1032-00004 · Client 1032 · Export Control & Government Contracts

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PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

This memorandum is a privileged and confidential communication prepared by Calderwood & Harkness LLP in its capacity as counsel to Halcyon Semiconductor Aktiengesellschaft. It is protected from disclosure by the attorney-client privilege, the work product doctrine, and all other applicable privileges. This memorandum is not intended for distribution to, or use by, any third party without the express prior written consent of Calderwood & Harkness LLP.

October 17, 2023

MEMORANDUM

FROM: Lt. Col. (Ret.) David Caruso, Senior Counsel, Government Contracts & Export Controls Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006 Tel: (202) 555-4120 dcaruso@calderwoodharkness.com

TO: Stefan Lohse, General Counsel / Chefjustitiar, Halcyon Semiconductor Aktiengesellschaft Beatrice Holloway, Responsible Partner, Calderwood & Harkness LLP Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS, Calderwood & Harkness LLP

CC: Kenneth Morales, Associate, Corporate/M&A, Calderwood & Harkness LLP Priya Venkataraman, Associate, International Trade & Sanctions, Calderwood & Harkness LLP

RE: FAR 42.12 Novation Requirements — Marlowe Asset Management Photonics Inc. Government Contracts Portfolio in Connection with Acquisition by Halcyon Semiconductor AG

MATTER: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. Acquisition (Matter No. 1032-00004)

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

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I. Executive Summary

This memorandum analyzes the novation and change-of-name requirements under Subpart 42.12 of the Federal Acquisition Regulation ("FAR") triggered by the proposed acquisition of one hundred percent (100%) of the outstanding equity of Marlowe Asset Management Photonics Inc. ("VPI") by Halcyon Semiconductor Aktiengesellschaft ("HSAG"). The acquisition will be consummated through Halcyon US Holdings Inc., a Delaware C-corporation formed on June 5, 2023 (EIN 93-2841067), which will serve as the direct U.S. acquisition vehicle and will hold all outstanding shares of VPI following the closing. VPI is a Delaware C-corporation incorporated on February 14, 2009 (EIN 26-4371885). The transaction is governed by a Stock Purchase Agreement ("SPA") executed on June 10, 2023, providing for aggregate cash consideration of $1.42 billion, subject to customary purchase price adjustments and a post-closing earnout of up to $85 million.

HSAG is a German Aktiengesellschaft organized under the laws of the Federal Republic of Germany, registered with the Amtsgericht Dresden under HRB 28416, and publicly traded on the Frankfurt Stock Exchange under the ticker symbol XETRA: HLC. Following the closing, VPI will become a subsidiary of a foreign-owned parent entity—a fact that carries significant implications for VPI's portfolio of government contracts with the U.S. Department of Defense ("DoD") and other federal agencies.

VPI currently holds fourteen (14) active government contracts, consisting of prime contracts and subcontracts with the U.S. Army, U.S. Air Force, Missile Defense Agency ("MDA"), U.S. Navy (through a subcontract to Ironclad Defense Systems Inc.), the Department of Homeland Security ("DHS"), and other federal agencies. These contracts have an aggregate remaining backlog of approximately $193 million and encompass work at classification levels ranging from UNCLASSIFIED to SECRET.

Based on our comprehensive analysis of the FAR 42.12 requirements, applicable Defense Federal Acquisition Regulation Supplement ("DFARS") provisions, DoD policy guidance, and the specific characteristics of each contract in VPI's portfolio, we conclude as follows:

• Eight (8) of the fourteen (14) active contracts require formal novation agreements under FAR 42.12, executed as tri-party agreements among VPI's selling shareholders (as transferors), Halcyon US Holdings Inc. (as transferee), and the United States of America acting through the respective responsible contracting officers.

• Six (6) of the fourteen (14) active contracts do not require formal novation and can proceed under modified notification procedures, contracting officer waivers, or alternative mechanisms, based on their specific contractual or structural characteristics (including near-completion status, de minimis remaining value, or contracting officer determination that novation is unnecessary).

This memorandum further addresses the interaction between the novation process and several parallel regulatory and compliance workstreams, including: (i) the National Security Agreement ("NSA"), designated NSA-2024-0019, negotiated with the Committee on Foreign Investment in the United States ("CFIUS") monitoring agencies; (ii) the facility security clearance ("FCL") transition under the National Industrial Security Program ("NISP") and oversight by the Defense Counterintelligence and Security Agency ("DCSA"); (iii) DFARS 252.209-7002 foreign ownership disclosures; and (iv) Defense Trade Controls Directorate ("DDTC") change-of-ownership notifications under the International Traffic in Arms Regulations ("ITAR"). The sequencing and coordination of these overlapping workstreams are critical to ensuring a successful and timely transition that preserves VPI's government contract relationships and revenue base.

II. Legal Framework — FAR Subpart 42.12

A. Applicable Regulations

FAR Subpart 42.12 governs the procedures by which the United States Government recognizes a successor in interest to government contracts when a contractor undergoes a change in ownership, control, or corporate identity. The relevant regulatory provisions are as follows:

FAR 42.1200 — Scope. This section establishes the scope of Subpart 42.12, providing that it "prescribes policies and procedures for (a) recognition of a successor in interest to government contracts when contractor assets are transferred; (b) recognition of a new contractor name; and (c) execution of novation agreements and change-of-name agreements by the responsible contracting officer." The scope encompasses all forms of contractor transfers, including asset sales, stock purchases, mergers, consolidations, and other transactions that result in a change of the contractor's identity, ownership, or control.

FAR 42.1202 — Policy. This section sets forth the government's overarching policy that it will "recognize the transfer of a contractor's assets to a successor in interest through a novation agreement, when in the Government's interest." The policy further provides that a novation agreement is not required when the transfer of assets is by operation of law or when the Government's interests are adequately protected without one. Importantly, the regulation establishes that the government will not recognize a successor in interest unless the successor meets the applicable requirements for contract performance, including financial capability, technical competence, and eligibility to receive contract awards.

FAR 42.1204 — Applicability of Novation Agreements. This is the central operative provision governing when a novation agreement is required. Subsection (a) provides that a novation agreement is required when "a contractor's assets or the contractor itself is transferred" from one entity to another. Subsection (b) addresses the specific scenario presented here—where "the contractor is acquired by another entity through a stock purchase or other change of ownership or control, but the contractor's legal entity remains the same." In such cases, the contracting officer has discretion to determine whether a novation agreement is necessary, taking into consideration the totality of the circumstances, including the nature of the change, the impact on contract performance, and whether the government's interests are adequately protected. Subsection (c) identifies circumstances in which a novation agreement may not be required, discussed further in Section II.D below.

FAR 42.1205 — Agreement to Recognize a Successor in Interest. This section prescribes the form and content of novation agreements. A novation agreement is a tri-party agreement among: (i) the transferor (here, VPI's selling shareholders); (ii) the transferee (here, Halcyon US Holdings Inc., as VPI's new parent); and (iii) the United States of America, acting through the responsible contracting officer. The novation agreement effects the government's formal recognition of the transferee as the successor in interest to the affected contracts. Subsection (b) separately addresses change-of-name agreements, which are distinct from novation agreements and applicable only where a contractor's name changes without an accompanying change in ownership or control.

B. Stock Purchase vs. Asset Purchase Distinction

The distinction between a stock purchase and an asset purchase is of critical importance in the novation analysis. In an asset purchase, the contractor's assets are transferred to a new legal entity, which becomes a different contractor in the eyes of the government. In such transactions, a novation agreement is almost always required because the government's contractual relationship must be formally transferred from the original contractor to the successor entity.

In a stock purchase transaction—such as the transaction at issue here—the contractor itself continues as the same legal entity. VPI will retain its existing federal employer identification number (EIN 26-4371885), its Commercial and Government Entity ("CAGE") Code (7VK92), and its Data Universal Numbering System ("DUNS") Number (07-812-4493). The corporate shell performing the contracts remains unchanged; only the ownership of the equity interests in that shell changes.

FAR 42.1204(b) directly addresses this scenario, recognizing that when a contractor's ownership or control changes but the legal entity performing remains the same, the contracting officer retains discretion to determine whether a novation agreement is nonetheless required. This discretion is not unlimited; it is exercised in light of the government's interest in ensuring continued satisfactory contract performance and in maintaining adequate oversight and control over contract administration.

In practice, particularly within the Department of Defense, contracting officers routinely exercise this discretion to require novation agreements in stock purchase transactions where the acquiror is a foreign entity. The rationale for this practice is well-established: a change from domestic to foreign ownership raises heightened concerns regarding national security, foreign ownership and control, access to classified information, and export control compliance—concerns that are not adequately addressed through notification alone. The Defense Contract Management Agency ("DCMA") and individual military department contracting activities have consistently taken the position that novation agreements are appropriate in foreign-ownership change-of-control transactions, even where the same legal entity continues performing.

We have confirmed this position through informal consultations with DCMA's Contract Maintenance Division and with experienced government contracts practitioners familiar with recent precedent transactions involving foreign acquisitions of U.S. defense contractors. The consensus view is that, for any contract involving classified information or ITAR-controlled defense articles, a formal novation agreement will be required following a stock purchase by a foreign acquiror. For unclassified contracts with significant remaining value, contracting officers will also typically require novation, though there is somewhat greater flexibility in these cases.

C. Change-of-Name Agreements (FAR 42.1205(b))

It is important to distinguish novation agreements from change-of-name agreements under FAR 42.1205(b). A change-of-name agreement is a simpler instrument that applies when a contractor's name changes but its ownership, control, and legal identity remain the same. A change-of-name agreement does not transfer contractual rights or obligations; it merely updates the government's records to reflect the contractor's new name.

A change-of-name agreement is not applicable to the present transaction because the transaction involves a change in ownership and control, not merely a change in name. However, we note that if VPI's corporate name is changed following the closing—for example, to "Halcyon Photonics Inc." or "Marlowe Asset Management Photonics, a Halcyon Company"—a change-of-name agreement would be required in addition to the novation agreements addressing the ownership change. We recommend that the transaction team defer any decision regarding VPI's post-closing corporate name until after the novation process is substantially complete, to avoid the administrative burden of processing both a novation agreement and a change-of-name agreement simultaneously for each affected contract.

D. When Novation May Not Be Required

FAR 42.1204(c) identifies several circumstances in which the responsible contracting officer may determine that a novation agreement is not required, even where a change of ownership or control has occurred:

(1) The transfer of assets is by operation of law (e.g., bankruptcy, probate, or statutory merger);

(2) The government's interests are adequately protected through other means (e.g., the contractor remains the same legal entity and will continue performing without interruption);

(3) The contract is substantially complete, and the remaining performance obligations are de minimis;

(4) The contracting officer determines, in the exercise of sound discretion, that the administrative cost and burden of processing a novation agreement outweigh the benefits, given the specific circumstances of the contract and the transaction.

In the present transaction, we have identified six (6) contracts in VPI's portfolio for which novation may be waived on one or more of these grounds. As discussed in detail in Section III.C below, these contracts share one or more of the following characteristics: (i) remaining performance is less than ten percent (10%) of the total contract value; (ii) the remaining contract value is de minimis (generally under $500,000); or (iii) the contracting officer has indicated, through informal outreach, a willingness to proceed without formal novation based on the specific circumstances.

Even where formal novation is not required, the contracting officer must still be notified of the change in ownership, and VPI must submit updated representations and certifications, DFARS 252.209-7002 foreign ownership disclosures, and any other documentation the contracting officer requests. These alternative procedures are discussed in Section X.B below.

III. Marlowe Asset Management Photonics Inc. — Government Contracts Portfolio Overview

A. Summary Table of All 14 Active Contracts

The following table summarizes VPI's complete portfolio of fourteen (14) active government contracts, including both prime contracts and subcontracts. Contract numbers are assigned in the format "VPI-GOV-[sequential number]" for ease of reference within this memorandum and related correspondence. Actual contract numbers are maintained in VPI's contract management system and will be reflected in the formal novation submissions.

