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CALDERWOOD & HARKNESS LLP

1750 K Street NW, Suite 800 Washington, DC 20006 Telephone: (202) 555-8400

MEMORANDUM

FROM: Christy Bauer, Working Associate, intellectual Property Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006

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

SUPERVISED BY: Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS Omar Siddiqui, Lead Associate, intellectual Property

TO: Beatrice Holloway, Responsible Partner, Mergers & Acquisitions Stefan Lohse, General Counsel, Halcyon Semiconductor AG

DATE: September 8, 2023

RE: Classification Review of Marlowe Asset Management Photonics Inc. Products Under the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) — Implications of Acquisition by Halcyon Semiconductor AG

MATTER: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. Acquisition — CFIUS Case No. CFIUS-023-07-3841

This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of regulatory proceedings. It is protected by the attorney-client privilege and the work product doctrine. This memorandum is intended solely for the use of the addressees and other authorized representatives of Halcyon Semiconductor AG in connection with the above-referenced matter. Any unauthorized disclosure, distribution, or reproduction of this memorandum is strictly prohibited.

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I. EXECUTIVE SUMMARY

This memorandum presents the results of Calderwood & Harkness's classification review of the products, technologies, and technical data of Marlowe Asset Management Photonics Inc. ("VPI") under both the International Traffic in Arms Regulations ("ITAR," 22 C.F.R. Parts 120–130) and the Export Administration Regulations ("EAR," 15 C.F.R. Parts 730–774). The purpose of this review is threefold: (1) to analyze VPI's current product and technology classifications under the applicable U.S. export control regulatory framework; (2) to assess the impact that the proposed acquisition of VPI by Halcyon Semiconductor AG ("HSAG") will have on those classifications, particularly in light of the change from U.S. domestic ownership to foreign (German) ownership; and (3) to identify specific items, technologies, or product lines requiring post-closing reclassification review through commodity jurisdiction ("CJ") determinations with the Directorate of Defense Trade Controls ("DDTC") or classification requests with the Bureau of Industry and Security ("BIS"). This memorandum has been prepared in connection with, and supports, the pending CFIUS filing and National Security Agreement ("NSA") negotiation in CFIUS Case No. CFIUS-023-07-3841.

VPI is a Delaware C-corporation headquartered in Colorado Springs, Colorado, that designs and manufactures advanced gallium-nitride ("GaN") power amplifier chips utilized in defense radar systems, satellite communications, electronic warfare systems, and, increasingly, commercial fifth-generation ("5G") telecommunications infrastructure. VPI has been registered with DDTC since 2011, holding Registration No. M-24817, and maintains a fabrication facility at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113 that is cleared to the SECRET level (CAGE Code 7VK92). Of VPI's 486 employees, 212 hold active U.S. government security clearances at various levels, and the company maintains 14 active Department of Defense ("DoD") contracts (as both prime contractor and subcontractor) with an aggregate backlog of approximately $193 million.

VPI currently holds products classified under ITAR United States Munitions List ("USML") Category XI(a)(3) (Military Electronics) as defense articles, as well as products and technology classified under EAR Export Control Classification Numbers ("ECCNs") 3A001, 3A991, and 3E001 as dual-use items. VPI maintains three active DSP-5 export licenses for ITAR-controlled deliveries to NATO allies, specifically the United Kingdom and Australia.

Our review has identified six specific VPI product lines or technology categories that require reclassification review in connection with, or promptly following, the closing of the proposed acquisition. These items present classification ambiguities or sensitivities that are heightened by the change to foreign ownership, the potential expansion of end-use applications into HSAG's commercial semiconductor portfolio, and the consequent alteration of end-user and ultimate destination profiles. The need for reclassification review does not arise from any deficiency in VPI's current compliance program — which is, on the whole, well-maintained and well-documented — but rather from the fundamental change in the corporate ownership and strategic direction that the acquisition represents.

Our principal recommendation is that HSAG and VPI pursue commodity jurisdiction determinations with DDTC for borderline ITAR/EAR items and classification requests with BIS for dual-use items either prior to, or promptly following, the targeted closing date of February 9, 2024. Interim compliance measures — including treating ambiguous items under the most restrictive applicable classification and prohibiting any transfer of controlled technology to HSAG personnel for the six identified items — should be implemented immediately upon closing. The results of these reclassification reviews will be critical to determining the scope of permissible post-closing technology integration between VPI and HSAG, the precise terms of the Technology Control Plan ("TCP") under the anticipated NSA, and HSAG's long-term commercial strategy for VPI's dual-use technology portfolio.

This memorandum should be read in conjunction with several companion analyses being prepared by the Calderwood & Harkness team, including the DSP-5 License Continuation Memo (addressing amendment procedures for VPI's active export licenses), the DDTC Registration Transfer Analysis (addressing registration transfer requirements under ITAR § 122.4(a)), and the classified program annex prepared under the NSA framework (addressing classified program continuity). Those companion documents are referenced herein where relevant but are not reproduced.

II. BACKGROUND

A. The Transaction

Halcyon Semiconductor AG ("HSAG"), a publicly traded German stock corporation (Aktiengesellschaft) listed on the Frankfurt Stock Exchange (XETRA: HLC) with its principal offices at Industriestraße 44, 01099 Dresden, Saxony, Germany, reported fiscal year 2022 revenue of approximately €6.12 billion. HSAG is a global semiconductor manufacturer with operations spanning power management integrated circuits, analog and mixed-signal devices, and sensor technologies. HSAG has entered into a definitive Stock Purchase Agreement, executed on June 10, 2023, to acquire one hundred percent (100%) of the outstanding equity interests of Marlowe Asset Management Photonics Inc. ("VPI"), a Delaware C-corporation incorporated on February 14, 2009, headquartered at 7400 Ridgeline Parkway, Colorado Springs, Colorado 80919.

The aggregate purchase price for the acquisition is $1.42 billion, payable in cash on a cash-free, debt-free basis, subject to customary post-closing adjustments to a normalized net working capital target of $34.6 million. The acquisition will be effectuated through a wholly owned intermediate holding company, Halcyon US Holdings Inc., a Delaware corporation formed on June 5, 2023 (Employer Identification Number: 93-2841067; registered agent: National Registered Agents of Delaware, 160 Greentree Drive, Suite 101, Dover, Delaware 19904). Following closing, VPI will become an indirect wholly owned subsidiary of HSAG, held through Halcyon US Holdings Inc.

HSAG currently maintains existing operations in the United States through Halcyon US Inc., a Delaware corporation located at 11501 Alterra Parkway, Suite 300, Austin, Texas 78758 (EIN: 81-3056429). Halcyon US Inc. is a fabless semiconductor design center employing approximately 320 personnel, focused on commercial analog and power management IC design. Critically, Halcyon US Inc. does not perform any classified work, does not hold a facility security clearance, and is not engaged in any activities involving ITAR-controlled items or technologies. The Austin facility has had no prior involvement with the U.S. defense industrial base.

The closing of the Transaction is conditioned, among other things, on the successful completion of the CFIUS review process, including the execution of a mutually acceptable National Security Agreement. The CFIUS filing was made under CFIUS Case No. CFIUS-023-07-3841, and the parties are currently in the review and investigation phase. The targeted closing date is February 9, 2024, which is contingent upon the resolution of CFIUS and other regulatory conditions.

B. Marlowe Asset Management Photonics Inc. — Regulatory Profile

VPI designs and fabricates advanced GaN-on-silicon-carbide ("GaN-on-SiC") power amplifier chips, modules, and related subsystem components. VPI's primary fabrication facility is a 45,000 square-foot cleanroom and associated laboratory complex located at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113 (the "Albuquerque Facility"). This facility holds a Facility Security Clearance ("FCL") at the SECRET level, issued by the Defense Counterintelligence and Security Agency ("DCSA"), and is assigned CAGE Code 7VK92 and DUNS Number 07-812-4493. The Facility Security Officer ("FSO") is Col. (Ret.) Bryce Hendrickson, U.S. Air Force (Retired), who holds a Top Secret/Sensitive Compartmented Information ("TS/SCI") personal security clearance.

VPI has been registered with the Directorate of Defense Trade Controls since 2011, holding DDTC Registration No. M-24817. VPI's registration has been timely renewed in accordance with ITAR requirements throughout this period, and no adverse findings, voluntary disclosures, or enforcement actions have been recorded against VPI with respect to DDTC or BIS compliance.

VPI currently maintains 14 active Department of Defense contracts, comprising both prime contracts and subcontracts, with an aggregate backlog of approximately $193 million. The contracting agencies and programs include:

• U.S. Army Program Executive Office for intelligence, Electronic Warfare & Sensors ("PEO IEW&S"): Prime contract for GaN-based T/R modules for the AN/TPS-80 radar system (backlog: $52.3 million);

• U.S. Air Force Research Laboratory ("AFRL"): Prime contract for next-generation mmWave broadband power amplifier development for military satcom (backlog: $41.7 million);

• Missile Defense Agency ("MDA"): Prime contract for GaN-based T/R modules for missile defense radar applications (backlog: $38.9 million);

• U.S. Navy, Naval Sea Systems Command ("NAVSEA"): Subcontract to Ironclad Defense Systems Inc. for GaN power amplifier components for naval radar and electronic warfare systems;

• Department of Homeland Security, Science & Technology Directorate ("DHS S&T"): Contract for RF transmitter/receiver components for border surveillance applications (backlog: $26.0 million);

• Additional contracts with classified and unclassified components with various DoD entities, the specific details of which are addressed in the classified program annex.

Key personnel with relevant security clearances include:

• Dr. Nathan Trevorrow, Founder and Chief Executive Officer — holds TS/SCI clearance;

• Marissa Sung-Avila, President and Chief Operating Officer — holds SECRET clearance;

• Col. (Ret.) Bryce Hendrickson, Vice President of Government Programs and Facility Security Officer — holds TS/SCI clearance.

As of the date of this memorandum, 212 of VPI's 486 total employees hold active U.S. government security clearances at various levels, ranging from CONFIDENTIAL to TS/SCI.

C. IP Portfolio Context

VPI possesses a substantial intellectual property portfolio that is central to both the strategic rationale for the acquisition and the export control classification analysis presented in this memorandum. VPI's IP portfolio includes the following:

Patents. VPI holds 47 granted U.S. patents and has 12 patent applications currently pending before the U.S. Patent and Trademark Office. These patents and applications are organized into three principal families:

(i) GaN-on-SiC Epitaxial Growth Process: 8 patents (U.S. Pat. Nos. 9,XXX,001 through 9,XXX,008; earliest priority date: 2012) covering VPI's proprietary epitaxial growth techniques for producing high-quality GaN-on-SiC wafers with superior electron mobility and thermal conductivity characteristics;

(ii) HEMT Gate Structure Optimization: 19 patents (U.S. Pat. Nos. 10,XXX,101 through 10,XXX,119; earliest priority date: 2015) covering VPI's innovative approaches to high-electron-mobility transistor gate geometry, passivation, and field plate design, which yield superior power density and linearity performance;

(iii) mmWave Broadband Matching Network: 20 patents (U.S. Pat. Nos. 10,XXX,201 through 10,XXX,220; earliest priority date: 2016) covering VPI's proprietary wideband impedance matching topologies for millimeter-wave power amplifiers operating across frequencies from 18 GHz to 100 GHz.

Trade Secrets. VPI maintains 31 formally registered internal trade secrets, predominantly comprising proprietary GaN epitaxial growth recipes (including specific precursor gas ratios, growth temperatures, pressure profiles, and buffer layer compositions), die-level reliability screening processes (including burn-in protocols, parametric test sequences, and failure analysis methodologies), and certain manufacturing process parameters that are not disclosed in VPI's patent filings.

Government-Funded IP. Of VPI's 47 granted patents, 23 were developed in whole or in part under U.S. government-funded contracts. These patents are subject to the government's march-in rights under 35 U.S.C. § 203, the government's nonexclusive, nontransferable, irrevocable, paid-up license under 35 U.S.C. § 202(c)(4), and the additional rights and restrictions set forth in DFARS 252.227-7038 (Patent Rights — Ownership by the Contractor (Large Business)). The government-funded nature of these patents is a significant consideration both for the CFIUS review and for the export control classification analysis, as it may affect the scope of permissible technology transfer to HSAG and the government's ability to restrict or control the use of VPI's technology post-acquisition.

