SUPPLEMENTAL RESPONSE TO THE COMMITTEE ON FOREIGN INVESTMENT IN THE UNITED STATES
Response to Request for Information Dated August 4, 2023
CFIUS Case No. CFIUS-023-07-3841
Filed on Behalf of:
HALCYON SEMICONDUCTOR AKTIENGESELLSCHAFT ("HSAG")
and
Marlowe Asset Management PHOTONICS INC. ("VPI")
(jointly, the "Transaction Parties")
Date of Submission: August 18, 2023
Submitted by:
CALDERWOOD & HARKNESS LLP As Counsel to Halcyon Semiconductor Aktiengesellschaft
Margaret "Peggy" Ashworth Of Counsel, National Security & CFIUS Practice 1750 K Street NW, Suite 800 Washington, DC 20006 Tel: (202) 555-7200
Beatrice Holloway Partner, Mergers & Acquisitions 399 Park Avenue, 31st Floor New York, NY 10022 Tel: (212) 555-4800
Corresponding Counsel for Marlowe Asset Management Photonics Inc.:
WETHERSFIELD & GALE LLP
Harrison Whitfield Lead Partner, Government Contracts & National Security 2000 Pennsylvania Avenue NW, Suite 600 Washington, DC 20006 Tel: (202) 555-3100
CONFIDENTIAL — BUSINESS PROPRIETARY INFORMATION This submission contains confidential business information within the meaning of 31 C.F.R. § 800.702. The Transaction Parties respectfully request that this submission and all accompanying exhibits be treated as business confidential and exempt from public disclosure.
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I. INTRODUCTION AND PROCEDURAL BACKGROUND
The Transaction Parties — Halcyon Semiconductor Aktiengesellschaft ("HSAG") and Marlowe Asset Management Photonics Inc. ("VPI") — respectfully submit this Supplemental Response to the Committee on Foreign Investment in the United States ("CFIUS" or the "Committee") in connection with the proposed acquisition by HSAG, through its wholly owned subsidiary Halcyon US Holdings Inc., of all of the outstanding equity interests of VPI (the "Transaction").
On July 14, 2023, the Transaction Parties filed a voluntary joint notice with CFIUS pursuant to Section 721 of the Defense Production Act of 1950, as amended (50 U.S.C. § 4565), and the implementing regulations at 31 C.F.R. Part 800, Subpart E (31 C.F.R. § 800.501 et seq.). The voluntary joint notice described in detail the terms of the Transaction, the business operations and organizational structures of both HSAG and VPI, and the proposed mitigation measures that the Transaction Parties are prepared to undertake to address any national security considerations identified by the Committee.
On July 21, 2023, CFIUS accepted the voluntary joint notice as complete, thereby commencing the initial 45-day review period under 31 C.F.R. § 800.503.
On August 4, 2023, the Transaction Parties received from the Staff Chairperson of CFIUS a Request for Information (the "RFI") containing thirty-four (34) questions directed to the Transaction Parties. The RFI requested additional information and documentation across six broad subject-matter categories relating to the Transaction and the Transaction Parties' respective business operations, governance structures, compliance programs, and post-closing plans for VPI.
This Supplemental Response addresses all thirty-four (34) questions set forth in the RFI in full. The Transaction Parties have endeavored to provide comprehensive, responsive, and well-organized answers that address both the specific questions posed and the underlying national security considerations that the questions implicate.
For the convenience of the Committee and its staff, the responses below are organized thematically into six subject-matter categories that correspond to the RFI's areas of inquiry:
(A) HSAG Ownership, Corporate Governance, and Government Relationships (Questions 1–8);
(B) HSAG Global Operations and Chinese Market Exposure (Questions 9–14);
(C) Cybersecurity Practices and IT Infrastructure (Questions 15–20);
(D) Technology Transfer Protocols and Export Compliance (Questions 21–27);
(E) Proposed Post-Closing Governance Structure for VPI (Questions 28–32); and
(F) Additional Transaction-Related Information (Questions 33–34).
In addition to the narrative responses set forth herein, the Transaction Parties are filing concurrently with this Supplemental Response the following two supplemental exhibits, which are incorporated herein by reference:
Supplemental Exhibit 1: HSAG Cybersecurity Program Overview (first-rfi-exhibit-cybersecurity-overview.docx)
Supplemental Exhibit 2: HSAG China Operations Summary (first-rfi-exhibit-china-operations.docx)
These supplemental exhibits provide additional detail on the specific topics identified in the RFI and are referenced at the appropriate points throughout this Supplemental Response.