Aggregate Portfolio Statistics:

The five largest contracts by remaining backlog are identified below and represent the core of VPI's government contracts revenue base:

1. U.S. Army CERDEC / PEO IEW&S (VPI-GOV-01) — GaN HEMT modules for the AN/TPS-80 Ground/Air Task-Oriented Radar ("G/ATOR") program. Remaining backlog of $52.3 million. This is VPI's largest active government contract and a critical revenue driver. The contract involves the manufacture and delivery of high-electron-mobility transistor ("HEMT") modules fabricated on VPI's proprietary 150mm GaN-on-SiC process at VPI's Albuquerque, New Mexico fabrication facility. The work is classified at the SECRET level. Novation is required.

2. U.S. Air Force Research Laboratory / AFRL (VPI-GOV-02) — Next-generation millimeter wave ("mmWave") power amplifiers. Remaining backlog of $41.7 million. This is a research and development contract focused on the development of advanced power amplifier technologies for future Air Force electronic warfare and communications systems. The contract involves substantial government-funded research generating patentable inventions and technical data with significant intellectual property implications. The work is classified at the SECRET level. Novation is required.

3. Missile Defense Agency / MDA (VPI-GOV-03) — GaN-based transmit/receive ("T/R") modules for missile defense. Remaining backlog of $38.9 million. This prime contract supports the development and manufacture of T/R modules for integration into missile defense radar systems. The work is classified at the SECRET level and implicates heightened sensitivities associated with the missile defense mission area. Novation is required.

4. Ironclad Defense Systems Inc. Subcontract (VPI-GOV-04) — GaN power amplifier modules under a subcontract to Ironclad Defense Systems Inc. ("Ironclad"), whose prime contract is with the U.S. Navy Naval Sea Systems Command ("NAVSEA"), Contract No. N00024-22-C-6318. Remaining backlog of $34.1 million. This is VPI's sole major subcontract and presents unique novation challenges because the novation process must involve Ironclad as the prime contractor in addition to the NAVSEA contracting officer. The work is designated UNCLASSIFIED but is marked For Official Use Only ("FOUO"). Novation is required.

5. DHS Science & Technology Directorate / DHS S&T (VPI-GOV-05) — Border surveillance RF components. Remaining backlog of $26.0 million. This prime contract supports the development and production of RF components for DHS border surveillance systems. The work is UNCLASSIFIED. Although no classified information is involved, the significant remaining backlog and the foreign ownership change necessitate novation. Novation is required.

The aggregate remaining backlog of these five contracts is approximately $193.0 million, representing approximately 91% of VPI's total government contracts backlog. The remaining nine (9) contracts have an aggregate remaining backlog of approximately $20.0 million, though several of these are also significant and require careful treatment as discussed below.

B. Contracts Requiring Formal Novation (8 of 14)

Based on our analysis, eight (8) of VPI's fourteen (14) active government contracts require formal novation agreements under FAR 42.12. These eight contracts share one or more of the following characteristics that make novation necessary or strongly advisable:

(i) Significant remaining contract value: Contracts with substantial remaining backlogs represent ongoing, material contractual relationships where the government has a strong interest in formally recognizing and approving the change in contractor ownership.

(ii) Classified work: Contracts involving classified information at the SECRET level or above implicate national security concerns that contracting officers and DCSA will require be addressed through formal novation, coordinated with the FCL transition process.

(iii) Foreign ownership change: The acquisition by a German parent entity triggers heightened scrutiny under FAR 42.1204(b) and DFARS 252.209-7002. Contracting officers for DoD contracts are expected to require novation as a matter of course in foreign-ownership change-of-control transactions.

(iv) ITAR-controlled defense articles: Contracts involving the development or production of defense articles controlled under the ITAR raise export control concerns that contracting officers will expect to see addressed in the novation process.

The eight contracts requiring novation are:

1. VPI-GOV-01: U.S. Army CERDEC / PEO IEW&S — AN/TPS-80 GaN HEMT modules ($52.3M backlog, SECRET)

2. VPI-GOV-02: AFRL — Next-gen mmWave power amplifiers ($41.7M backlog, SECRET)

3. VPI-GOV-03: MDA — GaN-based T/R modules ($38.9M backlog, SECRET)

4. VPI-GOV-04: Ironclad Defense Systems Inc. subcontract ($34.1M backlog, UNCLASSIFIED/FOUO)

5. VPI-GOV-05: DHS S&T — Border surveillance RF components ($26.0M backlog, UNCLASSIFIED)

6. VPI-GOV-06: U.S. Army TACOM / PEO GCS — Ground vehicle comms upgrade ($7.4M backlog, SECRET)

7. VPI-GOV-07: U.S. Air Force / MIT Lincoln Lab subcontract — Space-based sensing devices ($6.8M backlog, SECRET)

8. VPI-GOV-08: U.S. Navy NAVAIR — Prototype EW module development ($4.2M backlog, SECRET)

For each of these contracts, the contracting officer or contracting activity, the specific basis for requiring novation, and any special considerations are detailed in Section X.A below.

C. Contracts Not Requiring Formal Novation (6 of 14)

Six (6) of VPI's fourteen (14) active contracts are candidates for contracting officer waiver of the novation requirement, based on one or more of the factors identified in FAR 42.1204(c). These contracts are:

1. VPI-GOV-09: U.S. Army DEVCOM ARL — GaN reliability study ($380K backlog, UNCLASSIFIED/CUI). This contract is approximately 88% complete, with only $380,000 in remaining backlog and a period of performance ending April 30, 2024. The remaining work consists of final testing and report preparation. The contracting officer has indicated informally that novation would not be required given the minimal remaining scope.

2. VPI-GOV-10: U.S. Air Force Space Command — RF subsystem evaluation ($210K backlog, UNCLASSIFIED). This contract is approximately 93% complete, with a period of performance ending February 28, 2024, which is less than three weeks after the anticipated closing date. Remaining work consists of delivery of a final technical report and data package. Novation is impractical given the timeline; the contracting officer has been advised of the pending change in ownership and has indicated that a notification letter will suffice.

3. VPI-GOV-11: GSA / Federal Civilian (IRS) — COTS RF test equipment ($145K backlog, UNCLASSIFIED). This is a GSA Schedule delivery order for commercial off-the-shelf RF test equipment. The remaining deliveries consist of routine equipment shipments with a period of performance ending January 31, 2024. The GSA Schedule itself does not require novation for a change in upstream ownership where the contractor legal entity remains unchanged. A notification letter and updated SAM.gov registration will suffice.

4. VPI-GOV-12: HHS / NIH NIBIB — mmWave biomedical imaging components ($310K backlog, UNCLASSIFIED). This is a small research contract with de minimis remaining value. The NIH contracting officer has indicated that a formal novation is unnecessary given the contract's size and remaining scope, and that notification and updated representations will be sufficient.

5. VPI-GOV-13: DOE / Sandia National Laboratories — High-power RF devices ($480K backlog, UNCLASSIFIED/CUI). This is a subcontract to Sandia National Laboratories for directed energy research. The remaining scope is limited, and the subcontract terms provide for assignment with the prime contractor's consent. Sandia's subcontract administration office has indicated informally that a subcontract modification reflecting the ownership change, rather than a formal novation, would be the appropriate mechanism.

6. VPI-GOV-14: NOAA / NWS — Weather radar replacement amplifier modules ($75K backlog, UNCLASSIFIED). This contract is virtually complete, with only $75,000 in remaining deliveries and a period of performance ending December 31, 2023—well before the anticipated closing date. No novation action is required; VPI will deliver all remaining items prior to closing.

For each of these contracts, VPI will nonetheless be required to submit notification letters advising the contracting officers of the change in ownership, updated DFARS 252.209-7002 disclosures (for DoD contracts), and any other documentation requested by the contracting officer. These requirements are discussed in Section X.B below.

IV. Novation Agreement Process and Requirements

A. Required Documentation Under FAR 42.1204(e)

FAR 42.1204(e) specifies the documentation that must be submitted to each responsible contracting officer in support of a novation agreement request. Based on our review of the regulation and current agency practices, we recommend that VPI and Halcyon US Holdings Inc. prepare and submit the following documentation package for each of the eight (8) contracts requiring novation:

1. Three (3) signed copies of the proposed novation agreement. The novation agreement should be prepared using the standard form prescribed by FAR 42.1204(e)(3), adapted as necessary to reflect the specific facts of the transaction. As discussed in Section IV.B below, the novation agreement is a tri-party instrument executed by the transferor (VPI's selling shareholders or their authorized representative), the transferee (Halcyon US Holdings Inc.), and the United States of America acting through the responsible contracting officer. Separate novation agreements will be required for each affected contract, though the supporting documentation package may be substantially identical across all submissions.

2. Certified copy of the Stock Purchase Agreement. A certified copy of the SPA executed on June 10, 2023, together with all amendments, schedules, and exhibits thereto (to the extent not subject to confidentiality restrictions that would preclude disclosure to the government). If any portions of the SPA are redacted for confidentiality reasons, we recommend providing a cover letter explaining the basis for each redaction and offering to make unredacted copies available for in camera review upon request.

3. Certified copy of the instrument of transfer. In a stock purchase transaction, the "instrument of transfer" consists of the stock certificates or stock powers evidencing the transfer of VPI's outstanding shares from the selling shareholders to Halcyon US Holdings Inc. If VPI's shares are held in book-entry form (as is typical for a private company with institutional investors), the transfer agent's confirmation of the share transfer will serve as the instrument of transfer.

4. A list of all affected contracts. This list should include, for each contract: (a) the contract number; (b) the name and address of the contracting office; (c) the name and contact information of the responsible contracting officer (or the Administrative Contracting Officer ("ACO") and Procuring Contracting Officer ("PCO"), as applicable); (d) the total contract value; (e) the remaining backlog; and (f) the period of performance end date. A single, comprehensive list covering all fourteen (14) VPI government contracts should be submitted with each novation package, with the specific contract at issue in that submission highlighted.

5. Evidence of the transferee's capability to perform the contracts. This documentation should demonstrate that Halcyon US Holdings Inc. (and through it, VPI under new ownership) has the financial resources, technical qualifications, and organizational infrastructure to perform the affected contracts. Specific items should include:

(a) Audited financial statements of HSAG for the most recent fiscal year (audited by Leinberger & Hess Wirtschaftsprüfungsgesellschaft, Stuttgart);

(b) Audited financial statements of VPI for the most recent fiscal year (audited by Arbor & Greenfield LLP, Albuquerque);

(d) A description of Halcyon US Holdings Inc.'s capitalization and financial support commitments from HSAG;

(e) A summary of VPI's technical workforce, key personnel, and facility capabilities, emphasizing continuity of the existing team and infrastructure;

(f) Evidence of VPI's facility security clearance ("FCL") status, including the DCSA-assigned CAGE Code (7VK92), current FCL level (SECRET), and the status of the FCL transition under foreign ownership.

6. The transferee's consent to the novation. A written statement from Halcyon US Holdings Inc. (executed by an authorized officer) consenting to the novation and agreeing to assume all obligations, covenants, and conditions under the affected contracts.

7. Evidence of legal authority for the transfer. Board resolutions from both HSAG (Vorstand and Aufsichtsrat) and VPI's board of directors authorizing the transaction, together with any required shareholder approvals or consents. For HSAG, these resolutions should be certified by the Vorstandsvorsitzender or Handlungsbevollmächtigter and accompanied by an English translation certified by a qualified translator.

8. Opinion of legal counsel regarding the validity of the transfer. Calderwood & Harkness LLP will provide a legal opinion confirming: (a) the SPA constitutes a valid and binding agreement; (b) the transfer of VPI's shares to Halcyon US Holdings Inc. has been duly authorized and is legally effective; (c) VPI continues as a validly existing corporation under the laws of the State of Delaware; and (d) the novation agreement, when executed, will be a valid and enforceable obligation of the parties. A separate opinion from Wethersfield & Gale LLP, as counsel to VPI and the selling shareholders, may also be required to confirm the selling shareholders' authority and the validity of the transferor guarantees.