D. Scope of This Memorandum

This memorandum addresses the following topics within the scope of Calderwood & Harkness's engagement:

(a) A comprehensive review of VPI's current classifications of its products, technologies, and technical data under both the ITAR (USML) and the EAR (CCL);

(b) An assessment of the impact that HSAG's acquisition — and the attendant change from U.S. domestic ownership to foreign (German) ownership — will have on VPI's existing export control classifications;

(c) Identification and detailed analysis of specific VPI products, technologies, or technical data that require reclassification review, commodity jurisdiction determinations, or classification requests in connection with or following the closing of the acquisition; and

(d) Recommendations for priority actions, interim compliance measures, and longer-term compliance program enhancements.

The following topics are not addressed in this memorandum and are the subject of separate, companion analyses:

(e) Classified program specifics and Special Access Program ("SAP") considerations, which are addressed separately under the NSA framework and in the classified program annex prepared by Lt. Col. (Ret.) Caruso;

(f) DSP-5 license amendment procedures and license continuation strategies for VPI's three active DSP-5 licenses, which are addressed in the separate DSP-5 License Continuation Memo being prepared by Priya Venkataraman;

(g) DDTC registration transfer requirements and procedures under ITAR § 122.4(a), which are addressed in the separate DDTC Registration Transfer Analysis being prepared by this team; and

(h) CFIUS mitigation measures and NSA terms, which are addressed in the principal CFIUS submission materials supervised by Peggy Ashworth.

III. APPLICABLE REGULATORY FRAMEWORK

This section provides an overview of the U.S. export control regulatory framework applicable to VPI's products and technologies. An understanding of this framework is essential to the classification analysis that follows in Sections IV and V.

A. International Traffic in Arms Regulations (ITAR) — 22 C.F.R. Parts 120–130

The International Traffic in Arms Regulations, codified at 22 C.F.R. Parts 120 through 130, govern the export and temporary import of "defense articles" and "defense services" as those terms are defined in the ITAR. The ITAR implements the Arms Export Control Act ("AECA"), 22 U.S.C. § 2778, and is administered by the Directorate of Defense Trade Controls within the Bureau of Political-Military Affairs of the U.S. Department of State.

The ITAR's jurisdictional reach extends to all items — whether hardware, software, or technical data — that are enumerated on the United States Munitions List ("USML"), set forth at 22 C.F.R. § 121.1. The USML is organized into 21 categories, each covering a distinct class of defense-related items. The key provisions relevant to this memorandum include:

• ITAR § 120.6 — defines "defense article" to include any item or technical data designated in the USML, as well as any item specifically designed, developed, configured, adapted, or modified for a military application that does not have a predominant civil application and does not have equivalent performance capabilities to an item used for civil applications;

• ITAR § 120.9 — defines "export" broadly to include, inter alia, sending or taking a defense article out of the United States, transferring registration, control, or ownership of a defense article to a foreign person, and disclosing or transferring technical data to a foreign person;

• ITAR § 120.10 — defines "technical data" to include information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles, including blueprints, drawings, plans, instructions, and documentation;

• ITAR § 120.16 — defines "deemed export" with respect to ITAR-controlled items: the disclosure of technical data to a foreign person within the United States is deemed to be an export to the country of that person's nationality, thereby triggering the full panoply of ITAR export licensing requirements;

• ITAR § 122.1 — establishes the registration requirement for any person who engages in the business of manufacturing, exporting, or temporarily importing defense articles; VPI has maintained continuous registration since 2011;

• ITAR § 122.4(a) — requires notification to DDTC of certain material changes, including changes in ownership or control of a registered entity, within 60 days of such change.

USML Category XI — Military Electronics. USML Category XI covers military electronics, including electronic equipment, systems, and subsystems specifically designed or modified for military applications. Of particular relevance to VPI's product portfolio, Category XI(a)(3) encompasses electronic equipment specifically designed or modified for military applications, including certain GaN-based power amplifiers specifically designed for defense radar, electronic warfare, and related military systems. The distinction between items "specifically designed" for military applications (USML-controlled) and items with dual-use or predominantly commercial applications (potentially EAR-controlled) is the central classification question for several of VPI's product lines, as discussed in detail in Sections IV and V below.

B. Export Administration Regulations (EAR) — 15 C.F.R. Parts 730–774

The Export Administration Regulations, codified at 15 C.F.R. Parts 730 through 774, govern the export, reexport, and in-country transfer of "dual-use" items — that is, items with both commercial and potential military or proliferation applications — as well as certain purely commercial items that are nonetheless subject to export controls for foreign policy, anti-terrorism, or other reasons. The EAR is administered by the Bureau of Industry and Security within the U.S. Department of Commerce and implements the Export Control Reform Act of 2018 ("ECRA"), 50 U.S.C. §§ 4801–4861.

Items subject to the EAR are classified according to the Commerce Control List ("CCL"), set forth in Supplement No. 1 to 15 C.F.R. Part 774. Each item on the CCL is assigned an Export Control Classification Number ("ECCN"), which identifies both the type of item and the reasons for its control. Items not specifically enumerated on the CCL are designated "EAR99" and are generally exportable without a license to most destinations, subject to end-use and end-user restrictions.

The following ECCNs are directly applicable to VPI's product portfolio:

• ECCN 3A001 — "Electronic components designed for operation at extreme conditions or radiation-hardened." This ECCN covers, inter alia, certain high-electron-mobility transistors ("HEMTs") and monolithic microwave integrated circuits ("MMICs") designed for operation in specified frequency ranges, at specified power levels, or under specified environmental conditions. Specifically, ECCN 3A001.b.2 covers microwave or millimeter-wave discrete semiconductor devices and monolithic integrated circuits that meet or exceed specified performance parameters for frequency, output power, and gain. Several of VPI's commercial and dual-use GaN HEMT and MMIC products meet or exceed these controlled parameters. Reasons for control include National Security ("NS"), Missile Technology ("MT"), and Anti-Terrorism ("AT").

• ECCN 3A991 — "Electronic devices and components not controlled by 3A001." This classification covers electronic components that do not meet the performance thresholds specified in ECCN 3A001 but are nonetheless controlled for Anti-Terrorism ("AT") reasons. VPI manufactures certain lower-performance GaN power transistors that fall within this classification. License requirements under ECCN 3A991 are limited and apply primarily to embargoed or sanctioned destinations.

• ECCN 3E001 — "Technology according to the General Technology Note for the 'development' or 'production' of equipment or materials controlled by 3A001 . . . ." This ECCN captures the technology — including design methodology, process parameters, manufacturing know-how, and engineering data — "required" for the "development" or "production" of items controlled under ECCN 3A001 (and certain related ECCNs). VPI's GaN process technology, proprietary epitaxial growth recipes, design tools, and manufacturing know-how fall within the scope of ECCN 3E001. This classification is of critical importance to the post-closing integration analysis, as it controls the fundamental technology that HSAG may wish to leverage across its broader semiconductor operations.

The EAR also contains a "deemed export" rule directly relevant to the Transaction. Under 15 C.F.R. § 734.13, the release of "technology" or "source code" subject to the EAR to a foreign national within the United States is "deemed" to be an export to the home country (or countries) of such foreign national. This means that any disclosure of ECCN 3E001-controlled technology to HSAG's German national employees present in the United States — whether at VPI's facilities in Albuquerque or Colorado Springs, or at HSAG's existing Austin facility — would constitute a deemed export to Germany and would require either a BIS license or qualification for a license exception.

With respect to license exceptions, the most relevant to the Transaction is License Exception Strategic Trade Authorization ("STA"), codified at 15 C.F.R. § 740.20. STA authorizes the export, reexport, and in-country transfer of specified items to destinations in STA Tier 1 countries (which include Germany and all other NATO allies and close partners listed in Supplement No. 1 to Part 740) without an individual BIS license, subject to compliance with certain conditions, including end-use and consignee statement requirements. However, STA is not available for items controlled for Missile Technology ("MT") reasons under the relevant ECCN's reasons for control — a limitation that is relevant to certain VPI items classified under ECCN 3A001 that carry MT controls. An item-by-item analysis of STA eligibility is therefore required.

Other potentially applicable license exceptions include License Exception Technology and Software — Unrestricted ("TSU"), License Exception Technology and Software under Restriction ("TSR"), and License Exception Temporary Imports, Exports, Reexports, and Transfers (In-Country) ("TMP"). The availability of each must be evaluated on a case-by-case basis in light of the specific items, end-uses, and end-users involved.

C. Interaction Between ITAR and EAR — Commodity Jurisdiction

A foundational principle of the U.S. export control system is that any given item is subject to either the ITAR or the EAR at any given time, but not both simultaneously. The determination of which regulatory regime controls a particular item is referred to as the "commodity jurisdiction" determination. When there is uncertainty as to whether an item is a "defense article" controlled under the USML (and thus subject to the ITAR) or a "dual-use" item controlled under the CCL (and thus subject to the EAR), the proper procedure is to submit a commodity jurisdiction request ("CJ request") to DDTC under 22 C.F.R. § 120.4.

Upon receipt of a CJ request, DDTC reviews the item's design characteristics, intended end-use, performance parameters, and relationship to items on the USML, consulting with other relevant agencies (including the Department of Defense and the Department of Commerce) as appropriate. DDTC then issues a commodity jurisdiction determination stating whether the item is USML-controlled (ITAR jurisdiction) or CCL-controlled (EAR jurisdiction). CJ determinations are binding on the requesting party and on the U.S. government, subject to certain exceptions for changes in design or end-use.

CJ determinations are of critical importance in the context of the Transaction because VPI's core GaN-on-SiC technology platform serves both military (radar, electronic warfare, missile defense) and commercial (5G infrastructure, commercial satellite communications) applications. The same underlying GaN semiconductor technology — including epitaxial growth processes, HEMT device structures, and MMIC design methodologies — is used to produce both USML-controlled defense articles and CCL-controlled dual-use items. The line between ITAR and EAR jurisdiction for specific items and technology variants is not always self-evident, and the change in VPI's ownership and strategic direction under HSAG has the potential to affect end-use characterizations in ways that warrant fresh CJ review for borderline items.

D. Foreign Ownership Implications for Export Controls

It is important to note at the outset that a change from U.S. domestic ownership to foreign ownership does not, as a matter of law, automatically change the ITAR or EAR classification of any item. An item that is properly classified as a USML Category XI(a)(3) defense article remains so classified regardless of whether its manufacturer is owned by a U.S. entity or a foreign entity. Similarly, an item classified under ECCN 3A001 retains that classification irrespective of the nationality of the corporate parent.

However, the change in ownership has several significant practical and regulatory consequences that bear directly on export control classification and compliance:

Deemed Export Implications. Under both ITAR § 120.16 and EAR § 734.13, the disclosure of controlled technical data or technology to a foreign national constitutes a deemed export to that person's home country. Post-closing, HSAG personnel — including German national executives, engineers, and board members — will be associated with VPI's operations. Any disclosure of ITAR-controlled technical data or EAR-controlled technology to such individuals absent appropriate authorization would constitute a violation of the applicable regulations. This reality necessitates the establishment of robust access controls and firewalls, which will be formalized in the Technology Control Plan under the NSA.

End-Use and End-User Profile Changes. Under HSAG's ownership, VPI's product portfolio may evolve to encompass expanded commercial applications, new customer relationships, and new geographic distribution patterns. These changes may affect the end-use, end-user, and ultimate destination analyses that underpin certain of VPI's existing classifications and license authorizations.

Favorable Factors. HSAG is a German company, and Germany is a member of the North Atlantic Treaty Organization ("NATO") and a participant in all four of the multilateral export control regimes: the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, the Missile Technology Control Regime ("MTCR"), the Nuclear Suppliers Group ("NSG"), and the Australia Group. Germany's status as a close U.S. ally and its participation in these regimes are favorable factors in the export control and CFIUS analysis, as they reduce (though they do not eliminate) the risk of diversion of controlled items to adversarial or sanctioned destinations.

