The CFIUS review (Case No. CFIUS-023-07-3841) is evaluating, among other things, the risk that the transaction could result in the unauthorized transfer of ITAR-controlled technology — specifically, VPI's advanced GaN power amplifier designs and related technical data — to non-U.S. persons following the closing. VPI's ITAR-controlled products are used in critical defense systems (radar, satellite communications, electronic warfare), and CFIUS has identified VPI's technology as a significant national security concern warranting mitigation.
The DSP-5 license amendment process is complementary to, and should be coordinated with, the CFIUS mitigation framework. From CFIUS's perspective, HSAG's proactive engagement with DDTC on license amendments demonstrates a commitment to export-control compliance that should be viewed favorably. We recommend that the CFIUS filing team (led by Peggy Ashworth) coordinate with the DDTC filing team (led by David Caruso) to ensure that CFIUS is kept informed of the status of DDTC filings and vice versa. Specifically, the CFIUS joint voluntary notice (Exhibit E) has already disclosed VPI's three active DSP-5 licenses and their scope, and any updates regarding the amendment process should be communicated to CFIUS staff counsel at appropriate intervals.
It is worth noting that the Department of State is a member of the CFIUS committee and participates in CFIUS reviews through its representative on the committee. The State Department's CFIUS representative may coordinate informally with the DDTC Licensing Division regarding VPI's license amendment requests, which could facilitate or complicate the DDTC review depending on the State Department's assessment of the transaction's export control implications. We should be prepared for the possibility that DDTC will defer action on the license amendments until CFIUS has reached a determination on the transaction, or will condition the amendments on the execution of the NSA.
B. NSA Technology Control Plan Integration
The anticipated National Security Agreement is expected to include, as a central component, a Technology Control Plan governing VPI's handling of ITAR-controlled and EAR-controlled technical data and defense articles following the closing of the acquisition. Based on our discussions with CFIUS staff counsel and our review of NSA precedents in comparable transactions, the TCP is expected to include the following key provisions:
(a) A prohibition on the transfer, disclosure, or provision of access to any ITAR-controlled or EAR-controlled technical data, defense articles, or defense services by VPI to any non-U.S. person — including HSAG, Halcyon US Holdings, and their respective directors, officers, employees, and affiliates — without prior authorization from the U.S. government (DDTC for ITAR-controlled items, BIS for EAR-controlled items);
(b) Requirements for physical, electronic, and procedural security measures to prevent unauthorized access to controlled items, including network segmentation, access badge restrictions, visitor escort requirements, and classified information handling protocols;
(c) Requirements for annual compliance audits by an independent third-party compliance monitor (Whitmore Compliance Group LLC has been identified as the anticipated monitor, subject to CFIUS approval);
(d) Requirements for the establishment of a Government Security Committee ("GSC") composed of U.S.-person directors with security clearances, responsible for overseeing VPI's compliance with the NSA, the TCP, and applicable export control and security regulations; and
(e) Reporting obligations to CFIUS, DCSA, and DDTC regarding any actual or suspected breaches of the TCP or NSA.
The DSP-5 license amendments should reference the TCP and NSA provisions explicitly, as DDTC is likely to condition amended licenses on VPI's compliance with the NSA/TCP framework. The conditions of the amended licenses and the terms of the TCP should be mutually consistent and reinforcing — for example, if the TCP prohibits HSAG access to ITAR-controlled technical data, the amended License 3 should reference that prohibition and confirm that technical data exported under the license will not be accessible to HSAG personnel.
The TCP will establish VPI-specific procedures for the handling, storage, transmission, and accounting of ITAR-controlled items that should align with — and in many cases will exceed — the conditions of any amended DSP-5 licenses. We recommend that the license amendment applications be drafted with the TCP provisions in mind, and that the TCP be drafted with the license conditions in mind, to ensure seamless integration of the two compliance frameworks.
C. Coordination with DCSA
The Defense Counterintelligence and Security Agency serves as the cognizant security agency ("CSA") for VPI's Facility Security Clearance (CAGE Code 7VK92) and is expected to serve as the monitoring agency under the anticipated NSA. DCSA has oversight responsibility for VPI's compliance with the National Industrial Security Program Operating Manual ("NISPOM"), 32 C.F.R. Part 117, and will be the primary U.S. government point of contact for day-to-day security compliance issues at VPI's facilities.
Changes to VPI's export activities and license status should be communicated to DCSA promptly and transparently. DCSA may have views on how the DSP-5 amendment process interacts with VPI's FCL status — for example, DCSA may require that VPI's Standard Practice Procedures ("SPPs") be updated to reflect the change in ownership and the new compliance framework under the NSA before DCSA will concur in the DSP-5 amendments. At a minimum, VPI should notify its DCSA Industrial Security Representative ("IS Rep") of the pending DSP-5 amendment requests and provide DCSA with copies of the amendment applications (or summaries thereof) for its records.
Additionally, DCSA's review of VPI's FCL status under the FOCI mitigation framework (likely a Special Security Agreement or Voting Trust Agreement) will be conducted in parallel with the DDTC license amendment process. The two reviews should be coordinated to ensure consistency between the FCL determination, the NSA, and the ITAR licensing outcomes. VPI should not assume that DDTC approval of license amendments will be forthcoming if DCSA has not yet approved the FOCI mitigation plan for VPI's FCL.
VIII. Risk Assessment and Recommendations
A. Summary of Risks
The following table summarizes the key risks associated with the DSP-5 license amendment process and the interim compliance gap, together with an assessment of likelihood, severity, and recommended mitigation measures:
B. Recommendations. Based on the foregoing analysis, we recommend the following actions:
1. Immediate Action — Begin Preparing Amendment Applications. VPI should begin preparing the three DSP-5 amendment applications and all supporting documentation immediately, in parallel with the ongoing CFIUS review and NSA negotiation. The amendment applications are document-intensive, and early preparation will allow sufficient time for internal review, empowered official certification, and counsel review before filing. We recommend assigning a dedicated project manager within VPI's export

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