9. Balance sheets of both VPI and the acquiring entity. The most recent audited balance sheets of VPI (audited by Arbor & Greenfield LLP, Albuquerque) and HSAG (audited by Leinberger & Hess Wirtschaftsprüfungsgesellschaft, Stuttgart). The HSAG balance sheet should be presented in both the original format (IFRS, denominated in Euros) and a reconciliation to U.S. GAAP for the convenience of the contracting officer.

In addition to the foregoing items required by the FAR, we recommend that the following supplemental documentation be included in each novation package to facilitate contracting officer review and approval:

(a) A copy of the CFIUS clearance letter (anticipated January 26, 2024);

(b) A copy of the executed National Security Agreement (NSA-2024-0019);

(d) A summary of the FOCI mitigation measures in place under the NSA, including the Government Security Committee structure, personnel continuity provisions, and Technology Control Plan;

(e) The DFARS 252.209-7002 foreign ownership disclosure for the specific contract;

(f) A cover letter from Col. (Ret.) Bryce Hendrickson, in his capacity as VPI's VP Government Programs and Facility Security Officer, attesting to VPI's continued capability and readiness to perform.

B. Key Terms of the Novation Agreement

The novation agreement for each affected contract will follow the standard form prescribed by FAR 42.1204(e)(3), with the following key provisions:

Parties. The novation agreement is a tri-party agreement among: (i) the transferor—here, VPI's selling shareholders, acting through an authorized representative or agent; (ii) the transferee—Halcyon US Holdings Inc., as VPI's new direct parent and the entity that has acquired control of VPI; and (iii) the United States of America, acting through the responsible contracting officer for the affected contract.

We note that the identity of the "transferor" in a stock purchase transaction presents a practical complexity. In a traditional asset purchase, the transferor is the selling contractor itself. In this transaction, the selling parties are VPI's pre-closing shareholders: Dr. Nathan Trevorrow and affiliated family trusts (22.4% of outstanding shares); Marissa Sung-Avila (4.1%); Ridgecrest Ventures Fund III, L.P. (31.7%); Cascadian Capital Partners Growth Fund II, L.P. (24.3%); VPI employee stock option holders participating in the transaction (11.8%); and various individual angel investors (5.7%). Because it would be impractical to have each individual shareholder execute the novation agreement, we recommend designating a single authorized representative—most likely Dr. Trevorrow, as VPI's CEO and the largest individual shareholder, or the Shareholder Representative appointed under the SPA—to execute the novation agreement and transferor guarantees on behalf of all selling shareholders. We will coordinate with Wethersfield & Gale LLP regarding this approach.

Transferor Guarantees. Under the standard novation agreement form, the transferor guarantees performance of the affected contracts for a specified period following the effective date of the novation. This guarantee is a critical element of the novation agreement because it provides the government with recourse against the original contractor (or its principals) in the event the successor fails to perform. The duration of the transferor guarantee is subject to negotiation, but typically ranges from twelve (12) to twenty-four (24) months. We recommend proposing a twelve (12)-month guarantee period, consistent with market practice for transactions of this type.

Assumption of Obligations. The transferee (Halcyon US Holdings Inc.) assumes all rights, obligations, covenants, conditions, and terms of the affected contracts as if it were the original contractor. The transferee agrees to be bound by all of the provisions of the contracts, including but not limited to those relating to performance, inspection, acceptance, payment, disputes, and termination.

Government Recognition. The United States, acting through the contracting officer, recognizes the transferee as the successor contractor under the affected contracts, effective as of the date specified in the novation agreement (typically the closing date of the underlying transaction).

VPI Continuity. Because this is a stock purchase rather than an asset purchase, VPI itself—the same legal entity, with the same EIN, CAGE Code, and DUNS Number—will continue as the performing contractor. The novation agreement in this context addresses the change in ownership and control of VPI rather than the substitution of a new performing entity. This distinction should be reflected in the novation agreement language to avoid any implication that VPI's corporate identity has changed.

C. Subcontract Novation (Ironclad Defense Systems Inc. Contract)

The Ironclad Defense Systems Inc. subcontract (VPI-GOV-04) presents unique procedural considerations that warrant separate discussion. VPI performs as a subcontractor to Ironclad under Ironclad's prime contract with NAVSEA (Contract No. N00024-22-C-6318). The subcontract, designated N00024-22-C-6318-S001, has a remaining backlog of $34.1 million and is designated UNCLASSIFIED (FOUO).

The novation of a subcontract involves a different procedural framework than the novation of a prime contract. The key distinctions are as follows:

Prime Contractor Consent. Ironclad, as the prime contractor, is a necessary party to the subcontract novation. Under the subcontract terms and applicable FAR provisions (particularly FAR 44.3, which governs contractors' purchasing systems and subcontract administration), Ironclad must consent to the change in ownership of its subcontractor. Without Ironclad's consent, the subcontract novation cannot proceed regardless of the government's position.

Government Involvement. Although the government is not a direct party to the subcontract, NAVSEA's contracting officer has oversight authority over Ironclad's purchasing system and significant subcontracts under FAR 44.3. The NAVSEA contracting officer may require that Ironclad obtain government approval before consenting to the subcontract novation, particularly given the foreign ownership dimension. In practice, the NAVSEA contracting officer will likely coordinate with DCMA, which administers Ironclad's prime contract, to review and approve the subcontract novation.

DFARS Supplemental Guidance. DFARS Part 244 provides supplemental guidance on subcontract oversight, including provisions requiring government consent to changes in subcontractor ownership or control for certain categories of subcontracts. Given the significance of this subcontract (over $34 million in remaining backlog), it will likely fall within the threshold requiring government consent.

Coordination with Ironclad. We recommend that Col. Hendrickson initiate early engagement with Ironclad's contracts office to (a) advise Ironclad of the pending acquisition and its implications for the subcontract, (b) request Ironclad's consent to the subcontract novation, (c) identify any conditions or concerns Ironclad may have, and (d) coordinate the timeline for subcontract novation with the broader novation process. We understand that VPI has a productive working relationship with Ironclad, which should facilitate this engagement. However, we must be alert to the possibility that Ironclad may attempt to use the novation process as leverage to renegotiate subcontract terms, seek price concessions, or impose other conditions unrelated to the ownership change. If such issues arise, we recommend addressing them promptly through direct negotiation, with legal counsel involvement as appropriate.

We should also identify and engage Ironclad's government contracts counsel at the earliest opportunity. If Ironclad is represented by external counsel on government contracts matters, early coordination between Calderwood & Harkness and Ironclad's outside counsel can help ensure that the subcontract novation process proceeds efficiently and in parallel with the prime contract novation submissions.

V. DFARS Supplemental Requirements

A. DFARS 252.209-7002 — Disclosure of Ownership or Control by a Foreign Government

DFARS 252.209-7002, "Disclosure of Ownership or Control by the Government of a Country that is a State Sponsor of Terrorism," requires defense contractors to disclose to the contracting officer any ownership or control by a foreign government. Although Germany is not a state sponsor of terrorism, the broader DFARS foreign ownership disclosure framework requires contractors to provide updated information whenever there is a change in ownership that results in foreign ownership or control. A separate, detailed analysis of VPI's obligations under DFARS 252.209-7002 and related provisions is being prepared (cross-reference to the DFARS Foreign Ownership Disclosure Requirements Memorandum, in preparation by Priya Venkataraman). However, the following key points are directly relevant to the novation process and are summarized here:

First, VPI must disclose to each of its fourteen (14) contracting officers that it is now owned by a German parent entity, HSAG. This disclosure must identify HSAG by its full corporate name, jurisdiction of organization, registered office, and commercial register number (HRB 28416, Amtsgericht Dresden).

Second, the disclosure must confirm that HSAG is publicly traded on the Frankfurt Stock Exchange (XETRA: HLC) and that, based on HSAG's most recent shareholder disclosures (Stimmrechtsmitteilungen) under the German Securities Trading Act (Wertpapierhandelsgesetz, "WpHG"), no foreign government or government-controlled entity holds a significant ownership stake in HSAG. As of HSAG's most recent annual report, the largest shareholders are institutional investors including Ostrander Investors (7.2%), Vireo Investment Management (5.8%), and the Halcyon-Stiftung (12.4%, a German private foundation established by HSAG's founder). No government entity of any country has been identified as holding a direct or indirect ownership interest in HSAG.

Third, the DFARS foreign ownership disclosures must be submitted to all fourteen contracting officers—not merely the eight for which novation is required. For the eight novation-required contracts, the disclosure should accompany or precede the novation submission. For the six non-novation contracts, the disclosure should be submitted contemporaneously with the notification letter advising of the ownership change.

B. DFARS 252.204-7018 — Prohibition on Covered Defense Telecommunications Equipment or Services

DFARS 252.204-7018 prohibits contractors from providing or using "covered defense telecommunications equipment or services" in connection with the performance of defense contracts. We have reviewed VPI's supply chain and telecommunications infrastructure and have confirmed that VPI does not use, nor does it supply, any equipment or services manufactured or provided by the entities identified in Section 889 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company, or their subsidiaries and affiliates). No issues have been identified under this provision, and no additional action is required in connection with the novation process.

C. National Industrial Security Program (NISP) Considerations

VPI holds a facility security clearance ("FCL") at the SECRET level, issued by DCSA and associated with VPI's CAGE Code 7VK92. The FCL authorizes VPI to access, store, and process classified information up to and including the SECRET level at its Albuquerque, New Mexico fabrication facility. Six (6) of VPI's fourteen (14) active government contracts involve work classified at the SECRET level and require VPI to maintain a valid FCL as a condition of contract performance.

The acquisition of VPI by a foreign parent entity triggers Foreign Ownership, Control, or Influence ("FOCI") considerations under the NISP. DCSA must approve the continuation of VPI's FCL under foreign ownership, which requires the implementation of an appropriate FOCI mitigation instrument. In this case, the FOCI mitigation framework is provided by the NSA negotiated with the CFIUS monitoring agencies (NSA-2024-0019), which functions as the Security Supervision Agreement ("SSA") equivalent for FOCI mitigation purposes. The NSA establishes a Government Security Committee ("GSC"), a Technology Control Plan ("TCP"), and other measures designed to ensure that HSAG's foreign ownership does not compromise VPI's ability to safeguard classified information or perform classified contracts.

Contracting officers for classified contracts will not process novation agreements without confirmation from DCSA that VPI's FCL will continue in force under foreign ownership. This sequencing requirement underscores the importance of coordinating the novation timeline with the DCSA FCL transition process. We recommend that VPI engage with DCSA promptly following CFIUS clearance to obtain written acknowledgment of VPI's continued FCL, which can then be included as a supporting document in the novation submissions for classified contracts.

Col. (Ret.) Bryce Hendrickson continues in his role as VPI's Facility Security Officer ("FSO") and Vice President, Government Programs. Col. Hendrickson holds a Top Secret / Sensitive Compartmented Information ("TS/SCI") security clearance and has served as VPI's FSO since 2017. His retention is a term of the NSA and is expected to be a significant factor in contracting officer confidence during the novation process. Col. Hendrickson will serve as VPI's primary point of contact with contracting officers throughout the novation process, leveraging his established relationships with the relevant contracting activities and his personal credibility as a retired Army officer with extensive defense acquisition experience.

A detailed analysis of the FCL transition process, including the DCSA notification requirements, the SSA-equivalent FOCI mitigation framework under the NSA, and the timeline for DCSA approval, is provided in the separate Facility Security Clearance Transition Plan Memorandum (in preparation by Peggy Ashworth and David Caruso). That memorandum should be read in conjunction with this one.

VI. Interaction with CFIUS National Security Agreement

A. NSA Provisions Relevant to Government Contracts

The National Security Agreement, designated NSA-2024-0019, was executed on January 19, 2024, following extensive negotiations among HSAG, VPI, the CFIUS monitoring agencies (Department of Defense and Department of Justice, as co-lead agencies), and the CFIUS Staff Chairperson (Department of the Treasury). The NSA is the cornerstone of the CFIUS-mandated national security mitigation framework and contains numerous provisions that directly bear on VPI's government contract performance and the novation process. The provisions most relevant to the novation analysis are summarized below.