China Nexus. Notwithstanding Germany's allied status, HSAG maintains a subsidiary in the People's Republic of China: Halcyon Semiconductor (Shanghai) Co., Ltd., which reported revenue of approximately $81.4 million in fiscal year 2022, representing approximately 1.3% of HSAG's total revenue. This subsidiary's operations are limited to consumer-grade power management integrated circuits; it does not engage in any GaN-related or defense-related activities. Nevertheless, the existence of this China subsidiary requires heightened awareness in the end-use and end-user analyses conducted in connection with the Transaction. The CFIUS review process and the terms of the anticipated NSA will address the segregation of VPI's operations from HSAG's China-based activities. From an export control perspective, it is imperative that no VPI technology — whether ITAR-controlled or EAR-controlled — flows to Halcyon Semiconductor (Shanghai) Co., Ltd. or to any other HSAG entity or personnel in China.

IV. CURRENT VPI PRODUCT CLASSIFICATIONS — DETAILED REVIEW

This section provides a detailed review of VPI's current product and technology classifications under the ITAR and the EAR. The analysis is based on Calderwood & Harkness's review of VPI's export control compliance records, product technical documentation, self-classification worksheets, prior CJ and classification determinations (where available), government contract documentation, and interviews with VPI's export compliance personnel conducted on July 18–19, 2023, and August 14, 2023. The review was conducted under the supervision of Col. (Ret.) Hendrickson and with the cooperation of VPI's engineering and legal teams.

A. ITAR-Controlled Products (USML Category XI(a)(3))

VPI currently classifies three principal product categories and their associated technical data as ITAR-controlled defense articles under USML Category XI(a)(3). Each is discussed below.

1. GaN Power Amplifier Modules for Defense Radar Systems

Product Description. VPI designs and manufactures high-power GaN-on-SiC transmit/receive ("T/R") modules specifically designed for military radar applications. These modules are custom-designed to meet the performance specifications of specific military radar platforms, most notably the AN/TPS-80 Ground/Air Task-Oriented Radar ("G/ATOR") system, which is the subject of VPI's prime contract with the U.S. Army's Program Executive Office for intelligence, Electronic Warfare & Sensors. The current contract backlog for this product line is approximately $52.3 million. The T/R modules feature military-grade specifications including extended operating temperature ranges, MIL-STD-810H environmental qualification, military-specification reliability screening (per MIL-PRF-38534), and radiation-hardened gate oxide structures.

Current Classification. USML Category XI(a)(3) — defense article.

Basis for Classification. These T/R modules are "specifically designed" for military radar applications within the meaning of ITAR § 120.6. Their performance parameters — including operating frequency range, peak and average power density, duty cycle handling, and radiation-hardening characteristics — are engineered to meet military specifications that significantly exceed the requirements of any civilian radar or communications application. The modules are physically and functionally integrated into defense-specific radar architectures and are not offered for sale on the commercial market. The design, development, and production of these modules are governed by classified and controlled technical data packages provided by or developed for DoD end-users.

Assessment. The classification of these products as USML Category XI(a)(3) defense articles is unambiguous and well-supported by VPI's documentation. There is no basis for reclassification, and no reclassification review is recommended for this product line. Post-closing, these products will remain ITAR-controlled defense articles subject to the full ITAR licensing and compliance requirements, and access by HSAG foreign national personnel will be restricted under the NSA's Technology Control Plan.

2. GaN-Based T/R Modules for Missile Defense

Product Description. VPI designs and manufactures GaN-based T/R modules for missile defense radar applications under its prime contract with the Missile Defense Agency. The current contract backlog for this product line is approximately $38.9 million. These modules are designed to meet the stringent performance requirements of ground-based and sea-based missile defense radar systems, including extreme reliability, extended operational lifetime, and the ability to withstand the electromagnetic and environmental stresses associated with missile defense radar operations. Certain aspects of the module design and performance parameters are classified at the SECRET level and above.

Current Classification. USML Category XI(a)(3) — defense article.

Basis for Classification. The modules are designed to MDA specifications exclusively for missile defense applications. The design parameters, performance characteristics, and associated technical data are inherently military in nature and are subject to classification under the National Industrial Security Program ("NISP"). The items are specifically designed for integration into missile defense radar systems that have no commercial or civilian equivalent.

Assessment. The classification of these products as USML Category XI(a)(3) defense articles is unambiguous. No reclassification review is recommended. The classified technical data associated with these products will require special handling under the NSA, including restrictions on access by HSAG personnel and coordination with DCSA regarding the facility security clearance.

3. Electronic Warfare (EW) Subsystem Components

Product Description. VPI designs and manufactures GaN power amplifiers and related subsystem components for electronic countermeasure ("ECM") and electronic warfare ("EW") applications. These components are produced under multiple contracts with DoD agencies, including a subcontract to Ironclad Defense Systems Inc. for U.S. Navy NAVSEA programs. Certain EW programs are classified at levels that preclude detailed discussion in this memorandum; the classified program annex prepared by Lt. Col. (Ret.) Caruso addresses these programs in detail.

Current Classification. USML Category XI(a)(3) — defense article.

Basis for Classification. The components are specifically designed for electronic warfare applications, including jamming, radar deception, and signals intelligence countermeasures. These are inherently military applications with no civilian equivalent. The design parameters, operating modes, and performance characteristics are tailored to military EW requirements and are subject to ITAR controls.

Assessment. The classification of these products as USML Category XI(a)(3) defense articles is clear and well-documented. No reclassification review is recommended. As with the radar and missile defense products, access to EW-related technical data and hardware by HSAG foreign national personnel will be strictly controlled under the NSA.

4. ITAR-Controlled Technical Data and Defense Services

In addition to the hardware products described above, VPI possesses extensive ITAR-controlled "technical data" as defined in ITAR § 120.10 and provides "defense services" as defined in ITAR § 120.9 in connection with its defense programs. This includes, without limitation:

(a) Design drawings, schematics, circuit layouts, and mechanical packaging specifications for USML-listed hardware;

(b) Manufacturing process specifications, test procedures, acceptance criteria, and quality assurance documentation specific to defense article production;

(c) Performance test data, reliability data, environmental qualification test reports, and failure analysis documentation for defense articles;

(d) Software source code and algorithms embedded in or used for the development, production, or testing of defense articles;

(e) Engineering analyses, trade studies, and design optimization reports prepared in connection with defense contracts;

(f) Technical assistance, training, and advisory services provided to DoD customers and NATO allies in connection with the use, maintenance, or integration of VPI defense articles.

Post-Closing Implication. The disclosure of any of the above categories of ITAR-controlled technical data to HSAG personnel who are foreign persons — including German nationals employed by HSAG in Germany, at Halcyon US Inc. in Austin, or at any other HSAG facility — would constitute a "deemed export" under ITAR § 120.16, requiring prior authorization from DDTC in the form of a DSP-5 license or a Technical Assistance Agreement ("TAA"). The Technology Control Plan under the anticipated NSA will need to establish both physical barriers (e.g., secure document storage, controlled access areas, classified network segmentation) and procedural barriers (e.g., access control lists, personnel screening, compliance training) to prevent unauthorized disclosures. Col. (Ret.) Hendrickson, as the incumbent FSO, will serve as the gatekeeper for both the NSA compliance program and VPI's ongoing ITAR compliance program, and his continued employment in this role will be a condition of the NSA.

B. EAR-Controlled Products

In addition to its ITAR-controlled defense articles, VPI designs and manufactures a range of products and technologies that are classified under the EAR. These dual-use items represent a significant and growing portion of VPI's revenue and are central to HSAG's commercial rationale for the acquisition.

1. ECCN 3A001 — High-Performance GaN HEMTs for Dual-Use Applications

Product Description. VPI manufactures GaN high-electron-mobility transistors ("HEMTs") and monolithic microwave integrated circuits ("MMICs") designed for satellite communications and 5G telecommunications infrastructure applications. These devices are based on the same fundamental GaN-on-SiC semiconductor platform as VPI's defense products but are designed with commercial performance specifications, packaging, and qualification standards. Specific products include:

(i) GaN HEMT discrete transistors for 5G macro cell base station power amplifiers, operating in the 3.3–4.2 GHz (sub-6 GHz) and 24.25–29.5 GHz (mmWave) frequency bands;

(ii) GaN MMIC power amplifiers for commercial satellite communication ("satcom") terminals, operating in Ku-band (12–18 GHz), Ka-band (26.5–40 GHz), and Q/V-band (40–75 GHz);

(iii) GaN low-noise amplifier ("LNA") MMICs for satcom receive chains.

Current Classification. ECCN 3A001.b.2 — microwave or millimeter-wave discrete semiconductor devices and monolithic integrated circuits with specified performance parameters.

Basis for Classification. VPI's commercial GaN HEMT and MMIC devices meet or exceed the controlled performance parameters specified in ECCN 3A001.b.2, including thresholds for operating frequency, output power, gain, and power-added efficiency. The devices are designed for both commercial and defense-related satcom applications, placing them squarely within the dual-use character of the 3A001 control. VPI's self-classification under ECCN 3A001 is consistent with BIS classification precedent for similar GaN microwave devices manufactured by other U.S. and allied-nation semiconductor companies.

Reasons for Control. National Security (NS), Missile Technology (MT), Anti-Terrorism (AT). The MT control reason is significant because it limits the availability of License Exception STA for deemed exports to HSAG's German national employees, as discussed in Section VI.B below.

Active Export Authorizations. VPI's three active DSP-5 licenses with DDTC authorize the export of ITAR-controlled variants of VPI's GaN power amplifier technology to NATO allies (specifically the United Kingdom and Australia). It should be clarified, however, that the DSP-5 is an ITAR license form and applies only to the ITAR-controlled variants of VPI's products — specifically, the defense-specific T/R modules and associated technical data discussed in Section IV.A above. The EAR-classified commercial variants described in this subsection are exported under separate BIS license authorizations or under applicable license exceptions and are not covered by the DSP-5 licenses.

Assessment. The ECCN 3A001 classification for VPI's commercial GaN HEMTs and MMICs is well-supported and consistent with industry practice. The classification itself does not require reclassification review. However, the MT control reason applicable to certain 3A001 items will limit the availability of License Exception STA for post-closing technology sharing with HSAG personnel, necessitating item-by-item analysis of license exception eligibility as part of the post-closing integration planning.

2. ECCN 3A991 — Lower-Performance GaN Components

Product Description. VPI manufactures certain GaN power transistors that do not meet the controlled performance thresholds specified in ECCN 3A001 but exceed the performance characteristics of items that would be designated EAR99. These are lower-frequency, lower-power devices designed for less demanding commercial RF applications, including industrial RF heating, medical equipment, and certain telecommunications infrastructure applications.

Current Classification. ECCN 3A991.

Basis for Classification. The devices are electronic components that are controlled for Anti-Terrorism ("AT") reasons only. They do not meet the performance parameters (frequency, power, gain) that would place them within ECCN 3A001. The AT-only control means that license requirements apply only to exports to designated state sponsors of terrorism and certain embargoed destinations, with no license requirements for exports to most commercial destinations worldwide.

Assessment. The ECCN 3A991 classification for these products is straightforward and does not raise any reclassification concerns. The change of ownership to HSAG (Germany) does not materially affect the licensing requirements for 3A991 items, as Germany is not subject to AT-based licensing requirements. No reclassification review is recommended for this product line.

3. ECCN 3E001 — Technology for Production of 3A001 Items

Product Description. This classification covers VPI's process technology, design methodology, manufacturing know-how, and proprietary GaN epitaxial growth recipes that are used to develop and produce items controlled under ECCN 3A001. The "technology" controlled under ECCN 3E001 is defined broadly under EAR § 772.1 to include specific information necessary for the "development," "production," or "use" of a controlled product. In VPI's case, 3E001-controlled technology includes, without limitation:

(i) GaN-on-SiC epitaxial growth process parameters (precursor gas compositions, growth temperatures, chamber pressures, buffer layer specifications);

(ii) HEMT device design rules, layout guidelines, and simulation models;

(iii) MMIC design methodology, including proprietary design libraries and process design kits ("PDKs");

(iv) Wafer fabrication process flows, including lithography recipes, etching parameters, metallization specifications, and passivation processes;

(v) Reliability qualification procedures and acceptance test methods for 3A001-controlled devices;

(vi) Yield improvement techniques and failure analysis methodologies specific to GaN-on-SiC device production.