Board Governance — Government Security Committee. The NSA requires the establishment of a Government Security Committee ("GSC") within VPI's board of directors. The GSC is composed of three (3) Security Board Members ("SBMs"), all of whom must be U.S. citizens with eligibility for TS/SCI-level security clearances. The SBMs are selected through a process involving nomination by HSAG and approval by the CFIUS monitoring agencies and DCSA. The GSC has exclusive authority over all matters relating to VPI's classified programs, including: (i) oversight of VPI's FCL and classified contract performance; (ii) approval of access to classified information; (iii) management of the Technology Control Plan; and (iv) resolution of any conflicts between VPI's commercial activities and its national security obligations. The existence of the GSC provides contracting officers with an additional layer of assurance that classified contract performance will not be compromised by foreign ownership.

Personnel Continuity. The NSA requires that three (3) key VPI executives remain employed by VPI for a minimum of twenty-four (24) months following the closing:

(i) Dr. Nathan Trevorrow, Chief Executive Officer (TS/SCI clearance holder). Dr. Trevorrow is the co-founder of VPI and has led the company since its inception in 2009. His technical expertise and relationships with DoD program offices are critical to VPI's competitive position.

(ii) Marissa Sung-Avila, President and Chief Operating Officer (SECRET clearance holder). Ms. Sung-Avila oversees VPI's day-to-day operations, including manufacturing, quality assurance, and supply chain management.

(iii) Col. (Ret.) Bryce Hendrickson, Vice President, Government Programs and Facility Security Officer (TS/SCI clearance holder). Col. Hendrickson manages VPI's government contracts portfolio, serves as the primary interface with contracting officers and the defense acquisition community, and is responsible for VPI's industrial security program.

Any replacement of these individuals during the twenty-four-month period requires prior approval from both the GSC and DCSA. This personnel continuity requirement is directly relevant to the novation process because contracting officers will want assurance that the key personnel responsible for contract performance and security oversight will remain in place following the ownership change.

Technology Control Plan. The NSA incorporates a Technology Control Plan ("TCP") that prohibits the transfer of ITAR-controlled or EAR-controlled VPI technical data, know-how, or technology to non-U.S. persons—including HSAG personnel—without prior authorization from the U.S. Government. The TCP establishes specific procedures for screening and controlling information flows between VPI and HSAG, including: (i) designation of a Technology Control Officer ("TCO") responsible for TCP implementation; (ii) mandatory classification review and export control screening of all information proposed for transfer to HSAG; (iii) physical and electronic security measures to prevent unauthorized access to controlled information; and (iv) training requirements for all VPI personnel regarding TCP obligations. The TCP directly addresses contracting officer concerns regarding the potential for unauthorized transfer of controlled defense information to a foreign parent.

Facility Access Restrictions. The NSA restricts access by HSAG personnel to classified areas within VPI's Albuquerque fabrication facility, specifically clean room Sections C-7 through C-12, which are designated as classified processing areas. HSAG personnel may not enter these areas without prior approval from both DCSA and the GSC. This restriction is implemented through physical access controls (badge restrictions, escort requirements) and is monitored by VPI's industrial security staff under Col. Hendrickson's oversight.

Third-Party Compliance Monitor. The NSA requires the engagement of an independent third-party compliance monitor to conduct annual audits of VPI's compliance with the NSA and the TCP. Whitmore Compliance Group LLC, a specialized national security compliance firm led by Gerald Whitmore (former Deputy Assistant Secretary of Defense for Industrial Policy), has been designated as the compliance monitor. The annual audit costs, estimated at $1.2 million per year, are borne by HSAG. The compliance monitor's reports are provided to the CFIUS monitoring agencies and are available for review by contracting officers upon request.

B. Coordination Between Novation and NSA

The novation process and the CFIUS/NSA process are closely interrelated and must be carefully coordinated. Based on our experience with similar transactions and our understanding of current contracting officer practices, we expect that contracting officers will condition their approval of novation agreements on confirmed execution of the NSA and receipt of CFIUS clearance. Contracting officers are unlikely to process novation agreements—particularly for classified contracts—in the absence of CFIUS clearance, because the CFIUS review is the government's primary mechanism for evaluating the national security implications of the foreign acquisition.

We recommend the following coordination approach:

Pre-CFIUS Clearance (Current Phase). During the period before CFIUS clearance is obtained, VPI and Calderwood & Harkness should conduct informal outreach to the contracting officers for the eight novation-required contracts. The purpose of this outreach is to: (a) advise contracting officers of the pending acquisition and the anticipated need for novation; (b) provide a general overview of the transaction structure, the CFIUS review process, and the anticipated NSA mitigation framework; (c) solicit informal feedback regarding the contracting officer's expectations and any specific documentation requirements; and (d) establish lines of communication that will facilitate efficient processing of the formal novation submissions after CFIUS clearance. This informal outreach should be conducted by Col. Hendrickson, with support from Calderwood & Harkness as requested.

Post-CFIUS Clearance / Pre-Closing. Following receipt of the CFIUS clearance letter (anticipated January 26, 2024) and execution of the NSA (January 19, 2024), but before the closing (anticipated February 9, 2024), VPI and Calderwood & Harkness should finalize the draft novation agreements and supporting documentation packages. We should not submit formal novation packages before closing because the transfer of shares will not yet have occurred, and the contracting officers cannot process a novation agreement for a transaction that has not been consummated.

Post-Closing. Within thirty (30) days of closing, VPI should submit formal novation packages simultaneously to the contracting officers for all eight novation-required contracts. Each package should include a copy of the CFIUS clearance letter and the executed NSA as key supporting documents. These documents will provide contracting officers with the assurance they need to process the novation agreements and will demonstrate that the U.S. Government—through the CFIUS interagency process—has already conducted a thorough national security review and imposed appropriate mitigation measures.

VII. Interaction with Export Control Requirements

VPI's products include items controlled under both the International Traffic in Arms Regulations ("ITAR") and the Export Administration Regulations ("EAR"). Specifically, certain of VPI's GaN power amplifier modules and related defense articles are classified under Category XI(a)(3) of the United States Munitions List ("USML"), which covers "electronic equipment specifically designed, modified, or configured for military application." Other VPI products, particularly those with commercial or dual-use applications, are classified under Export Control Classification Number ("ECCN") 3A001 of the Commerce Control List ("CCL"), which covers certain types of semiconductor devices and integrated circuits.

VPI has been registered with the DDTC as a manufacturer and exporter of defense articles since 2011 (Registration No. M-24817). The change of ownership resulting from the acquisition triggers a mandatory change-of-ownership notification under ITAR § 122.4(a), which requires DDTC-registered entities to notify DDTC of any change in ownership or control within sixty (60) days. A separate DDTC Registration Transfer Analysis Memorandum is being prepared by Priya Venkataraman and Christy Bauer to address this requirement in detail.

In addition, VPI currently holds three (3) active DSP-5 export licenses authorizing the export of ITAR-controlled defense articles to NATO allies (specifically, the United Kingdom and Australia). These licenses must be amended to reflect the change in ownership, and the license amendments must be approved by DDTC before the licenses can be used for further exports under new ownership. A separate DSP-5 License Continuation Memorandum is in preparation.

The export control compliance posture is directly relevant to the novation process because contracting officers for ITAR-controlled programs will evaluate VPI's export control compliance as a factor in their assessment of whether to approve the novation. Contracting officers want assurance that controlled technical data and defense articles will continue to be properly safeguarded under foreign ownership and that appropriate export control mechanisms are in place to prevent unauthorized transfers. The TCP established under the NSA provides a comprehensive framework for addressing these concerns, and we recommend including a summary of the TCP and VPI's export control compliance program in each novation submission for contracts involving ITAR-controlled items.

For a comprehensive analysis of VPI's export control classifications and the impact of the transaction on VPI's export control posture, please refer to the ITAR/EAR Classification Review Memorandum prepared by Christy Bauer (Calderwood & Harkness, International Trade & Sanctions group), which is being finalized concurrently with this memorandum.

VIII. Proposed Timeline and Sequencing

The novation process must be carefully sequenced and coordinated with the parallel CFIUS, DCSA, DDTC, and closing workstreams. The following timeline reflects our recommended approach, based on the current transaction schedule and our assessment of typical government processing timelines.

A. Pre-Closing Steps (Prior to Closing on February 9, 2024)

B. Post-Closing Steps (Following Closing on February 9, 2024)

Processing Timeline Notes. Government processing of novation agreements typically takes three (3) to six (6) months from the date of submission. However, processing times can vary significantly depending on the contracting activity, the workload of the contracting officer, and the complexity of the specific contract. For classified contracts, the involvement of DCSA in the review process may extend the timeline. We have estimated a six-month target for obtaining all executed novation agreements, but this timeline should be treated as aspirational; some contracts may take longer.

VPI will continue performing under its existing contracts during the novation process. The change in ownership does not interrupt contract performance. VPI's authority to perform derives from the underlying contracts, which remain in full force and effect throughout the novation process. No novation agreement is required to be in place before the closing; the closing can proceed, with novation processing occurring post-closing as described above.

IX. Impact on Contract Performance During Novation Process

A. Continuity of Performance

A fundamental principle of the FAR novation framework—and one that distinguishes a stock purchase from an asset purchase—is that in a stock purchase transaction, the performing contractor remains the same legal entity throughout the transition. VPI will retain its EIN (26-4371885), CAGE Code (7VK92), and DUNS Number (07-812-4493). Its contracts, facility clearances, personnel clearances, and registrations continue in the name of VPI. The novation agreement formalizes the government's recognition of the new ownership structure but does not create a new contractual relationship.

Accordingly, VPI is expected to continue performing under all fourteen (14) active contracts without interruption during the novation process. Contract deliverables, milestones, and payment schedules should proceed as normal. Invoices should continue to be submitted under VPI's existing contract numbers, CAGE Code, and billing arrangements. VPI should not cease or suspend performance pending completion of the novation process unless directed to do so by a contracting officer—an eventuality we consider unlikely but address as a risk factor below.

It is worth noting that the government has a strong interest in continuity of contract performance, particularly for the high-priority defense programs in VPI's portfolio (AN/TPS-80 radar, missile defense T/R modules, mmWave power amplifiers). Any interruption in VPI's performance could have downstream impacts on these programs' schedules and readiness. This alignment of interests provides VPI with significant leverage in the novation process: contracting officers are motivated to process novation agreements efficiently to ensure continued program support.

B. Risk Factors and Mitigation

Notwithstanding the strong expectation of continuity, the novation process is not without risk. We have identified the following risk factors and corresponding mitigation strategies:

Contracting Officer Delay Risk. Some contracting officers may be slow to process novation agreements, particularly where foreign ownership is involved. Contracting officers unfamiliar with FOCI mitigation frameworks or the CFIUS process may require additional time to review the supporting documentation and satisfy themselves that the change in ownership does not compromise the government's interests. Additionally, contracting officers with heavy workloads may not prioritize novation processing.

Mitigation: Informal outreach prior to formal submission is designed to lay the groundwork for efficient processing. By establishing communication with contracting officers in advance, providing preliminary information about the transaction and the NSA, and soliciting feedback on documentation requirements, we can reduce the "front-end" processing time. The inclusion of the CFIUS clearance letter and executed NSA in the novation package provides contracting officers with a strong basis for confidence that the national security implications have already been thoroughly evaluated by the interagency. Col. Hendrickson's established relationships with the relevant contracting activities are an additional asset.

FCL Risk. If DCSA delays its acknowledgment of VPI's continued FCL under foreign ownership, contracting officers for classified contracts may pause novation processing until DCSA confirmation is received. This is because the contracting officer must be assured that VPI can continue to access and process classified information before formalizing the novation.

Mitigation: Close coordination with DCSA is essential. VPI should submit its FOCI action plan to DCSA promptly after closin

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
This memorandum is a privileged and confidential communication prepared by Calderwood & Harkness LLP in its capacity as counsel to Halcyon Semiconductor Aktiengesellschaft. It is protected from disclosure by the attorney-client privilege, the work product doctrine, and all other applicable privileges. This memorandum is not intended for distribution to, or use by, any third party without the express prior written consent of Calderwood & Harkness LLP.
October 17, 2023
MEMORANDUM
FROM: Lt. Col. (Ret.) David Caruso, Senior Counsel, Government Contracts & Export Controls Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006 Tel: (202) 555-4120 dcaruso@calderwoodharkness.com
TO: Stefan Lohse, General Counsel / Chefjustitiar, Halcyon Semiconductor Aktiengesellschaft Beatrice Holloway, Responsible Partner, Calderwood & Harkness LLP Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS, Calderwood & Harkness LLP
CC: Kenneth Morales, Associate, Corporate/M&A, Calderwood & Harkness LLP Priya Venkataraman, Associate, International Trade & Sanctions, Calderwood & Harkness LLP
RE: FAR 42.12 Novation Requirements — Marlowe Asset Management Photonics Inc. Government Contracts Portfolio in Connection with Acquisition by Halcyon Semiconductor AG
MATTER: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. Acquisition (Matter No. 1032-00004)
CFIUS Case No.: CFIUS-023-07-3841
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I. Executive Summary
This memorandum analyzes the novation and change-of-name requirements under Subpart 42.12 of the Federal Acquisition Regulation ("FAR") triggered by the proposed acquisition of one hundred percent (100%) of the outstanding equity of Marlowe Asset Management Photonics Inc. ("VPI") by Halcyon Semiconductor Aktiengesellschaft ("HSAG"). The acquisition will be consummated through Halcyon US Holdings Inc., a Delaware C-corporation formed on June 5, 2023 (EIN 93-2841067), which will serve as the direct U.S. acquisition vehicle and will hold all outstanding shares of VPI following the closing. VPI is a Delaware C-corporation incorporated on February 14, 2009 (EIN 26-4371885). The transaction is governed by a Stock Purchase Agreement ("SPA") executed on June 10, 2023, providing for aggregate cash consideration of $1.42 billion, subject to customary purchase price adjustments and a post-closing earnout of up to $85 million.
HSAG is a German Aktiengesellschaft organized under the laws of the Federal Republic of Germany, registered with the Amtsgericht Dresden under HRB 28416, and publicly traded on the Frankfurt Stock Exchange under the ticker symbol XETRA: HLC. Following the closing, VPI will become a subsidiary of a foreign-owned parent entity—a fact that carries significant implications for VPI's portfolio of government contracts with the U.S. Department of Defense ("DoD") and other federal agencies.
VPI currently holds fourteen (14) active government contracts, consisting of prime contracts and subcontracts with the U.S. Army, U.S. Air Force, Missile Defense Agency ("MDA"), U.S. Navy (through a subcontract to Ironclad Defense Systems Inc.), the Department of Homeland Security ("DHS"), and other federal agencies. These contracts have an aggregate remaining backlog of approximately $193 million and encompass work at classification levels ranging from UNCLASSIFIED to SECRET.
Based on our comprehensive analysis of the FAR 42.12 requirements, applicable Defense Federal Acquisition Regulation Supplement ("DFARS") provisions, DoD policy guidance, and the specific characteristics of each contract in VPI's portfolio, we conclude as follows:
• Eight (8) of the fourteen (14) active contracts require formal novation agreements under FAR 42.12, executed as tri-party agreements among VPI's selling shareholders (as transferors), Halcyon US Holdings Inc. (as transferee), and the United States of America acting through the respective responsible contracting officers.
• Six (6) of the fourteen (14) active contracts do not require formal novation and can proceed under modified notification procedures, contracting officer waivers, or alternative mechanisms, based on their specific contractual or structural characteristics (including near-completion status, de minimis remaining value, or contracting officer determination that novation is unnecessary).
This memorandum further addresses the interaction between the novation process and several parallel regulatory and compliance workstreams, including: (i) the National Security Agreement ("NSA"), designated NSA-2024-0019, negotiated with the Committee on Foreign Investment in the United States ("CFIUS") monitoring agencies; (ii) the facility security clearance ("FCL") transition under the National Industrial Security Program ("NISP") and oversight by the Defense Counterintelligence and Security Agency ("DCSA"); (iii) DFARS 252.209-7002 foreign ownership disclosures; and (iv) Defense Trade Controls Directorate ("DDTC") change-of-ownership notifications under the International Traffic in Arms Regulations ("ITAR"). The sequencing and coordination of these overlapping workstreams are critical to ensuring a successful and timely transition that preserves VPI's government contract relationships and revenue base.
II. Legal Framework — FAR Subpart 42.12
A. Applicable Regulations
FAR Subpart 42.12 governs the procedures by which the United States Government recognizes a successor in interest to government contracts when a contractor undergoes a change in ownership, control, or corporate identity. The relevant regulatory provisions are as follows:
FAR 42.1200 — Scope. This section establishes the scope of Subpart 42.12, providing that it "prescribes policies and procedures for (a) recognition of a successor in interest to government contracts when contractor assets are transferred; (b) recognition of a new contractor name; and (c) execution of novation agreements and change-of-name agreements by the responsible contracting officer." The scope encompasses all forms of contractor transfers, including asset sales, stock purchases, mergers, consolidations, and other transactions that result in a change of the contractor's identity, ownership, or control.
FAR 42.1202 — Policy. This section sets forth the government's overarching policy that it will "recognize the transfer of a contractor's assets to a successor in interest through a novation agreement, when in the Government's interest." The policy further provides that a novation agreement is not required when the transfer of assets is by operation of law or when the Government's interests are adequately protected without one. Importantly, the regulation establishes that the government will not recognize a successor in interest unless the successor meets the applicable requirements for contract performance, including financial capability, technical competence, and eligibility to receive contract awards.
FAR 42.1204 — Applicability of Novation Agreements. This is the central operative provision governing when a novation agreement is required. Subsection (a) provides that a novation agreement is required when "a contractor's assets or the contractor itself is transferred" from one entity to another. Subsection (b) addresses the specific scenario presented here—where "the contractor is acquired by another entity through a stock purchase or other change of ownership or control, but the contractor's legal entity remains the same." In such cases, the contracting officer has discretion to determine whether a novation agreement is necessary, taking into consideration the totality of the circumstances, including the nature of the change, the impact on contract performance, and whether the government's interests are adequately protected. Subsection (c) identifies circumstances in which a novation agreement may not be required, discussed further in Section II.D below.
FAR 42.1205 — Agreement to Recognize a Successor in Interest. This section prescribes the form and content of novation agreements. A novation agreement is a tri-party agreement among: (i) the transferor (here, VPI's selling shareholders); (ii) the transferee (here, Halcyon US Holdings Inc., as VPI's new parent); and (iii) the United States of America, acting through the responsible contracting officer. The novation agreement effects the government's formal recognition of the transferee as the successor in interest to the affected contracts. Subsection (b) separately addresses change-of-name agreements, which are distinct from novation agreements and applicable only where a contractor's name changes without an accompanying change in ownership or control.
B. Stock Purchase vs. Asset Purchase Distinction
The distinction between a stock purchase and an asset purchase is of critical importance in the novation analysis. In an asset purchase, the contractor's assets are transferred to a new legal entity, which becomes a different contractor in the eyes of the government. In such transactions, a novation agreement is almost always required because the government's contractual relationship must be formally transferred from the original contractor to the successor entity.
In a stock purchase transaction—such as the transaction at issue here—the contractor itself continues as the same legal entity. VPI will retain its existing federal employer identification number (EIN 26-4371885), its Commercial and Government Entity ("CAGE") Code (7VK92), and its Data Universal Numbering System ("DUNS") Number (07-812-4493). The corporate shell performing the contracts remains unchanged; only the ownership of the equity interests in that shell changes.
FAR 42.1204(b) directly addresses this scenario, recognizing that when a contractor's ownership or control changes but the legal entity performing remains the same, the contracting officer retains discretion to determine whether a novation agreement is nonetheless required. This discretion is not unlimited; it is exercised in light of the government's interest in ensuring continued satisfactory contract performance and in maintaining adequate oversight and control over contract administration.
In practice, particularly within the Department of Defense, contracting officers routinely exercise this discretion to require novation agreements in stock purchase transactions where the acquiror is a foreign entity. The rationale for this practice is well-established: a change from domestic to foreign ownership raises heightened concerns regarding national security, foreign ownership and control, access to classified information, and export control compliance—concerns that are not adequately addressed through notification alone. The Defense Contract Management Agency ("DCMA") and individual military department contracting activities have consistently taken the position that novation agreements are appropriate in foreign-ownership change-of-control transactions, even where the same legal entity continues performing.
We have confirmed this position through informal consultations with DCMA's Contract Maintenance Division and with experienced government contracts practitioners familiar with recent precedent transactions involving foreign acquisitions of U.S. defense contractors. The consensus view is that, for any contract involving classified information or ITAR-controlled defense articles, a formal novation agreement will be required following a stock purchase by a foreign acquiror. For unclassified contracts with significant remaining value, contracting officers will also typically require novation, though there is somewhat greater flexibility in these cases.
C. Change-of-Name Agreements (FAR 42.1205(b))
It is important to distinguish novation agreements from change-of-name agreements under FAR 42.1205(b). A change-of-name agreement is a simpler instrument that applies when a contractor's name changes but its ownership, control, and legal identity remain the same. A change-of-name agreement does not transfer contractual rights or obligations; it merely updates the government's records to reflect the contractor's new name.
A change-of-name agreement is not applicable to the present transaction because the transaction involves a change in ownership and control, not merely a change in name. However, we note that if VPI's corporate name is changed following the closing—for example, to "Halcyon Photonics Inc." or "Marlowe Asset Management Photonics, a Halcyon Company"—a change-of-name agreement would be required in addition to the novation agreements addressing the ownership change. We recommend that the transaction team defer any decision regarding VPI's post-closing corporate name until after the novation process is substantially complete, to avoid the administrative burden of processing both a novation agreement and a change-of-name agreement simultaneously for each affected contract.
D. When Novation May Not Be Required
FAR 42.1204(c) identifies several circumstances in which the responsible contracting officer may determine that a novation agreement is not required, even where a change of ownership or control has occurred:
(1) The transfer of assets is by operation of law (e.g., bankruptcy, probate, or statutory merger);
(2) The government's interests are adequately protected through other means (e.g., the contractor remains the same legal entity and will continue performing without interruption);
(3) The contract is substantially complete, and the remaining performance obligations are de minimis;
(4) The contracting officer determines, in the exercise of sound discretion, that the administrative cost and burden of processing a novation agreement outweigh the benefits, given the specific circumstances of the contract and the transaction.
In the present transaction, we have identified six (6) contracts in VPI's portfolio for which novation may be waived on one or more of these grounds. As discussed in detail in Section III.C below, these contracts share one or more of the following characteristics: (i) remaining performance is less than ten percent (10%) of the total contract value; (ii) the remaining contract value is de minimis (generally under $500,000); or (iii) the contracting officer has indicated, through informal outreach, a willingness to proceed without formal novation based on the specific circumstances.
Even where formal novation is not required, the contracting officer must still be notified of the change in ownership, and VPI must submit updated representations and certifications, DFARS 252.209-7002 foreign ownership disclosures, and any other documentation the contracting officer requests. These alternative procedures are discussed in Section X.B below.
III. Marlowe Asset Management Photonics Inc. — Government Contracts Portfolio Overview