Current Classification. ECCN 3E001.

Basis for Classification. The technology described above is "required" (within the meaning of the General Technology Note in the EAR) for the "development" or "production" of items controlled under ECCN 3A001, and is therefore controlled under ECCN 3E001 pursuant to the technology transfer controls of the EAR.

Critical Post-Closing Implication. Any sharing of 3E001-controlled technology with HSAG personnel — including German nationals at HSAG's headquarters in Dresden, at Halcyon US Inc. in Austin (if non-U.S. persons are present), or at any other HSAG facility worldwide — would constitute a deemed export under EAR § 734.13 and would require either a BIS license or qualification for a license exception. This is the single most significant EAR-related constraint on post-closing integration, as it directly restricts HSAG's ability to leverage VPI's core manufacturing and design technology across its broader operations.

Overlap with Trade Secrets. There is significant overlap between VPI's 3E001-controlled technology and VPI's 31 registered internal trade secrets, particularly the proprietary GaN epitaxial growth recipes and die-level reliability screening processes. This overlap means that the trade secret protections and the export control restrictions are largely coextensive, and any program for transferring or sharing this technology must satisfy both the export control and trade secret protection requirements.

C. Summary Classification Table

The following table provides a summary of VPI's current product and technology classifications reviewed in this memorandum:

As reflected in the table above, six items have been identified as requiring post-closing reclassification review. These are analyzed in detail in Section V below.

V. ITEMS REQUIRING POST-CLOSING RECLASSIFICATION REVIEW — THE SIX IDENTIFIED ITEMS

Overview

This section presents a detailed analysis of the six VPI product lines or technology categories that Calderwood & Harkness has identified as requiring reclassification review in connection with or following the closing of the Transaction. These six items were identified through our review of VPI's classification records, discussions with VPI's engineering and export compliance teams, analysis of HSAG's disclosed post-closing integration plans, and application of the regulatory framework described in Section III above.

It is important to emphasize that the need for reclassification review does not arise from any inherent deficiency in VPI's current classification practices. VPI's self-classifications were appropriate under its pre-acquisition business model, customer base, and strategic direction. The need for review arises specifically from the changed circumstances that the Transaction will create: the shift from U.S. domestic ownership to foreign (German) ownership, the potential expansion of VPI's product portfolio into HSAG's commercial markets, and the consequent alteration of end-use characterizations, end-user profiles, and ultimate destination considerations.

For each item, we provide: (a) a description of the product or technology; (b) its current ITAR or EAR classification; (c) the specific issue or ambiguity that warrants reclassification review; (d) the relevance of the issue to HSAG's post-closing integration plans; and (e) our recommended course of action.

Item 1: mmWave Broadband Power Amplifier for 5G/Satcom (Dual-Use Boundary)

Product Description. VPI has developed a next-generation millimeter-wave ("mmWave") broadband power amplifier capable of operating across a wide bandwidth encompassing both military satellite communications frequencies and commercial 5G mmWave frequency bands. This product was originally conceived and developed under VPI's prime contract with the U.S. Air Force Research Laboratory, which carries a current backlog of approximately $41.7 million. The AFRL contract funded the initial research, design, and prototype fabrication of the amplifier, with the primary intended application being advanced military satcom terminals for the U.S. Air Force and Joint Force requirements.

However, VPI's engineers recognized during the development process that the amplifier's broadband characteristics and power efficiency would also make it highly attractive for commercial 5G mmWave base station applications. VPI has accordingly developed a "commercial variant" of the amplifier that strips out certain military-specific features (including radiation-hardened gate structures and military-grade environmental qualification) while retaining the core broadband matching network topology and GaN device performance. This commercial variant has not yet been produced or exported, but VPI's business development team has identified significant market interest from multiple 5G infrastructure OEMs.

Current Classification. USML Category XI(a)(3) — classified as a defense article. VPI classified the entire mmWave broadband power amplifier product line — including both the military variant and the contemplated commercial variant — under USML Category XI(a)(3) based on the product's origin under an AFRL defense contract and its initial military-specific design intent.

Issue. The current blanket USML classification may be overly broad with respect to the commercial variant of the amplifier. While the military variant is unambiguously a defense article (designed specifically for military satcom under AFRL specifications, incorporating classified design features, and integrated into defense-specific architectures), the commercial variant may qualify for EAR control under ECCN 3A001 rather than USML control if it is determined that:

(i) The commercial variant has been redesigned for non-military applications and does not incorporate specifically military features such as radiation hardening, military-grade environmental qualification, or classified design elements;

(ii) The commercial variant has "predominant civil applications" within the meaning of ITAR § 120.6 and is available for sale on the commercial market without restriction;

(iii) The commercial variant's performance capabilities have equivalents in items used for civil applications in the 5G and commercial satcom markets.

If the commercial variant is determined to be EAR-controlled under ECCN 3A001 rather than USML-controlled, the licensing framework for export, deemed export, and technology transfer would shift from DDTC to BIS, and HSAG would potentially be able to leverage License Exception STA (subject to the MT control limitation) for integration of this technology into its commercial 5G product portfolio.

Post-Closing Relevance. HSAG has identified VPI's mmWave broadband power amplifier technology as one of the principal drivers of commercial value in the acquisition. HSAG's stated post-closing strategy includes integrating VPI's mmWave expertise into HSAG's commercial 5G semiconductor portfolio, which targets European and Asian telecommunications infrastructure OEMs. If the commercial variant of the amplifier remains ITAR-controlled, HSAG's ability to pursue this integration strategy is severely restricted: any transfer of ITAR-controlled technical data to HSAG's German national engineers (whether in Dresden or Austin) would require DDTC authorization, and commercial sales to non-U.S. customers would require DSP-5 licenses on a case-by-case basis. In contrast, if the commercial variant is determined to be EAR-controlled under ECCN 3A001, the integration pathway becomes significantly more feasible under BIS licensing and license exception mechanisms.

Recommendation. We recommend that VPI and HSAG file a commodity jurisdiction determination request with DDTC under 22 C.F.R. § 120.4 for the commercial variant of the mmWave broadband power amplifier. The CJ request should be accompanied by detailed technical documentation demonstrating the design distinctions between the military variant (which would remain USML-controlled) and the commercial variant, including a side-by-side comparison of performance specifications, design features, qualification standards, and intended end-use applications. If DDTC determines that the commercial variant is not a defense article, it would fall under EAR jurisdiction, and a follow-up classification request with BIS would be appropriate to confirm the applicable ECCN (most likely 3A001.b.2). The estimated timeline for a CJ determination is 60 to 90 days from filing, though timelines can vary significantly depending on the complexity of the item and the volume of pending CJ requests at DDTC. We recommend filing this CJ request as soon as practicable and, ideally, prior to closing to provide maximum clarity for HSAG's post-closing integration planning.

Item 2: GaN-on-SiC Epitaxial Growth Process Technology (Dual Jurisdiction Ambiguity)

Product Description. VPI's proprietary GaN-on-SiC epitaxial growth process is the foundational manufacturing technology underlying all of VPI's GaN products, both defense and commercial. This process, covered by eight granted U.S. patents (U.S. Pat. Nos. 9,XXX,001 through 9,XXX,008, with the earliest priority date in 2012), encompasses VPI's proprietary techniques for growing high-quality gallium-nitride crystal layers on silicon-carbide substrates using metal-organic chemical vapor deposition ("MOCVD"). The process parameters — including precursor gas ratios (trimethylgallium, ammonia, and dopant precursors), growth temperatures, chamber pressures, buffer layer compositions (AlN nucleation layers, graded AlGaN transition layers), and in-situ monitoring techniques — are the result of over a decade of R&D investment and constitute some of VPI's most valuable intellectual property.

Current Classification. The epitaxial growth process technology is currently subject to a split classification:

(i) Portions of the technology that are directly associated with the design and production of ITAR-controlled defense articles (specifically, the defense radar, missile defense, and EW products discussed in Section IV.A) are treated as ITAR-controlled "technical data" under ITAR § 120.10;

(ii) Portions of the technology that are associated with the development and production of EAR-controlled dual-use products (specifically, the ECCN 3A001-classified commercial GaN HEMTs and MMICs discussed in Section IV.B.1) are classified under ECCN 3E001.

Issue. The epitaxial growth process is a foundational, platform-level manufacturing technology that is used across VPI's entire product portfolio, both defense and commercial. The same MOCVD reactors, the same growth recipes (with certain parametric variations), and the same process engineering expertise are employed to produce wafers destined for both ITAR-controlled and EAR-controlled end products. The current split classification — with portions of the same underlying technology simultaneously subject to ITAR jurisdiction and EAR jurisdiction depending on the downstream application — creates significant compliance complexity. In practice, it is difficult to draw a bright line between the "defense-related" and "commercial" applications of the same epitaxial growth process, because the fundamental chemistry and physics are the same; the differences lie in specific parametric optimizations (e.g., buffer layer thickness tuning for radiation hardness versus channel mobility optimization for commercial power efficiency) and in the downstream processing and qualification steps.

Additionally, five of the eight patents in the epitaxial growth process family were developed in whole or in part under U.S. government-funded contracts and are therefore subject to the government's march-in rights under 35 U.S.C. § 203 and the government's license rights under DFARS 252.227-7038. The government-funded nature of these patents adds an additional layer of complexity to any post-closing technology transfer to HSAG, as the government may assert its rights to control or restrict the use of this technology by a foreign-owned entity.

Post-Closing Relevance. HSAG may wish to apply VPI's epitaxial growth technology in its existing facilities — potentially including the Halcyon US Inc. design center in Austin, Texas, and ultimately HSAG's fabrication facilities in Dresden, Germany — for commercial semiconductor production. Doing so requires clear jurisdictional lines: if the technology is ITAR-controlled, such transfers would require DDTC authorization (DSP-5 or TAA), which may be difficult to obtain and subject to significant conditions; if the technology is EAR-controlled under ECCN 3E001, the transfer may be feasible under BIS licensing or License Exception STA (for Germany as a Tier 1 country), subject to item-by-item analysis of control reasons.

Recommendation. We recommend a two-track approach:

(a) CJ Request with DDTC. File a commodity jurisdiction determination request with DDTC for the non-defense application of VPI's GaN-on-SiC epitaxial growth process technology. The CJ request should present the technology in its commercial-application context — i.e., as technology used for the production of commercial GaN HEMTs and MMICs for 5G and satcom applications — and seek a determination that this commercial subset of the technology is not ITAR-controlled technical data but rather falls under EAR jurisdiction. The CJ request should include detailed technical documentation identifying the specific process parameters, know-how, and patent claims that are relevant to the commercial application, as distinct from any defense-specific parametric optimizations or classified information.

(b) Classification Request with BIS. Simultaneously file a classification request with BIS to confirm that the commercial-application subset of the epitaxial growth process technology is properly classified under ECCN 3E001 as technology for the production of ECCN 3A001 items. This will provide a clear, documented regulatory basis for post-closing technology transfer planning.

Both filings should be coordinated with the TCP requirements under the anticipated NSA to ensure that the firewall provisions adequately address the dual-jurisdiction nature of this technology during the pendency of the CJ and classification requests.