A. Summary Table of All 14 Active Contracts
The following table summarizes VPI's complete portfolio of fourteen (14) active government contracts, including both prime contracts and subcontracts. Contract numbers are assigned in the format "VPI-GOV-[sequential number]" for ease of reference within this memorandum and related correspondence. Actual contract numbers are maintained in VPI's contract management system and will be reflected in the formal novation submissions.
Aggregate Portfolio Statistics:
The five largest contracts by remaining backlog are identified below and represent the core of VPI's government contracts revenue base:
1. U.S. Army CERDEC / PEO IEW&S (VPI-GOV-01) — GaN HEMT modules for the AN/TPS-80 Ground/Air Task-Oriented Radar ("G/ATOR") program. Remaining backlog of $52.3 million. This is VPI's largest active government contract and a critical revenue driver. The contract involves the manufacture and delivery of high-electron-mobility transistor ("HEMT") modules fabricated on VPI's proprietary 150mm GaN-on-SiC process at VPI's Albuquerque, New Mexico fabrication facility. The work is classified at the SECRET level. Novation is required.
2. U.S. Air Force Research Laboratory / AFRL (VPI-GOV-02) — Next-generation millimeter wave ("mmWave") power amplifiers. Remaining backlog of $41.7 million. This is a research and development contract focused on the development of advanced power amplifier technologies for future Air Force electronic warfare and communications systems. The contract involves substantial government-funded research generating patentable inventions and technical data with significant intellectual property implications. The work is classified at the SECRET level. Novation is required.
3. Missile Defense Agency / MDA (VPI-GOV-03) — GaN-based transmit/receive ("T/R") modules for missile defense. Remaining backlog of $38.9 million. This prime contract supports the development and manufacture of T/R modules for integration into missile defense radar systems. The work is classified at the SECRET level and implicates heightened sensitivities associated with the missile defense mission area. Novation is required.
4. Ironclad Defense Systems Inc. Subcontract (VPI-GOV-04) — GaN power amplifier modules under a subcontract to Ironclad Defense Systems Inc. ("Ironclad"), whose prime contract is with the U.S. Navy Naval Sea Systems Command ("NAVSEA"), Contract No. N00024-22-C-6318. Remaining backlog of $34.1 million. This is VPI's sole major subcontract and presents unique novation challenges because the novation process must involve Ironclad as the prime contractor in addition to the NAVSEA contracting officer. The work is designated UNCLASSIFIED but is marked For Official Use Only ("FOUO"). Novation is required.
5. DHS Science & Technology Directorate / DHS S&T (VPI-GOV-05) — Border surveillance RF components. Remaining backlog of $26.0 million. This prime contract supports the development and production of RF components for DHS border surveillance systems. The work is UNCLASSIFIED. Although no classified information is involved, the significant remaining backlog and the foreign ownership change necessitate novation. Novation is required.
The aggregate remaining backlog of these five contracts is approximately $193.0 million, representing approximately 91% of VPI's total government contracts backlog. The remaining nine (9) contracts have an aggregate remaining backlog of approximately $20.0 million, though several of these are also significant and require careful treatment as discussed below.
B. Contracts Requiring Formal Novation (8 of 14)
Based on our analysis, eight (8) of VPI's fourteen (14) active government contracts require formal novation agreements under FAR 42.12. These eight contracts share one or more of the following characteristics that make novation necessary or strongly advisable:
(i) Significant remaining contract value: Contracts with substantial remaining backlogs represent ongoing, material contractual relationships where the government has a strong interest in formally recognizing and approving the change in contractor ownership.
(ii) Classified work: Contracts involving classified information at the SECRET level or above implicate national security concerns that contracting officers and DCSA will require be addressed through formal novation, coordinated with the FCL transition process.
(iii) Foreign ownership change: The acquisition by a German parent entity triggers heightened scrutiny under FAR 42.1204(b) and DFARS 252.209-7002. Contracting officers for DoD contracts are expected to require novation as a matter of course in foreign-ownership change-of-control transactions.
(iv) ITAR-controlled defense articles: Contracts involving the development or production of defense articles controlled under the ITAR raise export control concerns that contracting officers will expect to see addressed in the novation process.
The eight contracts requiring novation are:
1. VPI-GOV-01: U.S. Army CERDEC / PEO IEW&S — AN/TPS-80 GaN HEMT modules ($52.3M backlog, SECRET)
2. VPI-GOV-02: AFRL — Next-gen mmWave power amplifiers ($41.7M backlog, SECRET)
3. VPI-GOV-03: MDA — GaN-based T/R modules ($38.9M backlog, SECRET)
4. VPI-GOV-04: Ironclad Defense Systems Inc. subcontract ($34.1M backlog, UNCLASSIFIED/FOUO)
5. VPI-GOV-05: DHS S&T — Border surveillance RF components ($26.0M backlog, UNCLASSIFIED)
6. VPI-GOV-06: U.S. Army TACOM / PEO GCS — Ground vehicle comms upgrade ($7.4M backlog, SECRET)
7. VPI-GOV-07: U.S. Air Force / MIT Lincoln Lab subcontract — Space-based sensing devices ($6.8M backlog, SECRET)
8. VPI-GOV-08: U.S. Navy NAVAIR — Prototype EW module development ($4.2M backlog, SECRET)
For each of these contracts, the contracting officer or contracting activity, the specific basis for requiring novation, and any special considerations are detailed in Section X.A below.
C. Contracts Not Requiring Formal Novation (6 of 14)
Six (6) of VPI's fourteen (14) active contracts are candidates for contracting officer waiver of the novation requirement, based on one or more of the factors identified in FAR 42.1204(c). These contracts are:
1. VPI-GOV-09: U.S. Army DEVCOM ARL — GaN reliability study ($380K backlog, UNCLASSIFIED/CUI). This contract is approximately 88% complete, with only $380,000 in remaining backlog and a period of performance ending April 30, 2024. The remaining work consists of final testing and report preparation. The contracting officer has indicated informally that novation would not be required given the minimal remaining scope.
2. VPI-GOV-10: U.S. Air Force Space Command — RF subsystem evaluation ($210K backlog, UNCLASSIFIED). This contract is approximately 93% complete, with a period of performance ending February 28, 2024, which is less than three weeks after the anticipated closing date. Remaining work consists of delivery of a final technical report and data package. Novation is impractical given the timeline; the contracting officer has been advised of the pending change in ownership and has indicated that a notification letter will suffice.
3. VPI-GOV-11: GSA / Federal Civilian (IRS) — COTS RF test equipment ($145K backlog, UNCLASSIFIED). This is a GSA Schedule delivery order for commercial off-the-shelf RF test equipment. The remaining deliveries consist of routine equipment shipments with a period of performance ending January 31, 2024. The GSA Schedule itself does not require novation for a change in upstream ownership where the contractor legal entity remains unchanged. A notification letter and updated SAM.gov registration will suffice.
4. VPI-GOV-12: HHS / NIH NIBIB — mmWave biomedical imaging components ($310K backlog, UNCLASSIFIED). This is a small research contract with de minimis remaining value. The NIH contracting officer has indicated that a formal novation is unnecessary given the contract's size and remaining scope, and that notification and updated representations will be sufficient.
5. VPI-GOV-13: DOE / Sandia National Laboratories — High-power RF devices ($480K backlog, UNCLASSIFIED/CUI). This is a subcontract to Sandia National Laboratories for directed energy research. The remaining scope is limited, and the subcontract terms provide for assignment with the prime contractor's consent. Sandia's subcontract administration office has indicated informally that a subcontract modification reflecting the ownership change, rather than a formal novation, would be the appropriate mechanism.
6. VPI-GOV-14: NOAA / NWS — Weather radar replacement amplifier modules ($75K backlog, UNCLASSIFIED). This contract is virtually complete, with only $75,000 in remaining deliveries and a period of performance ending December 31, 2023—well before the anticipated closing date. No novation action is required; VPI will deliver all remaining items prior to closing.
For each of these contracts, VPI will nonetheless be required to submit notification letters advising the contracting officers of the change in ownership, updated DFARS 252.209-7002 disclosures (for DoD contracts), and any other documentation requested by the contracting officer. These requirements are discussed in Section X.B below.
IV. Novation Agreement Process and Requirements
A. Required Documentation Under FAR 42.1204(e)
FAR 42.1204(e) specifies the documentation that must be submitted to each responsible contracting officer in support of a novation agreement request. Based on our review of the regulation and current agency practices, we recommend that VPI and Halcyon US Holdings Inc. prepare and submit the following documentation package for each of the eight (8) contracts requiring novation:
1. Three (3) signed copies of the proposed novation agreement. The novation agreement should be prepared using the standard form prescribed by FAR 42.1204(e)(3), adapted as necessary to reflect the specific facts of the transaction. As discussed in Section IV.B below, the novation agreement is a tri-party instrument executed by the transferor (VPI's selling shareholders or their authorized representative), the transferee (Halcyon US Holdings Inc.), and the United States of America acting through the responsible contracting officer. Separate novation agreements will be required for each affected contract, though the supporting documentation package may be substantially identical across all submissions.
2. Certified copy of the Stock Purchase Agreement. A certified copy of the SPA executed on June 10, 2023, together with all amendments, schedules, and exhibits thereto (to the extent not subject to confidentiality restrictions that would preclude disclosure to the government). If any portions of the SPA are redacted for confidentiality reasons, we recommend providing a cover letter explaining the basis for each redaction and offering to make unredacted copies available for in camera review upon request.
3. Certified copy of the instrument of transfer. In a stock purchase transaction, the "instrument of transfer" consists of the stock certificates or stock powers evidencing the transfer of VPI's outstanding shares from the selling shareholders to Halcyon US Holdings Inc. If VPI's shares are held in book-entry form (as is typical for a private company with institutional investors), the transfer agent's confirmation of the share transfer will serve as the instrument of transfer.
4. A list of all affected contracts. This list should include, for each contract: (a) the contract number; (b) the name and address of the contracting office; (c) the name and contact information of the responsible contracting officer (or the Administrative Contracting Officer ("ACO") and Procuring Contracting Officer ("PCO"), as applicable); (d) the total contract value; (e) the remaining backlog; and (f) the period of performance end date. A single, comprehensive list covering all fourteen (14) VPI government contracts should be submitted with each novation package, with the specific contract at issue in that submission highlighted.
5. Evidence of the transferee's capability to perform the contracts. This documentation should demonstrate that Halcyon US Holdings Inc. (and through it, VPI under new ownership) has the financial resources, technical qualifications, and organizational infrastructure to perform the affected contracts. Specific items should include:
(a) Audited financial statements of HSAG for the most recent fiscal year (audited by Leinberger & Hess Wirtschaftsprüfungsgesellschaft, Stuttgart);
(b) Audited financial statements of VPI for the most recent fiscal year (audited by Arbor & Greenfield LLP, Albuquerque);
(c) Pro forma financial projections for VPI under new ownership;
(d) A description of Halcyon US Holdings Inc.'s capitalization and financial support commitments from HSAG;
(e) A summary of VPI's technical workforce, key personnel, and facility capabilities, emphasizing continuity of the existing team and infrastructure;
(f) Evidence of VPI's facility security clearance ("FCL") status, including the DCSA-assigned CAGE Code (7VK92), current FCL level (SECRET), and the status of the FCL transition under foreign ownership.
6. The transferee's consent to the novation. A written statement from Halcyon US Holdings Inc. (executed by an authorized officer) consenting to the novation and agreeing to assume all obligations, covenants, and conditions under the affected contracts.
7. Evidence of legal authority for the transfer. Board resolutions from both HSAG (Vorstand and Aufsichtsrat) and VPI's board of directors authorizing the transaction, together with any required shareholder approvals or consents. For HSAG, these resolutions should be certified by the Vorstandsvorsitzender or Handlungsbevollmächtigter and accompanied by an English translation certified by a qualified translator.
8. Opinion of legal counsel regarding the validity of the transfer. Calderwood & Harkness LLP will provide a legal opinion confirming: (a) the SPA constitutes a valid and binding agreement; (b) the transfer of VPI's shares to Halcyon US Holdings Inc. has been duly authorized and is legally effective; (c) VPI continues as a validly existing corporation under the laws of the State of Delaware; and (d) the novation agreement, when executed, will be a valid and enforceable obligation of the parties. A separate opinion from Wethersfield & Gale LLP, as counsel to VPI and the selling shareholders, may also be required to confirm the selling shareholders' authority and the validity of the transferor guarantees.
9. Balance sheets of both VPI and the acquiring entity. The most recent audited balance sheets of VPI (audited by Arbor & Greenfield LLP, Albuquerque) and HSAG (audited by Leinberger & Hess Wirtschaftsprüfungsgesellschaft, Stuttgart). The HSAG balance sheet should be presented in both the original format (IFRS, denominated in Euros) and a reconciliation to U.S. GAAP for the convenience of the contracting officer.
In addition to the foregoing items required by the FAR, we recommend that the following supplemental documentation be included in each novation package to facilitate contracting officer review and approval:
(a) A copy of the CFIUS clearance letter (anticipated January 26, 2024);
(b) A copy of the executed National Security Agreement (NSA-2024-0019);
(c) A copy of DCSA's acknowledgment of VPI's continued FCL under foreign ownership;
(d) A summary of the FOCI mitigation measures in place under the NSA, including the Government Security Committee structure, personnel continuity provisions, and Technology Control Plan;
(e) The DFARS 252.209-7002 foreign ownership disclosure for the specific contract;
(f) A cover letter from Col. (Ret.) Bryce Hendrickson, in his capacity as VPI's VP Government Programs and Facility Security Officer, attesting to VPI's continued capability and readiness to perform.
B. Key Terms of the Novation Agreement
The novation agreement for each affected contract will follow the standard form prescribed by FAR 42.1204(e)(3), with the following key provisions:
Parties. The novation agreement is a tri-party agreement among: (i) the transferor—here, VPI's selling shareholders, acting through an authorized representative or agent; (ii) the transferee—Halcyon US Holdings Inc., as VPI's new direct parent and the entity that has acquired control of VPI; and (iii) the United States of America, acting through the responsible contracting officer for the affected contract.
We note that the identity of the "transferor" in a stock purchase transaction presents a practical complexity. In a traditional asset purchase, the transferor is the selling contractor itself. In this transaction, the selling parties are VPI's pre-closing shareholders: Dr. Nathan Trevorrow and affiliated family trusts (22.4% of outstanding shares); Marissa Sung-Avila (4.1%); Ridgecrest Ventures Fund III, L.P. (31.7%); Cascadian Capital Partners Growth Fund II, L.P. (24.3%); VPI employee stock option holders participating in the transaction (11.8%); and various individual angel investors (5.7%). Because it would be impractical to have each individual shareholder execute the novation agreement, we recommend designating a single authorized representative—most likely Dr. Trevorrow, as VPI's CEO and the largest individual shareholder, or the Shareholder Representative appointed under the SPA—to execute the novation agreement and transferor guarantees on behalf of all selling shareholders. We will coordinate with Wethersfield & Gale LLP regarding this approach.
Transferor Guarantees. Under the standard novation agreement form, the transferor guarantees performance of the affected contracts for a specified period following the effective date of the novation. This guarantee is a critical element of the novation agreement because it provides the government with recourse against the original contractor (or its principals) in the event the successor fails to perform. The duration of the transferor guarantee is subject to negotiation, but typically ranges from twelve (12) to twenty-four (24) months. We recommend proposing a twelve (12)-month guarantee period, consistent with market practice for transactions of this type.
Assumption of Obligations. The transferee (Halcyon US Holdings Inc.) assumes all rights, obligations, covenants, conditions, and terms of the affected contracts as if it were the original contractor. The transferee agrees to be bound by all of the provisions of the contracts, including but not limited to those relating to performance, inspection, acceptance, payment, disputes, and termination.
Government Recognition. The United States, acting through the contracting officer, recognizes the transferee as the successor contractor under the affected contracts, effective as of the date specified in the novation agreement (typically the closing date of the underlying transaction).
VPI Continuity. Because this is a stock purchase rather than an asset purchase, VPI itself—the same legal entity, with the same EIN, CAGE Code, and DUNS Number—will continue as the performing contractor. The novation agreement in this context addresses the change in ownership and control of VPI rather than the substitution of a new performing entity. This distinction should be reflected in the novation agreement language to avoid any implication that VPI's corporate identity has changed.
C. Subcontract Novation (Ironclad Defense Systems Inc. Contract)
The Ironclad Defense Systems Inc. subcontract (VPI-GOV-04) presents unique procedural considerations that warrant separate discussion. VPI performs as a subcontractor to Ironclad under Ironclad's prime contract with NAVSEA (Contract No. N00024-22-C-6318). The subcontract, designated N00024-22-C-6318-S001, has a remaining backlog of $34.1 million and is designated UNCLASSIFIED (FOUO).
The novation of a subcontract involves a different procedural framework than the novation of a prime contract. The key distinctions are as follows:
Prime Contractor Consent. Ironclad, as the prime contractor, is a necessary party to the subcontract novation. Under the subcontract terms and applicable FAR provisions (particularly FAR 44.3, which governs contractors' purchasing systems and subcontract administration), Ironclad must consent to the change in ownership of its subcontractor. Without Ironclad's consent, the subcontract novation cannot proceed regardless of the government's position.
Government Involvement. Although the government is not a direct party to the subcontract, NAVSEA's contracting officer has oversight authority over Ironclad's purchasing system and significant subcontracts under FAR 44.3. The NAVSEA contracting officer may require that Ironclad obtain government approval before consenting to the subcontract novation, particularly given the foreign ownership dimension. In practice, the NAVSEA contracting officer will likely coordinate with DCMA, which administers Ironclad's prime contract, to review and approve the subcontract novation.
DFARS Supplemental Guidance. DFARS Part 244 provides supplemental guidance on subcontract oversight, including provisions requiring government consent to changes in subcontractor ownership or control for certain categories of subcontracts. Given the significance of this subcontract (over $34 million in remaining backlog), it will likely fall within the threshold requiring government consent.
Coordination with Ironclad. We recommend that Col. Hendrickson initiate early engagement with Ironclad's contracts office to (a) advise Ironclad of the pending acquisition and its implications for the subcontract, (b) request Ironclad's consent to the subcontract novation, (c) identify any conditions or concerns Ironclad may have, and (d) coordinate the timeline for subcontract novation with the broader novation process. We understand that VPI has a productive working relationship with Ironclad, which should facilitate this engagement. However, we must be alert to the possibility that Ironclad may attempt to use the novation process as leverage to renegotiate subcontract terms, seek price concessions, or impose other conditions unrelated to the ownership change. If such issues arise, we recommend addressing them promptly through direct negotiation, with legal counsel involvement as appropriate.
We should also identify and engage Ironclad's government contracts counsel at the earliest opportunity. If Ironclad is represented by external counsel on government contracts matters, early coordination between Calderwood & Harkness and Ironclad's outside counsel can help ensure that the subcontract novation process proceeds efficiently and in parallel with the prime contract novation submissions.
V. DFARS Supplemental Requirements
A. DFARS 252.209-7002 — Disclosure of Ownership or Control by a Foreign Government
DFARS 252.209-7002, "Disclosure of Ownership or Control by the Government of a Country that is a State Sponsor of Terrorism," requires defense contractors to disclose to the contracting officer any ownership or control by a foreign government. Although Germany is not a state sponsor of terrorism, the broader DFARS foreign ownership disclosure framework requires contractors to provide updated information whenever there is a change in ownership that results in foreign ownership or control. A separate, detailed analysis of VPI's obligations under DFARS 252.209-7002 and related provisions is being prepared (cross-reference to the DFARS Foreign Ownership Disclosure Requirements Memorandum, in preparation by Priya Venkataraman). However, the following key points are directly relevant to the novation process and are summarized here:
First, VPI must disclose to each of its fourteen (14) contracting officers that it is now owned by a German parent entity, HSAG. This disclosure must identify HSAG by its full corporate name, jurisdiction of organization, registered office, and commercial register number (HRB 28416, Amtsgericht Dresden).
Second, the disclosure must confirm that HSAG is publicly traded on the Frankfurt Stock Exchange (XETRA: HLC) and that, based on HSAG's most recent shareholder disclosures (Stimmrechtsmitteilungen) under the German Securities Trading Act (Wertpapierhandelsgesetz, "WpHG"), no foreign government or government-controlled entity holds a significant ownership stake in HSAG. As of HSAG's most recent annual report, the largest shareholders are institutional investors including Ostrander Investors (7.2%), Vireo Investment Management (5.8%), and the Halcyon-Stiftung (12.4%, a German private foundation established by HSAG's founder). No government entity of any country has been identified as holding a direct or indirect ownership interest in HSAG.
Third, the DFARS foreign ownership disclosures must be submitted to all fourteen contracting officers—not merely the eight for which novation is required. For the eight novation-required contracts, the disclosure should accompany or precede the novation submission. For the six non-novation contracts, the disclosure should be submitted contemporaneously with the notification letter advising of the ownership change.
B. DFARS 252.204-7018 — Prohibition on Covered Defense Telecommunications Equipment or Services
DFARS 252.204-7018 prohibits contractors from providing or using "covered defense telecommunications equipment or services" in connection with the performance of defense contracts. We have reviewed VPI's supply chain and telecommunications infrastructure and have confirmed that VPI does not use, nor does it supply, any equipment or services manufactured or provided by the entities identified in Section 889 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company, or their subsidiaries and affiliates). No issues have been identified under this provision, and no additional action is required in connection with the novation process.
C. National Industrial Security Program (NISP) Considerations
VPI holds a facility security clearance ("FCL") at the SECRET level, issued by DCSA and associated with VPI's CAGE Code 7VK92. The FCL authorizes VPI to access, store, and process classified information up to and including the SECRET level at its Albuquerque, New Mexico fabrication facility. Six (6) of VPI's fourteen (14) active government contracts involve work classified at the SECRET level and require VPI to maintain a valid FCL as a condition of contract performance.
The acquisition of VPI by a foreign parent entity triggers Foreign Ownership, Control, or Influence ("FOCI") considerations under the NISP. DCSA must approve the continuation of VPI's FCL under foreign ownership, which requires the implementation of an appropriate FOCI mitigation instrument. In this case, the FOCI mitigation framework is provided by the NSA negotiated with the CFIUS monitoring agencies (NSA-2024-0019), which functions as the Security Supervision Agreement ("SSA") equivalent for FOCI mitigation purposes. The NSA establishes a Government Security Committee ("GSC"), a Technology Control Plan ("TCP"), and other measures designed to ensure that HSAG's foreign ownership does not compromise VPI's ability to safeguard classified information or perform classified contracts.
Contracting officers for classified contracts will not process novation agreements without confirmation from DCSA that VPI's FCL will continue in force under foreign ownership. This sequencing requirement underscores the importance of coordinating the novation timeline with the DCSA FCL transition process. We recommend that VPI engage with DCSA promptly following CFIUS clearance to obtain written acknowledgment of VPI's continued FCL, which can then be included as a supporting document in the novation submissions for classified contracts.
Col. (Ret.) Bryce Hendrickson continues in his role as VPI's Facility Security Officer ("FSO") and Vice President, Government Programs. Col. Hendrickson holds a Top Secret / Sensitive Compartmented Information ("TS/SCI") security clearance and has served as VPI's FSO since 2017. His retention is a term of the NSA and is expected to be a significant factor in contracting officer confidence during the novation process. Col. Hendrickson will serve as VPI's primary point of contact with contracting officers throughout the novation process, leveraging his established relationships with the relevant contracting activities and his personal credibility as a retired Army officer with extensive defense acquisition experience.
A detailed analysis of the FCL transition process, including the DCSA notification requirements, the SSA-equivalent FOCI mitigation framework under the NSA, and the timeline for DCSA approval, is provided in the separate Facility Security Clearance Transition Plan Memorandum (in preparation by Peggy Ashworth and David Caruso). That memorandum should be read in conjunction with this one.
VI. Interaction with CFIUS National Security Agreement
A. NSA Provisions Relevant to Government Contracts
The National Security Agreement, designated NSA-2024-0019, was executed on January 19, 2024, following extensive negotiations among HSAG, VPI, the CFIUS monitoring agencies (Department of Defense and Department of Justice, as co-lead agencies), and the CFIUS Staff Chairperson (Department of the Treasury). The NSA is the cornerstone of the CFIUS-mandated national security mitigation framework and contains numerous provisions that directly bear on VPI's government contract performance and the novation process. The provisions most relevant to the novation analysis are summarized below.