Item 3: HEMT Gate Structure Optimization Technology (End-Use Sensitivity)

Product Description. VPI possesses extensive proprietary technology related to the design and optimization of high-electron-mobility transistor gate structures,

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION AND REGULATORY PROCEEDINGS NOT FOR DISTRIBUTION WITHOUT PRIOR AUTHORIZATION OF CALDERWOOD & HARKNESS LLP
CALDERWOOD & HARKNESS LLP
1750 K Street NW, Suite 800 Washington, DC 20006 Telephone: (202) 555-8400 | Facsimile: (202) 555-8401
MEMORANDUM
FROM: Christy Bauer, Working Associate, intellectual Property Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006
REVIEWED BY: Lt. Col. (Ret.) David Caruso, Senior Counsel, Government Contracts & Export Controls Priya Venkataraman, Associate, International Trade & Sanctions
SUPERVISED BY: Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS Omar Siddiqui, Lead Associate, intellectual Property
TO: Beatrice Holloway, Responsible Partner, Mergers & Acquisitions Stefan Lohse, General Counsel, Halcyon Semiconductor AG
DATE: September 8, 2023
RE: Classification Review of Marlowe Asset Management Photonics Inc. Products Under the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) — Implications of Acquisition by Halcyon Semiconductor AG
MATTER: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. Acquisition — CFIUS Case No. CFIUS-023-07-3841
This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of regulatory proceedings. It is protected by the attorney-client privilege and the work product doctrine. This memorandum is intended solely for the use of the addressees and other authorized representatives of Halcyon Semiconductor AG in connection with the above-referenced matter. Any unauthorized disclosure, distribution, or reproduction of this memorandum is strictly prohibited.
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I. EXECUTIVE SUMMARY
This memorandum presents the results of Calderwood & Harkness's classification review of the products, technologies, and technical data of Marlowe Asset Management Photonics Inc. ("VPI") under both the International Traffic in Arms Regulations ("ITAR," 22 C.F.R. Parts 120–130) and the Export Administration Regulations ("EAR," 15 C.F.R. Parts 730–774). The purpose of this review is threefold: (1) to analyze VPI's current product and technology classifications under the applicable U.S. export control regulatory framework; (2) to assess the impact that the proposed acquisition of VPI by Halcyon Semiconductor AG ("HSAG") will have on those classifications, particularly in light of the change from U.S. domestic ownership to foreign (German) ownership; and (3) to identify specific items, technologies, or product lines requiring post-closing reclassification review through commodity jurisdiction ("CJ") determinations with the Directorate of Defense Trade Controls ("DDTC") or classification requests with the Bureau of Industry and Security ("BIS"). This memorandum has been prepared in connection with, and supports, the pending CFIUS filing and National Security Agreement ("NSA") negotiation in CFIUS Case No. CFIUS-023-07-3841.
VPI is a Delaware C-corporation headquartered in Colorado Springs, Colorado, that designs and manufactures advanced gallium-nitride ("GaN") power amplifier chips utilized in defense radar systems, satellite communications, electronic warfare systems, and, increasingly, commercial fifth-generation ("5G") telecommunications infrastructure. VPI has been registered with DDTC since 2011, holding Registration No. M-24817, and maintains a fabrication facility at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113 that is cleared to the SECRET level (CAGE Code 7VK92). Of VPI's 486 employees, 212 hold active U.S. government security clearances at various levels, and the company maintains 14 active Department of Defense ("DoD") contracts (as both prime contractor and subcontractor) with an aggregate backlog of approximately $193 million.
VPI currently holds products classified under ITAR United States Munitions List ("USML") Category XI(a)(3) (Military Electronics) as defense articles, as well as products and technology classified under EAR Export Control Classification Numbers ("ECCNs") 3A001, 3A991, and 3E001 as dual-use items. VPI maintains three active DSP-5 export licenses for ITAR-controlled deliveries to NATO allies, specifically the United Kingdom and Australia.
Our review has identified six specific VPI product lines or technology categories that require reclassification review in connection with, or promptly following, the closing of the proposed acquisition. These items present classification ambiguities or sensitivities that are heightened by the change to foreign ownership, the potential expansion of end-use applications into HSAG's commercial semiconductor portfolio, and the consequent alteration of end-user and ultimate destination profiles. The need for reclassification review does not arise from any deficiency in VPI's current compliance program — which is, on the whole, well-maintained and well-documented — but rather from the fundamental change in the corporate ownership and strategic direction that the acquisition represents.
Our principal recommendation is that HSAG and VPI pursue commodity jurisdiction determinations with DDTC for borderline ITAR/EAR items and classification requests with BIS for dual-use items either prior to, or promptly following, the targeted closing date of February 9, 2024. Interim compliance measures — including treating ambiguous items under the most restrictive applicable classification and prohibiting any transfer of controlled technology to HSAG personnel for the six identified items — should be implemented immediately upon closing. The results of these reclassification reviews will be critical to determining the scope of permissible post-closing technology integration between VPI and HSAG, the precise terms of the Technology Control Plan ("TCP") under the anticipated NSA, and HSAG's long-term commercial strategy for VPI's dual-use technology portfolio.
This memorandum should be read in conjunction with several companion analyses being prepared by the Calderwood & Harkness team, including the DSP-5 License Continuation Memo (addressing amendment procedures for VPI's active export licenses), the DDTC Registration Transfer Analysis (addressing registration transfer requirements under ITAR § 122.4(a)), and the classified program annex prepared under the NSA framework (addressing classified program continuity). Those companion documents are referenced herein where relevant but are not reproduced.
II. BACKGROUND
A. The Transaction
Halcyon Semiconductor AG ("HSAG"), a publicly traded German stock corporation (Aktiengesellschaft) listed on the Frankfurt Stock Exchange (XETRA: HLC) with its principal offices at Industriestraße 44, 01099 Dresden, Saxony, Germany, reported fiscal year 2022 revenue of approximately €6.12 billion. HSAG is a global semiconductor manufacturer with operations spanning power management integrated circuits, analog and mixed-signal devices, and sensor technologies. HSAG has entered into a definitive Stock Purchase Agreement, executed on June 10, 2023, to acquire one hundred percent (100%) of the outstanding equity interests of Marlowe Asset Management Photonics Inc. ("VPI"), a Delaware C-corporation incorporated on February 14, 2009, headquartered at 7400 Ridgeline Parkway, Colorado Springs, Colorado 80919.
The aggregate purchase price for the acquisition is $1.42 billion, payable in cash on a cash-free, debt-free basis, subject to customary post-closing adjustments to a normalized net working capital target of $34.6 million. The acquisition will be effectuated through a wholly owned intermediate holding company, Halcyon US Holdings Inc., a Delaware corporation formed on June 5, 2023 (Employer Identification Number: 93-2841067; registered agent: National Registered Agents of Delaware, 160 Greentree Drive, Suite 101, Dover, Delaware 19904). Following closing, VPI will become an indirect wholly owned subsidiary of HSAG, held through Halcyon US Holdings Inc.
HSAG currently maintains existing operations in the United States through Halcyon US Inc., a Delaware corporation located at 11501 Alterra Parkway, Suite 300, Austin, Texas 78758 (EIN: 81-3056429). Halcyon US Inc. is a fabless semiconductor design center employing approximately 320 personnel, focused on commercial analog and power management IC design. Critically, Halcyon US Inc. does not perform any classified work, does not hold a facility security clearance, and is not engaged in any activities involving ITAR-controlled items or technologies. The Austin facility has had no prior involvement with the U.S. defense industrial base.
The closing of the Transaction is conditioned, among other things, on the successful completion of the CFIUS review process, including the execution of a mutually acceptable National Security Agreement. The CFIUS filing was made under CFIUS Case No. CFIUS-023-07-3841, and the parties are currently in the review and investigation phase. The targeted closing date is February 9, 2024, which is contingent upon the resolution of CFIUS and other regulatory conditions.
B. Marlowe Asset Management Photonics Inc. — Regulatory Profile
VPI designs and fabricates advanced GaN-on-silicon-carbide ("GaN-on-SiC") power amplifier chips, modules, and related subsystem components. VPI's primary fabrication facility is a 45,000 square-foot cleanroom and associated laboratory complex located at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113 (the "Albuquerque Facility"). This facility holds a Facility Security Clearance ("FCL") at the SECRET level, issued by the Defense Counterintelligence and Security Agency ("DCSA"), and is assigned CAGE Code 7VK92 and DUNS Number 07-812-4493. The Facility Security Officer ("FSO") is Col. (Ret.) Bryce Hendrickson, U.S. Air Force (Retired), who holds a Top Secret/Sensitive Compartmented Information ("TS/SCI") personal security clearance.
VPI has been registered with the Directorate of Defense Trade Controls since 2011, holding DDTC Registration No. M-24817. VPI's registration has been timely renewed in accordance with ITAR requirements throughout this period, and no adverse findings, voluntary disclosures, or enforcement actions have been recorded against VPI with respect to DDTC or BIS compliance.
VPI currently maintains 14 active Department of Defense contracts, comprising both prime contracts and subcontracts, with an aggregate backlog of approximately $193 million. The contracting agencies and programs include:
• U.S. Army Program Executive Office for intelligence, Electronic Warfare & Sensors ("PEO IEW&S"): Prime contract for GaN-based T/R modules for the AN/TPS-80 radar system (backlog: $52.3 million);
• U.S. Air Force Research Laboratory ("AFRL"): Prime contract for next-generation mmWave broadband power amplifier development for military satcom (backlog: $41.7 million);
• Missile Defense Agency ("MDA"): Prime contract for GaN-based T/R modules for missile defense radar applications (backlog: $38.9 million);
• U.S. Navy, Naval Sea Systems Command ("NAVSEA"): Subcontract to Ironclad Defense Systems Inc. for GaN power amplifier components for naval radar and electronic warfare systems;
• Department of Homeland Security, Science & Technology Directorate ("DHS S&T"): Contract for RF transmitter/receiver components for border surveillance applications (backlog: $26.0 million);
• Additional contracts with classified and unclassified components with various DoD entities, the specific details of which are addressed in the classified program annex.
Key personnel with relevant security clearances include:
• Dr. Nathan Trevorrow, Founder and Chief Executive Officer — holds TS/SCI clearance;
• Marissa Sung-Avila, President and Chief Operating Officer — holds SECRET clearance;
• Col. (Ret.) Bryce Hendrickson, Vice President of Government Programs and Facility Security Officer — holds TS/SCI clearance.
As of the date of this memorandum, 212 of VPI's 486 total employees hold active U.S. government security clearances at various levels, ranging from CONFIDENTIAL to TS/SCI.
C. IP Portfolio Context
VPI possesses a substantial intellectual property portfolio that is central to both the strategic rationale for the acquisition and the export control classification analysis presented in this memorandum. VPI's IP portfolio includes the following:
Patents. VPI holds 47 granted U.S. patents and has 12 patent applications currently pending before the U.S. Patent and Trademark Office. These patents and applications are organized into three principal families:
(i) GaN-on-SiC Epitaxial Growth Process: 8 patents (U.S. Pat. Nos. 9,XXX,001 through 9,XXX,008; earliest priority date: 2012) covering VPI's proprietary epitaxial growth techniques for producing high-quality GaN-on-SiC wafers with superior electron mobility and thermal conductivity characteristics;
(ii) HEMT Gate Structure Optimization: 19 patents (U.S. Pat. Nos. 10,XXX,101 through 10,XXX,119; earliest priority date: 2015) covering VPI's innovative approaches to high-electron-mobility transistor gate geometry, passivation, and field plate design, which yield superior power density and linearity performance;
(iii) mmWave Broadband Matching Network: 20 patents (U.S. Pat. Nos. 10,XXX,201 through 10,XXX,220; earliest priority date: 2016) covering VPI's proprietary wideband impedance matching topologies for millimeter-wave power amplifiers operating across frequencies from 18 GHz to 100 GHz.
Trade Secrets. VPI maintains 31 formally registered internal trade secrets, predominantly comprising proprietary GaN epitaxial growth recipes (including specific precursor gas ratios, growth temperatures, pressure profiles, and buffer layer compositions), die-level reliability screening processes (including burn-in protocols, parametric test sequences, and failure analysis methodologies), and certain manufacturing process parameters that are not disclosed in VPI's patent filings.
Government-Funded IP. Of VPI's 47 granted patents, 23 were developed in whole or in part under U.S. government-funded contracts. These patents are subject to the government's march-in rights under 35 U.S.C. § 203, the government's nonexclusive, nontransferable, irrevocable, paid-up license under 35 U.S.C. § 202(c)(4), and the additional rights and restrictions set forth in DFARS 252.227-7038 (Patent Rights — Ownership by the Contractor (Large Business)). The government-funded nature of these patents is a significant consideration both for the CFIUS review and for the export control classification analysis, as it may affect the scope of permissible technology transfer to HSAG and the government's ability to restrict or control the use of VPI's technology post-acquisition.
D. Scope of This Memorandum
This memorandum addresses the following topics within the scope of Calderwood & Harkness's engagement:
(a) A comprehensive review of VPI's current classifications of its products, technologies, and technical data under both the ITAR (USML) and the EAR (CCL);
(b) An assessment of the impact that HSAG's acquisition — and the attendant change from U.S. domestic ownership to foreign (German) ownership — will have on VPI's existing export control classifications;
(c) Identification and detailed analysis of specific VPI products, technologies, or technical data that require reclassification review, commodity jurisdiction determinations, or classification requests in connection with or following the closing of the acquisition; and
(d) Recommendations for priority actions, interim compliance measures, and longer-term compliance program enhancements.
The following topics are not addressed in this memorandum and are the subject of separate, companion analyses:
(e) Classified program specifics and Special Access Program ("SAP") considerations, which are addressed separately under the NSA framework and in the classified program annex prepared by Lt. Col. (Ret.) Caruso;
(f) DSP-5 license amendment procedures and license continuation strategies for VPI's three active DSP-5 licenses, which are addressed in the separate DSP-5 License Continuation Memo being prepared by Priya Venkataraman;
(g) DDTC registration transfer requirements and procedures under ITAR § 122.4(a), which are addressed in the separate DDTC Registration Transfer Analysis being prepared by this team; and
(h) CFIUS mitigation measures and NSA terms, which are addressed in the principal CFIUS submission materials supervised by Peggy Ashworth.
III. APPLICABLE REGULATORY FRAMEWORK
This section provides an overview of the U.S. export control regulatory framework applicable to VPI's products and technologies. An understanding of this framework is essential to the classification analysis that follows in Sections IV and V.
A. International Traffic in Arms Regulations (ITAR) — 22 C.F.R. Parts 120–130
The International Traffic in Arms Regulations, codified at 22 C.F.R. Parts 120 through 130, govern the export and temporary import of "defense articles" and "defense services" as those terms are defined in the ITAR. The ITAR implements the Arms Export Control Act ("AECA"), 22 U.S.C. § 2778, and is administered by the Directorate of Defense Trade Controls within the Bureau of Political-Military Affairs of the U.S. Department of State.
The ITAR's jurisdictional reach extends to all items — whether hardware, software, or technical data — that are enumerated on the United States Munitions List ("USML"), set forth at 22 C.F.R. § 121.1. The USML is organized into 21 categories, each covering a distinct class of defense-related items. The key provisions relevant to this memorandum include:
• ITAR § 120.6 — defines "defense article" to include any item or technical data designated in the USML, as well as any item specifically designed, developed, configured, adapted, or modified for a military application that does not have a predominant civil application and does not have equivalent performance capabilities to an item used for civil applications;
• ITAR § 120.9 — defines "export" broadly to include, inter alia, sending or taking a defense article out of the United States, transferring registration, control, or ownership of a defense article to a foreign person, and disclosing or transferring technical data to a foreign person;
• ITAR § 120.10 — defines "technical data" to include information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles, including blueprints, drawings, plans, instructions, and documentation;
• ITAR § 120.16 — defines "deemed export" with respect to ITAR-controlled items: the disclosure of technical data to a foreign person within the United States is deemed to be an export to the country of that person's nationality, thereby triggering the full panoply of ITAR export licensing requirements;
• ITAR § 122.1 — establishes the registration requirement for any person who engages in the business of manufacturing, exporting, or temporarily importing defense articles; VPI has maintained continuous registration since 2011;
• ITAR § 122.4(a) — requires notification to DDTC of certain material changes, including changes in ownership or control of a registered entity, within 60 days of such change.
USML Category XI — Military Electronics. USML Category XI covers military electronics, including electronic equipment, systems, and subsystems specifically designed or modified for military applications. Of particular relevance to VPI's product portfolio, Category XI(a)(3) encompasses electronic equipment specifically designed or modified for military applications, including certain GaN-based power amplifiers specifically designed for defense radar, electronic warfare, and related military systems. The distinction between items "specifically designed" for military applications (USML-controlled) and items with dual-use or predominantly commercial applications (potentially EAR-controlled) is the central classification question for several of VPI's product lines, as discussed in detail in Sections IV and V below.
B. Export Administration Regulations (EAR) — 15 C.F.R. Parts 730–774
The Export Administration Regulations, codified at 15 C.F.R. Parts 730 through 774, govern the export, reexport, and in-country transfer of "dual-use" items — that is, items with both commercial and potential military or proliferation applications — as well as certain purely commercial items that are nonetheless subject to export controls for foreign policy, anti-terrorism, or other reasons. The EAR is administered by the Bureau of Industry and Security within the U.S. Department of Commerce and implements the Export Control Reform Act of 2018 ("ECRA"), 50 U.S.C. §§ 4801–4861.
Items subject to the EAR are classified according to the Commerce Control List ("CCL"), set forth in Supplement No. 1 to 15 C.F.R. Part 774. Each item on the CCL is assigned an Export Control Classification Number ("ECCN"), which identifies both the type of item and the reasons for its control. Items not specifically enumerated on the CCL are designated "EAR99" and are generally exportable without a license to most destinations, subject to end-use and end-user restrictions.
The following ECCNs are directly applicable to VPI's product portfolio:
• ECCN 3A001 — "Electronic components designed for operation at extreme conditions or radiation-hardened." This ECCN covers, inter alia, certain high-electron-mobility transistors ("HEMTs") and monolithic microwave integrated circuits ("MMICs") designed for operation in specified frequency ranges, at specified power levels, or under specified environmental conditions. Specifically, ECCN 3A001.b.2 covers microwave or millimeter-wave discrete semiconductor devices and monolithic integrated circuits that meet or exceed specified performance parameters for frequency, output power, and gain. Several of VPI's commercial and dual-use GaN HEMT and MMIC products meet or exceed these controlled parameters. Reasons for control include National Security ("NS"), Missile Technology ("MT"), and Anti-Terrorism ("AT").
• ECCN 3A991 — "Electronic devices and components not controlled by 3A001." This classification covers electronic components that do not meet the performance thresholds specified in ECCN 3A001 but are nonetheless controlled for Anti-Terrorism ("AT") reasons. VPI manufactures certain lower-performance GaN power transistors that fall within this classification. License requirements under ECCN 3A991 are limited and apply primarily to embargoed or sanctioned destinations.
• ECCN 3E001 — "Technology according to the General Technology Note for the 'development' or 'production' of equipment or materials controlled by 3A001 . . . ." This ECCN captures the technology — including design methodology, process parameters, manufacturing know-how, and engineering data — "required" for the "development" or "production" of items controlled under ECCN 3A001 (and certain related ECCNs). VPI's GaN process technology, proprietary epitaxial growth recipes, design tools, and manufacturing know-how fall within the scope of ECCN 3E001. This classification is of critical importance to the post-closing integration analysis, as it controls the fundamental technology that HSAG may wish to leverage across its broader semiconductor operations.
The EAR also contains a "deemed export" rule directly relevant to the Transaction. Under 15 C.F.R. § 734.13, the release of "technology" or "source code" subject to the EAR to a foreign national within the United States is "deemed" to be an export to the home country (or countries) of such foreign national. This means that any disclosure of ECCN 3E001-controlled technology to HSAG's German national employees present in the United States — whether at VPI's facilities in Albuquerque or Colorado Springs, or at HSAG's existing Austin facility — would constitute a deemed export to Germany and would require either a BIS license or qualification for a license exception.
With respect to license exceptions, the most relevant to the Transaction is License Exception Strategic Trade Authorization ("STA"), codified at 15 C.F.R. § 740.20. STA authorizes the export, reexport, and in-country transfer of specified items to destinations in STA Tier 1 countries (which include Germany and all other NATO allies and close partners listed in Supplement No. 1 to Part 740) without an individual BIS license, subject to compliance with certain conditions, including end-use and consignee statement requirements. However, STA is not available for items controlled for Missile Technology ("MT") reasons under the relevant ECCN's reasons for control — a limitation that is relevant to certain VPI items classified under ECCN 3A001 that carry MT controls. An item-by-item analysis of STA eligibility is therefore required.
Other potentially applicable license exceptions include License Exception Technology and Software — Unrestricted ("TSU"), License Exception Technology and Software under Restriction ("TSR"), and License Exception Temporary Imports, Exports, Reexports, and Transfers (In-Country) ("TMP"). The availability of each must be evaluated on a case-by-case basis in light of the specific items, end-uses, and end-users involved.
C. Interaction Between ITAR and EAR — Commodity Jurisdiction
A foundational principle of the U.S. export control system is that any given item is subject to either the ITAR or the EAR at any given time, but not both simultaneously. The determination of which regulatory regime controls a particular item is referred to as the "commodity jurisdiction" determination. When there is uncertainty as to whether an item is a "defense article" controlled under the USML (and thus subject to the ITAR) or a "dual-use" item controlled under the CCL (and thus subject to the EAR), the proper procedure is to submit a commodity jurisdiction request ("CJ request") to DDTC under 22 C.F.R. § 120.4.
Upon receipt of a CJ request, DDTC reviews the item's design characteristics, intended end-use, performance parameters, and relationship to items on the USML, consulting with other relevant agencies (including the Department of Defense and the Department of Commerce) as appropriate. DDTC then issues a commodity jurisdiction determination stating whether the item is USML-controlled (ITAR jurisdiction) or CCL-controlled (EAR jurisdiction). CJ determinations are binding on the requesting party and on the U.S. government, subject to certain exceptions for changes in design or end-use.
CJ determinations are of critical importance in the context of the Transaction because VPI's core GaN-on-SiC technology platform serves both military (radar, electronic warfare, missile defense) and commercial (5G infrastructure, commercial satellite communications) applications. The same underlying GaN semiconductor technology — including epitaxial growth processes, HEMT device structures, and MMIC design methodologies — is used to produce both USML-controlled defense articles and CCL-controlled dual-use items. The line between ITAR and EAR jurisdiction for specific items and technology variants is not always self-evident, and the change in VPI's ownership and strategic direction under HSAG has the potential to affect end-use characterizations in ways that warrant fresh CJ review for borderline items.
D. Foreign Ownership Implications for Export Controls
It is important to note at the outset that a change from U.S. domestic ownership to foreign ownership does not, as a matter of law, automatically change the ITAR or EAR classification of any item. An item that is properly classified as a USML Category XI(a)(3) defense article remains so classified regardless of whether its manufacturer is owned by a U.S. entity or a foreign entity. Similarly, an item classified under ECCN 3A001 retains that classification irrespective of the nationality of the corporate parent.
However, the change in ownership has several significant practical and regulatory consequences that bear directly on export control classification and compliance:
Deemed Export Implications. Under both ITAR § 120.16 and EAR § 734.13, the disclosure of controlled technical data or technology to a foreign national constitutes a deemed export to that person's home country. Post-closing, HSAG personnel — including German national executives, engineers, and board members — will be associated with VPI's operations. Any disclosure of ITAR-controlled technical data or EAR-controlled technology to such individuals absent appropriate authorization would constitute a violation of the applicable regulations. This reality necessitates the establishment of robust access controls and firewalls, which will be formalized in the Technology Control Plan under the NSA.
End-Use and End-User Profile Changes. Under HSAG's ownership, VPI's product portfolio may evolve to encompass expanded commercial applications, new customer relationships, and new geographic distribution patterns. These changes may affect the end-use, end-user, and ultimate destination analyses that underpin certain of VPI's existing classifications and license authorizations.
Favorable Factors. HSAG is a German company, and Germany is a member of the North Atlantic Treaty Organization ("NATO") and a participant in all four of the multilateral export control regimes: the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, the Missile Technology Control Regime ("MTCR"), the Nuclear Suppliers Group ("NSG"), and the Australia Group. Germany's status as a close U.S. ally and its participation in these regimes are favorable factors in the export control and CFIUS analysis, as they reduce (though they do not eliminate) the risk of diversion of controlled items to adversarial or sanctioned destinations.
China Nexus. Notwithstanding Germany's allied status, HSAG maintains a subsidiary in the People's Republic of China: Halcyon Semiconductor (Shanghai) Co., Ltd., which reported revenue of approximately $81.4 million in fiscal year 2022, representing approximately 1.3% of HSAG's total revenue. This subsidiary's operations are limited to consumer-grade power management integrated circuits; it does not engage in any GaN-related or defense-related activities. Nevertheless, the existence of this China subsidiary requires heightened awareness in the end-use and end-user analyses conducted in connection with the Transaction. The CFIUS review process and the terms of the anticipated NSA will address the segregation of VPI's operations from HSAG's China-based activities. From an export control perspective, it is imperative that no VPI technology — whether ITAR-controlled or EAR-controlled — flows to Halcyon Semiconductor (Shanghai) Co., Ltd. or to any other HSAG entity or personnel in China.
IV. CURRENT VPI PRODUCT CLASSIFICATIONS — DETAILED REVIEW
This section provides a detailed review of VPI's current product and technology classifications under the ITAR and the EAR. The analysis is based on Calderwood & Harkness's review of VPI's export control compliance records, product technical documentation, self-classification worksheets, prior CJ and classification determinations (where available), government contract documentation, and interviews with VPI's export compliance personnel conducted on July 18–19, 2023, and August 14, 2023. The review was conducted under the supervision of Col. (Ret.) Hendrickson and with the cooperation of VPI's engineering and legal teams.
A. ITAR-Controlled Products (USML Category XI(a)(3))
VPI currently classifies three principal product categories and their associated technical data as ITAR-controlled defense articles under USML Category XI(a)(3). Each is discussed below.
1. GaN Power Amplifier Modules for Defense Radar Systems
Product Description. VPI designs and manufactures high-power GaN-on-SiC transmit/receive ("T/R") modules specifically designed for military radar applications. These modules are custom-designed to meet the performance specifications of specific military radar platforms, most notably the AN/TPS-80 Ground/Air Task-Oriented Radar ("G/ATOR") system, which is the subject of VPI's prime contract with the U.S. Army's Program Executive Office for intelligence, Electronic Warfare & Sensors. The current contract backlog for this product line is approximately $52.3 million. The T/R modules feature military-grade specifications including extended operating temperature ranges, MIL-STD-810H environmental qualification, military-specification reliability screening (per MIL-PRF-38534), and radiation-hardened gate oxide structures.
Current Classification. USML Category XI(a)(3) — defense article.
Basis for Classification. These T/R modules are "specifically designed" for military radar applications within the meaning of ITAR § 120.6. Their performance parameters — including operating frequency range, peak and average power density, duty cycle handling, and radiation-hardening characteristics — are engineered to meet military specifications that significantly exceed the requirements of any civilian radar or communications application. The modules are physically and functionally integrated into defense-specific radar architectures and are not offered for sale on the commercial market. The design, development, and production of these modules are governed by classified and controlled technical data packages provided by or developed for DoD end-users.
Assessment. The classification of these products as USML Category XI(a)(3) defense articles is unambiguous and well-supported by VPI's documentation. There is no basis for reclassification, and no reclassification review is recommended for this product line. Post-closing, these products will remain ITAR-controlled defense articles subject to the full ITAR licensing and compliance requirements, and access by HSAG foreign national personnel will be restricted under the NSA's Technology Control Plan.
2. GaN-Based T/R Modules for Missile Defense
Product Description. VPI designs and manufactures GaN-based T/R modules for missile defense radar applications under its prime contract with the Missile Defense Agency. The current contract backlog for this product line is approximately $38.9 million. These modules are designed to meet the stringent performance requirements of ground-based and sea-based missile defense radar systems, including extreme reliability, extended operational lifetime, and the ability to withstand the electromagnetic and environmental stresses associated with missile defense radar operations. Certain aspects of the module design and performance parameters are classified at the SECRET level and above.
Current Classification. USML Category XI(a)(3) — defense article.
Basis for Classification. The modules are designed to MDA specifications exclusively for missile defense applications. The design parameters, performance characteristics, and associated technical data are inherently military in nature and are subject to classification under the National Industrial Security Program ("NISP"). The items are specifically designed for integration into missile defense radar systems that have no commercial or civilian equivalent.
Assessment. The classification of these products as USML Category XI(a)(3) defense articles is unambiguous. No reclassification review is recommended. The classified technical data associated with these products will require special handling under the NSA, including restrictions on access by HSAG personnel and coordination with DCSA regarding the facility security clearance.
3. Electronic Warfare (EW) Subsystem Components
Product Description. VPI designs and manufactures GaN power amplifiers and related subsystem components for electronic countermeasure ("ECM") and electronic warfare ("EW") applications. These components are produced under multiple contracts with DoD agencies, including a subcontract to Ironclad Defense Systems Inc. for U.S. Navy NAVSEA programs. Certain EW programs are classified at levels that preclude detailed discussion in this memorandum; the classified program annex prepared by Lt. Col. (Ret.) Caruso addresses these programs in detail.
Current Classification. USML Category XI(a)(3) — defense article.
Basis for Classification. The components are specifically designed for electronic warfare applications, including jamming, radar deception, and signals intelligence countermeasures. These are inherently military applications with no civilian equivalent. The design parameters, operating modes, and performance characteristics are tailored to military EW requirements and are subject to ITAR controls.
Assessment. The classification of these products as USML Category XI(a)(3) defense articles is clear and well-documented. No reclassification review is recommended. As with the radar and missile defense products, access to EW-related technical data and hardware by HSAG foreign national personnel will be strictly controlled under the NSA.
4. ITAR-Controlled Technical Data and Defense Services
In addition to the hardware products described above, VPI possesses extensive ITAR-controlled "technical data" as defined in ITAR § 120.10 and provides "defense services" as defined in ITAR § 120.9 in connection with its defense programs. This includes, without limitation:
(a) Design drawings, schematics, circuit layouts, and mechanical packaging specifications for USML-listed hardware;
(b) Manufacturing process specifications, test procedures, acceptance criteria, and quality assurance documentation specific to defense article production;
(c) Performance test data, reliability data, environmental qualification test reports, and failure analysis documentation for defense articles;
(d) Software source code and algorithms embedded in or used for the development, production, or testing of defense articles;
(e) Engineering analyses, trade studies, and design optimization reports prepared in connection with defense contracts;
(f) Technical assistance, training, and advisory services provided to DoD customers and NATO allies in connection with the use, maintenance, or integration of VPI defense articles.
Post-Closing Implication. The disclosure of any of the above categories of ITAR-controlled technical data to HSAG personnel who are foreign persons — including German nationals employed by HSAG in Germany, at Halcyon US Inc. in Austin, or at any other HSAG facility — would constitute a "deemed export" under ITAR § 120.16, requiring prior authorization from DDTC in the form of a DSP-5 license or a Technical Assistance Agreement ("TAA"). The Technology Control Plan under the anticipated NSA will need to establish both physical barriers (e.g., secure document storage, controlled access areas, classified network segmentation) and procedural barriers (e.g., access control lists, personnel screening, compliance training) to prevent unauthorized disclosures. Col. (Ret.) Hendrickson, as the incumbent FSO, will serve as the gatekeeper for both the NSA compliance program and VPI's ongoing ITAR compliance program, and his continued employment in this role will be a condition of the NSA.
B. EAR-Controlled Products
In addition to its ITAR-controlled defense articles, VPI designs and manufactures a range of products and technologies that are classified under the EAR. These dual-use items represent a significant and growing portion of VPI's revenue and are central to HSAG's commercial rationale for the acquisition.
1. ECCN 3A001 — High-Performance GaN HEMTs for Dual-Use Applications
Product Description. VPI manufactures GaN high-electron-mobility transistors ("HEMTs") and monolithic microwave integrated circuits ("MMICs") designed for satellite communications and 5G telecommunications infrastructure applications. These devices are based on the same fundamental GaN-on-SiC semiconductor platform as VPI's defense products but are designed with commercial performance specifications, packaging, and qualification standards. Specific products include:
(i) GaN HEMT discrete transistors for 5G macro cell base station power amplifiers, operating in the 3.3–4.2 GHz (sub-6 GHz) and 24.25–29.5 GHz (mmWave) frequency bands;
(ii) GaN MMIC power amplifiers for commercial satellite communication ("satcom") terminals, operating in Ku-band (12–18 GHz), Ka-band (26.5–40 GHz), and Q/V-band (40–75 GHz);
(iii) GaN low-noise amplifier ("LNA") MMICs for satcom receive chains.
Current Classification. ECCN 3A001.b.2 — microwave or millimeter-wave discrete semiconductor devices and monolithic integrated circuits with specified performance parameters.
Basis for Classification. VPI's commercial GaN HEMT and MMIC devices meet or exceed the controlled performance parameters specified in ECCN 3A001.b.2, including thresholds for operating frequency, output power, gain, and power-added efficiency. The devices are designed for both commercial and defense-related satcom applications, placing them squarely within the dual-use character of the 3A001 control. VPI's self-classification under ECCN 3A001 is consistent with BIS classification precedent for similar GaN microwave devices manufactured by other U.S. and allied-nation semiconductor companies.
Reasons for Control. National Security (NS), Missile Technology (MT), Anti-Terrorism (AT). The MT control reason is significant because it limits the availability of License Exception STA for deemed exports to HSAG's German national employees, as discussed in Section VI.B below.
Active Export Authorizations. VPI's three active DSP-5 licenses with DDTC authorize the export of ITAR-controlled variants of VPI's GaN power amplifier technology to NATO allies (specifically the United Kingdom and Australia). It should be clarified, however, that the DSP-5 is an ITAR license form and applies only to the ITAR-controlled variants of VPI's products — specifically, the defense-specific T/R modules and associated technical data discussed in Section IV.A above. The EAR-classified commercial variants described in this subsection are exported under separate BIS license authorizations or under applicable license exceptions and are not covered by the DSP-5 licenses.
Assessment. The ECCN 3A001 classification for VPI's commercial GaN HEMTs and MMICs is well-supported and consistent with industry practice. The classification itself does not require reclassification review. However, the MT control reason applicable to certain 3A001 items will limit the availability of License Exception STA for post-closing technology sharing with HSAG personnel, necessitating item-by-item analysis of license exception eligibility as part of the post-closing integration planning.
2. ECCN 3A991 — Lower-Performance GaN Components
Product Description. VPI manufactures certain GaN power transistors that do not meet the controlled performance thresholds specified in ECCN 3A001 but exceed the performance characteristics of items that would be designated EAR99. These are lower-frequency, lower-power devices designed for less demanding commercial RF applications, including industrial RF heating, medical equipment, and certain telecommunications infrastructure applications.
Current Classification. ECCN 3A991.
Basis for Classification. The devices are electronic components that are controlled for Anti-Terrorism ("AT") reasons only. They do not meet the performance parameters (frequency, power, gain) that would place them within ECCN 3A001. The AT-only control means that license requirements apply only to exports to designated state sponsors of terrorism and certain embargoed destinations, with no license requirements for exports to most commercial destinations worldwide.
Assessment. The ECCN 3A991 classification for these products is straightforward and does not raise any reclassification concerns. The change of ownership to HSAG (Germany) does not materially affect the licensing requirements for 3A991 items, as Germany is not subject to AT-based licensing requirements. No reclassification review is recommended for this product line.
3. ECCN 3E001 — Technology for Production of 3A001 Items
Product Description. This classification covers VPI's process technology, design methodology, manufacturing know-how, and proprietary GaN epitaxial growth recipes that are used to develop and produce items controlled under ECCN 3A001. The "technology" controlled under ECCN 3E001 is defined broadly under EAR § 772.1 to include specific information necessary for the "development," "production," or "use" of a controlled product. In VPI's case, 3E001-controlled technology includes, without limitation:
(i) GaN-on-SiC epitaxial growth process parameters (precursor gas compositions, growth temperatures, chamber pressures, buffer layer specifications);
(ii) HEMT device design rules, layout guidelines, and simulation models;
(iii) MMIC design methodology, including proprietary design libraries and process design kits ("PDKs");