Board Governance — Government Security Committee. The NSA requires the establishment of a Government Security Committee ("GSC") within VPI's board of directors. The GSC is composed of three (3) Security Board Members ("SBMs"), all of whom must be U.S. citizens with eligibility for TS/SCI-level security clearances. The SBMs are selected through a process involving nomination by HSAG and approval by the CFIUS monitoring agencies and DCSA. The GSC has exclusive authority over all matters relating to VPI's classified programs, including: (i) oversight of VPI's FCL and classified contract performance; (ii) approval of access to classified information; (iii) management of the Technology Control Plan; and (iv) resolution of any conflicts between VPI's commercial activities and its national security obligations. The existence of the GSC provides contracting officers with an additional layer of assurance that classified contract performance will not be compromised by foreign ownership.
Personnel Continuity. The NSA requires that three (3) key VPI executives remain employed by VPI for a minimum of twenty-four (24) months following the closing:
(i) Dr. Nathan Trevorrow, Chief Executive Officer (TS/SCI clearance holder). Dr. Trevorrow is the co-founder of VPI and has led the company since its inception in 2009. His technical expertise and relationships with DoD program offices are critical to VPI's competitive position.
(ii) Marissa Sung-Avila, President and Chief Operating Officer (SECRET clearance holder). Ms. Sung-Avila oversees VPI's day-to-day operations, including manufacturing, quality assurance, and supply chain management.
(iii) Col. (Ret.) Bryce Hendrickson, Vice President, Government Programs and Facility Security Officer (TS/SCI clearance holder). Col. Hendrickson manages VPI's government contracts portfolio, serves as the primary interface with contracting officers and the defense acquisition community, and is responsible for VPI's industrial security program.
Any replacement of these individuals during the twenty-four-month period requires prior approval from both the GSC and DCSA. This personnel continuity requirement is directly relevant to the novation process because contracting officers will want assurance that the key personnel responsible for contract performance and security oversight will remain in place following the ownership change.
Technology Control Plan. The NSA incorporates a Technology Control Plan ("TCP") that prohibits the transfer of ITAR-controlled or EAR-controlled VPI technical data, know-how, or technology to non-U.S. persons—including HSAG personnel—without prior authorization from the U.S. Government. The TCP establishes specific procedures for screening and controlling information flows between VPI and HSAG, including: (i) designation of a Technology Control Officer ("TCO") responsible for TCP implementation; (ii) mandatory classification review and export control screening of all information proposed for transfer to HSAG; (iii) physical and electronic security measures to prevent unauthorized access to controlled information; and (iv) training requirements for all VPI personnel regarding TCP obligations. The TCP directly addresses contracting officer concerns regarding the potential for unauthorized transfer of controlled defense information to a foreign parent.
Facility Access Restrictions. The NSA restricts access by HSAG personnel to classified areas within VPI's Albuquerque fabrication facility, specifically clean room Sections C-7 through C-12, which are designated as classified processing areas. HSAG personnel may not enter these areas without prior approval from both DCSA and the GSC. This restriction is implemented through physical access controls (badge restrictions, escort requirements) and is monitored by VPI's industrial security staff under Col. Hendrickson's oversight.
Third-Party Compliance Monitor. The NSA requires the engagement of an independent third-party compliance monitor to conduct annual audits of VPI's compliance with the NSA and the TCP. Whitmore Compliance Group LLC, a specialized national security compliance firm led by Gerald Whitmore (former Deputy Assistant Secretary of Defense for Industrial Policy), has been designated as the compliance monitor. The annual audit costs, estimated at $1.2 million per year, are borne by HSAG. The compliance monitor's reports are provided to the CFIUS monitoring agencies and are available for review by contracting officers upon request.
B. Coordination Between Novation and NSA
The novation process and the CFIUS/NSA process are closely interrelated and must be carefully coordinated. Based on our experience with similar transactions and our understanding of current contracting officer practices, we expect that contracting officers will condition their approval of novation agreements on confirmed execution of the NSA and receipt of CFIUS clearance. Contracting officers are unlikely to process novation agreements—particularly for classified contracts—in the absence of CFIUS clearance, because the CFIUS review is the government's primary mechanism for evaluating the national security implications of the foreign acquisition.
We recommend the following coordination approach:
Pre-CFIUS Clearance (Current Phase). During the period before CFIUS clearance is obtained, VPI and Calderwood & Harkness should conduct informal outreach to the contracting officers for the eight novation-required contracts. The purpose of this outreach is to: (a) advise contracting officers of the pending acquisition and the anticipated need for novation; (b) provide a general overview of the transaction structure, the CFIUS review process, and the anticipated NSA mitigation framework; (c) solicit informal feedback regarding the contracting officer's expectations and any specific documentation requirements; and (d) establish lines of communication that will facilitate efficient processing of the formal novation submissions after CFIUS clearance. This informal outreach should be conducted by Col. Hendrickson, with support from Calderwood & Harkness as requested.
Post-CFIUS Clearance / Pre-Closing. Following receipt of the CFIUS clearance letter (anticipated January 26, 2024) and execution of the NSA (January 19, 2024), but before the closing (anticipated February 9, 2024), VPI and Calderwood & Harkness should finalize the draft novation agreements and supporting documentation packages. We should not submit formal novation packages before closing because the transfer of shares will not yet have occurred, and the contracting officers cannot process a novation agreement for a transaction that has not been consummated.
Post-Closing. Within thirty (30) days of closing, VPI should submit formal novation packages simultaneously to the contracting officers for all eight novation-required contracts. Each package should include a copy of the CFIUS clearance letter and the executed NSA as key supporting documents. These documents will provide contracting officers with the assurance they need to process the novation agreements and will demonstrate that the U.S. Government—through the CFIUS interagency process—has already conducted a thorough national security review and imposed appropriate mitigation measures.
VII. Interaction with Export Control Requirements
VPI's products include items controlled under both the International Traffic in Arms Regulations ("ITAR") and the Export Administration Regulations ("EAR"). Specifically, certain of VPI's GaN power amplifier modules and related defense articles are classified under Category XI(a)(3) of the United States Munitions List ("USML"), which covers "electronic equipment specifically designed, modified, or configured for military application." Other VPI products, particularly those with commercial or dual-use applications, are classified under Export Control Classification Number ("ECCN") 3A001 of the Commerce Control List ("CCL"), which covers certain types of semiconductor devices and integrated circuits.
VPI has been registered with the DDTC as a manufacturer and exporter of defense articles since 2011 (Registration No. M-24817). The change of ownership resulting from the acquisition triggers a mandatory change-of-ownership notification under ITAR § 122.4(a), which requires DDTC-registered entities to notify DDTC of any change in ownership or control within sixty (60) days. A separate DDTC Registration Transfer Analysis Memorandum is being prepared by Priya Venkataraman and Christy Bauer to address this requirement in detail.
In addition, VPI currently holds three (3) active DSP-5 export licenses authorizing the export of ITAR-controlled defense articles to NATO allies (specifically, the United Kingdom and Australia). These licenses must be amended to reflect the change in ownership, and the license amendments must be approved by DDTC before the licenses can be used for further exports under new ownership. A separate DSP-5 License Continuation Memorandum is in preparation.
The export control compliance posture is directly relevant to the novation process because contracting officers for ITAR-controlled programs will evaluate VPI's export control compliance as a factor in their assessment of whether to approve the novation. Contracting officers want assurance that controlled technical data and defense articles will continue to be properly safeguarded under foreign ownership and that appropriate export control mechanisms are in place to prevent unauthorized transfers. The TCP established under the NSA provides a comprehensive framework for addressing these concerns, and we recommend including a summary of the TCP and VPI's export control compliance program in each novation submission for contracts involving ITAR-controlled items.
For a comprehensive analysis of VPI's export control classifications and the impact of the transaction on VPI's export control posture, please refer to the ITAR/EAR Classification Review Memorandum prepared by Christy Bauer (Calderwood & Harkness, International Trade & Sanctions group), which is being finalized concurrently with this memorandum.
VIII. Proposed Timeline and Sequencing
The novation process must be carefully sequenced and coordinated with the parallel CFIUS, DCSA, DDTC, and closing workstreams. The following timeline reflects our recommended approach, based on the current transaction schedule and our assessment of typical government processing timelines.
A. Pre-Closing Steps (Prior to Closing on February 9, 2024)
B. Post-Closing Steps (Following Closing on February 9, 2024)
Processing Timeline Notes. Government processing of novation agreements typically takes three (3) to six (6) months from the date of submission. However, processing times can vary significantly depending on the contracting activity, the workload of the contracting officer, and the complexity of the specific contract. For classified contracts, the involvement of DCSA in the review process may extend the timeline. We have estimated a six-month target for obtaining all executed novation agreements, but this timeline should be treated as aspirational; some contracts may take longer.
VPI will continue performing under its existing contracts during the novation process. The change in ownership does not interrupt contract performance. VPI's authority to perform derives from the underlying contracts, which remain in full force and effect throughout the novation process. No novation agreement is required to be in place before the closing; the closing can proceed, with novation processing occurring post-closing as described above.
IX. Impact on Contract Performance During Novation Process
A. Continuity of Performance
A fundamental principle of the FAR novation framework—and one that distinguishes a stock purchase from an asset purchase—is that in a stock purchase transaction, the performing contractor remains the same legal entity throughout the transition. VPI will retain its EIN (26-4371885), CAGE Code (7VK92), and DUNS Number (07-812-4493). Its contracts, facility clearances, personnel clearances, and registrations continue in the name of VPI. The novation agreement formalizes the government's recognition of the new ownership structure but does not create a new contractual relationship.
Accordingly, VPI is expected to continue performing under all fourteen (14) active contracts without interruption during the novation process. Contract deliverables, milestones, and payment schedules should proceed as normal. Invoices should continue to be submitted under VPI's existing contract numbers, CAGE Code, and billing arrangements. VPI should not cease or suspend performance pending completion of the novation process unless directed to do so by a contracting officer—an eventuality we consider unlikely but address as a risk factor below.
It is worth noting that the government has a strong interest in continuity of contract performance, particularly for the high-priority defense programs in VPI's portfolio (AN/TPS-80 radar, missile defense T/R modules, mmWave power amplifiers). Any interruption in VPI's performance could have downstream impacts on these programs' schedules and readiness. This alignment of interests provides VPI with significant leverage in the novation process: contracting officers are motivated to process novation agreements efficiently to ensure continued program support.
B. Risk Factors and Mitigation
Notwithstanding the strong expectation of continuity, the novation process is not without risk. We have identified the following risk factors and corresponding mitigation strategies:
Contracting Officer Delay Risk. Some contracting officers may be slow to process novation agreements, particularly where foreign ownership is involved. Contracting officers unfamiliar with FOCI mitigation frameworks or the CFIUS process may require additional time to review the supporting documentation and satisfy themselves that the change in ownership does not compromise the government's interests. Additionally, contracting officers with heavy workloads may not prioritize novation processing.
Mitigation: Informal outreach prior to formal submission is designed to lay the groundwork for efficient processing. By establishing communication with contracting officers in advance, providing preliminary information about the transaction and the NSA, and soliciting feedback on documentation requirements, we can reduce the "front-end" processing time. The inclusion of the CFIUS clearance letter and executed NSA in the novation package provides contracting officers with a strong basis for confidence that the national security implications have already been thoroughly evaluated by the interagency. Col. Hendrickson's established relationships with the relevant contracting activities are an additional asset.
FCL Risk. If DCSA delays its acknowledgment of VPI's continued FCL under foreign ownership, contracting officers for classified contracts may pause novation processing until DCSA confirmation is received. This is because the contracting officer must be assured that VPI can continue to access and process classified information before formalizing the novation.
Mitigation: Close coordination with DCSA is essential. VPI should submit its FOCI action plan to DCSA promptly after closin

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