(iv) Wafer fabrication process flows, including lithography recipes, etching parameters, metallization specifications, and passivation processes;
(v) Reliability qualification procedures and acceptance test methods for 3A001-controlled devices;
(vi) Yield improvement techniques and failure analysis methodologies specific to GaN-on-SiC device production.
Current Classification. ECCN 3E001.
Basis for Classification. The technology described above is "required" (within the meaning of the General Technology Note in the EAR) for the "development" or "production" of items controlled under ECCN 3A001, and is therefore controlled under ECCN 3E001 pursuant to the technology transfer controls of the EAR.
Critical Post-Closing Implication. Any sharing of 3E001-controlled technology with HSAG personnel — including German nationals at HSAG's headquarters in Dresden, at Halcyon US Inc. in Austin (if non-U.S. persons are present), or at any other HSAG facility worldwide — would constitute a deemed export under EAR § 734.13 and would require either a BIS license or qualification for a license exception. This is the single most significant EAR-related constraint on post-closing integration, as it directly restricts HSAG's ability to leverage VPI's core manufacturing and design technology across its broader operations.
Overlap with Trade Secrets. There is significant overlap between VPI's 3E001-controlled technology and VPI's 31 registered internal trade secrets, particularly the proprietary GaN epitaxial growth recipes and die-level reliability screening processes. This overlap means that the trade secret protections and the export control restrictions are largely coextensive, and any program for transferring or sharing this technology must satisfy both the export control and trade secret protection requirements.
C. Summary Classification Table
The following table provides a summary of VPI's current product and technology classifications reviewed in this memorandum:
As reflected in the table above, six items have been identified as requiring post-closing reclassification review. These are analyzed in detail in Section V below.
V. ITEMS REQUIRING POST-CLOSING RECLASSIFICATION REVIEW — THE SIX IDENTIFIED ITEMS
Overview
This section presents a detailed analysis of the six VPI product lines or technology categories that Calderwood & Harkness has identified as requiring reclassification review in connection with or following the closing of the Transaction. These six items were identified through our review of VPI's classification records, discussions with VPI's engineering and export compliance teams, analysis of HSAG's disclosed post-closing integration plans, and application of the regulatory framework described in Section III above.
It is important to emphasize that the need for reclassification review does not arise from any inherent deficiency in VPI's current classification practices. VPI's self-classifications were appropriate under its pre-acquisition business model, customer base, and strategic direction. The need for review arises specifically from the changed circumstances that the Transaction will create: the shift from U.S. domestic ownership to foreign (German) ownership, the potential expansion of VPI's product portfolio into HSAG's commercial markets, and the consequent alteration of end-use characterizations, end-user profiles, and ultimate destination considerations.
For each item, we provide: (a) a description of the product or technology; (b) its current ITAR or EAR classification; (c) the specific issue or ambiguity that warrants reclassification review; (d) the relevance of the issue to HSAG's post-closing integration plans; and (e) our recommended course of action.
Item 1: mmWave Broadband Power Amplifier for 5G/Satcom (Dual-Use Boundary)
Product Description. VPI has developed a next-generation millimeter-wave ("mmWave") broadband power amplifier capable of operating across a wide bandwidth encompassing both military satellite communications frequencies and commercial 5G mmWave frequency bands. This product was originally conceived and developed under VPI's prime contract with the U.S. Air Force Research Laboratory, which carries a current backlog of approximately $41.7 million. The AFRL contract funded the initial research, design, and prototype fabrication of the amplifier, with the primary intended application being advanced military satcom terminals for the U.S. Air Force and Joint Force requirements.
However, VPI's engineers recognized during the development process that the amplifier's broadband characteristics and power efficiency would also make it highly attractive for commercial 5G mmWave base station applications. VPI has accordingly developed a "commercial variant" of the amplifier that strips out certain military-specific features (including radiation-hardened gate structures and military-grade environmental qualification) while retaining the core broadband matching network topology and GaN device performance. This commercial variant has not yet been produced or exported, but VPI's business development team has identified significant market interest from multiple 5G infrastructure OEMs.
Current Classification. USML Category XI(a)(3) — classified as a defense article. VPI classified the entire mmWave broadband power amplifier product line — including both the military variant and the contemplated commercial variant — under USML Category XI(a)(3) based on the product's origin under an AFRL defense contract and its initial military-specific design intent.
Issue. The current blanket USML classification may be overly broad with respect to the commercial variant of the amplifier. While the military variant is unambiguously a defense article (designed specifically for military satcom under AFRL specifications, incorporating classified design features, and integrated into defense-specific architectures), the commercial variant may qualify for EAR control under ECCN 3A001 rather than USML control if it is determined that:
(i) The commercial variant has been redesigned for non-military applications and does not incorporate specifically military features such as radiation hardening, military-grade environmental qualification, or classified design elements;
(ii) The commercial variant has "predominant civil applications" within the meaning of ITAR § 120.6 and is available for sale on the commercial market without restriction;
(iii) The commercial variant's performance capabilities have equivalents in items used for civil applications in the 5G and commercial satcom markets.
If the commercial variant is determined to be EAR-controlled under ECCN 3A001 rather than USML-controlled, the licensing framework for export, deemed export, and technology transfer would shift from DDTC to BIS, and HSAG would potentially be able to leverage License Exception STA (subject to the MT control limitation) for integration of this technology into its commercial 5G product portfolio.
Post-Closing Relevance. HSAG has identified VPI's mmWave broadband power amplifier technology as one of the principal drivers of commercial value in the acquisition. HSAG's stated post-closing strategy includes integrating VPI's mmWave expertise into HSAG's commercial 5G semiconductor portfolio, which targets European and Asian telecommunications infrastructure OEMs. If the commercial variant of the amplifier remains ITAR-controlled, HSAG's ability to pursue this integration strategy is severely restricted: any transfer of ITAR-controlled technical data to HSAG's German national engineers (whether in Dresden or Austin) would require DDTC authorization, and commercial sales to non-U.S. customers would require DSP-5 licenses on a case-by-case basis. In contrast, if the commercial variant is determined to be EAR-controlled under ECCN 3A001, the integration pathway becomes significantly more feasible under BIS licensing and license exception mechanisms.
Recommendation. We recommend that VPI and HSAG file a commodity jurisdiction determination request with DDTC under 22 C.F.R. § 120.4 for the commercial variant of the mmWave broadband power amplifier. The CJ request should be accompanied by detailed technical documentation demonstrating the design distinctions between the military variant (which would remain USML-controlled) and the commercial variant, including a side-by-side comparison of performance specifications, design features, qualification standards, and intended end-use applications. If DDTC determines that the commercial variant is not a defense article, it would fall under EAR jurisdiction, and a follow-up classification request with BIS would be appropriate to confirm the applicable ECCN (most likely 3A001.b.2). The estimated timeline for a CJ determination is 60 to 90 days from filing, though timelines can vary significantly depending on the complexity of the item and the volume of pending CJ requests at DDTC. We recommend filing this CJ request as soon as practicable and, ideally, prior to closing to provide maximum clarity for HSAG's post-closing integration planning.
Item 2: GaN-on-SiC Epitaxial Growth Process Technology (Dual Jurisdiction Ambiguity)
Product Description. VPI's proprietary GaN-on-SiC epitaxial growth process is the foundational manufacturing technology underlying all of VPI's GaN products, both defense and commercial. This process, covered by eight granted U.S. patents (U.S. Pat. Nos. 9,XXX,001 through 9,XXX,008, with the earliest priority date in 2012), encompasses VPI's proprietary techniques for growing high-quality gallium-nitride crystal layers on silicon-carbide substrates using metal-organic chemical vapor deposition ("MOCVD"). The process parameters — including precursor gas ratios (trimethylgallium, ammonia, and dopant precursors), growth temperatures, chamber pressures, buffer layer compositions (AlN nucleation layers, graded AlGaN transition layers), and in-situ monitoring techniques — are the result of over a decade of R&D investment and constitute some of VPI's most valuable intellectual property.
Current Classification. The epitaxial growth process technology is currently subject to a split classification:
(i) Portions of the technology that are directly associated with the design and production of ITAR-controlled defense articles (specifically, the defense radar, missile defense, and EW products discussed in Section IV.A) are treated as ITAR-controlled "technical data" under ITAR § 120.10;
(ii) Portions of the technology that are associated with the development and production of EAR-controlled dual-use products (specifically, the ECCN 3A001-classified commercial GaN HEMTs and MMICs discussed in Section IV.B.1) are classified under ECCN 3E001.
Issue. The epitaxial growth process is a foundational, platform-level manufacturing technology that is used across VPI's entire product portfolio, both defense and commercial. The same MOCVD reactors, the same growth recipes (with certain parametric variations), and the same process engineering expertise are employed to produce wafers destined for both ITAR-controlled and EAR-controlled end products. The current split classification — with portions of the same underlying technology simultaneously subject to ITAR jurisdiction and EAR jurisdiction depending on the downstream application — creates significant compliance complexity. In practice, it is difficult to draw a bright line between the "defense-related" and "commercial" applications of the same epitaxial growth process, because the fundamental chemistry and physics are the same; the differences lie in specific parametric optimizations (e.g., buffer layer thickness tuning for radiation hardness versus channel mobility optimization for commercial power efficiency) and in the downstream processing and qualification steps.
Additionally, five of the eight patents in the epitaxial growth process family were developed in whole or in part under U.S. government-funded contracts and are therefore subject to the government's march-in rights under 35 U.S.C. § 203 and the government's license rights under DFARS 252.227-7038. The government-funded nature of these patents adds an additional layer of complexity to any post-closing technology transfer to HSAG, as the government may assert its rights to control or restrict the use of this technology by a foreign-owned entity.
Post-Closing Relevance. HSAG may wish to apply VPI's epitaxial growth technology in its existing facilities — potentially including the Halcyon US Inc. design center in Austin, Texas, and ultimately HSAG's fabrication facilities in Dresden, Germany — for commercial semiconductor production. Doing so requires clear jurisdictional lines: if the technology is ITAR-controlled, such transfers would require DDTC authorization (DSP-5 or TAA), which may be difficult to obtain and subject to significant conditions; if the technology is EAR-controlled under ECCN 3E001, the transfer may be feasible under BIS licensing or License Exception STA (for Germany as a Tier 1 country), subject to item-by-item analysis of control reasons.
Recommendation. We recommend a two-track approach:
(a) CJ Request with DDTC. File a commodity jurisdiction determination request with DDTC for the non-defense application of VPI's GaN-on-SiC epitaxial growth process technology. The CJ request should present the technology in its commercial-application context — i.e., as technology used for the production of commercial GaN HEMTs and MMICs for 5G and satcom applications — and seek a determination that this commercial subset of the technology is not ITAR-controlled technical data but rather falls under EAR jurisdiction. The CJ request should include detailed technical documentation identifying the specific process parameters, know-how, and patent claims that are relevant to the commercial application, as distinct from any defense-specific parametric optimizations or classified information.
(b) Classification Request with BIS. Simultaneously file a classification request with BIS to confirm that the commercial-application subset of the epitaxial growth process technology is properly classified under ECCN 3E001 as technology for the production of ECCN 3A001 items. This will provide a clear, documented regulatory basis for post-closing technology transfer planning.
Both filings should be coordinated with the TCP requirements under the anticipated NSA to ensure that the firewall provisions adequately address the dual-jurisdiction nature of this technology during the pendency of the CJ and classification requests.
Item 3: HEMT Gate Structure Optimization Technology (End-Use Sensitivity)
Product Description. VPI possesses extensive proprietary technology related to the design and optimization of high-electron-mobility transistor gate structures,

CALDERWOOD & HARKNESS LLP

MEMORANDUM

I. EXECUTIVE SUMMARY

II. BACKGROUND

III. APPLICABLE REGULATORY FRAMEWORK

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