The Transaction Parties certify that all information provided in this Supplemental Response and the accompanying supplemental exhibits is true, correct, and complete to the best knowledge of the certifying officers of HSAG and VPI, consistent with the certifications filed pursuant to 31 C.F.R. § 800.502. The certifications of the respective certifying officers are set forth in Section VIII below.
II. CATEGORY A — HSAG OWNERSHIP, CORPORATE GOVERNANCE, AND GOVERNMENT RELATIONSHIPS (QUESTIONS 1–8)
Question 1: Complete Ownership Structure of HSAG
HSAG is a publicly traded Aktiengesellschaft (public stock corporation) organized and existing under the laws of the Federal Republic of Germany. HSAG was incorporated on March 12, 1987, and is registered with the Amtsgericht (local court) Dresden under commercial register number HRB 28416. HSAG's registered office and principal place of business is located at Industriestraße 44, 01099 Dresden, Saxony, Germany.
HSAG's shares are listed and publicly traded on the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) under the XETRA ticker symbol "HLC" (ISIN: DE000HLC0015). As of June 1, 2023, HSAG's aggregate market capitalization was approximately €14.8 billion, based on a closing share price of €74.22 per share and approximately 199.4 million shares of registered capital outstanding. HSAG's Legal Entity Identifier (LEI) is 5299007KXQ2M4GHILZ38.
Shareholder Base. HSAG's shares are widely held by institutional and retail investors, predominantly based in Germany, the broader European Union, the United Kingdom, and the United States. The free float of HSAG's shares is approximately 87% of total outstanding shares. Based on the most recently available notifications to the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin") under the Wertpapierhandelsgesetz (Securities Trading Act), no single shareholder holds more than 5% of HSAG's voting shares as of the date of this submission. Specifically, the most recent BaFin notifications (reflecting holdings as of July 2023) indicate the following largest disclosed shareholders:
• Vireo Asset Management (Frankfurt, Germany) — approximately 4.7% of voting shares
• Ostrander Investors (Munich, Germany) — approximately 3.9% of voting shares
• Vireo Investment Management (New York, NY, USA) — approximately 3.2% of voting shares
• Westvale Workers' Pension Fund (Oslo, Norway) — approximately 2.8% of voting shares
No other shareholder has disclosed a holding in excess of 2.5% of voting shares.
No Government Ownership. Neither the Federal Republic of Germany nor any German state (Land), municipality, or other governmental subdivision holds any equity interest, directly or indirectly, in HSAG. No sovereign wealth fund of any nation holds a disclosed ownership stake in HSAG. To HSAG's knowledge, based on a review of all BaFin notifications, shareholder register data, and publicly available filings, no beneficial owner of HSAG shares is a person or entity domiciled in, or controlled by the government of, any country of particular concern to CFIUS, including the People's Republic of China, the Russian Federation, the Islamic Republic of Iran, or the Democratic People's Republic of North Korea.
Principal Subsidiaries. HSAG maintains a global network of approximately twenty-four (24) subsidiaries and affiliated entities across eleven (11) countries. A complete organizational chart reflecting HSAG's corporate structure was included as Exhibit B to the voluntary joint notice filed on July 14, 2023. For the Committee's convenience, the Transaction Parties provide the following summary of HSAG's principal subsidiaries, organized by region:
United States:
1. Halcyon US Holdings Inc. — A Delaware C-corporation formed on June 5, 2023, for the sole purpose of serving as the acquisition vehicle for the Transaction. Its registered agent is located at 160 Greentree Drive, Suite 101, Dover, Delaware 19904. Its Employer Identification Number (EIN) is 93-2841067. Halcyon US Holdings Inc. is wholly owned by HSAG and has no employees, operations, or revenues; it exists solely to hold the equity of VPI following the closing of the Transaction.
2. Halcyon US Inc. — A Delaware C-corporation and HSAG's existing U.S. operating subsidiary, which operates a fabless design center at 11501 Alterra Parkway, Suite 300, Austin, Texas 78758. Halcyon US Inc. employs approximately 320 individuals in the United States, principally engaged in analog and power management IC design for commercial automotive and industrial applications. Its EIN is 81-3056429. Halcyon US Inc. does not perform any classified work, does not hold a facility security clearance, and does not manufacture any defense articles or items subject to ITAR control.
Europe:
3. Halcyon Semiconductor GmbH (Dresden, Germany) — HSAG's principal manufacturing and R&D subsidiary; operates two 200mm wafer fabrication facilities and one 300mm facility in Dresden.
4. Halcyon Semiconductor (UK) Limited (Swindon, United Kingdom) — Design center focused on power management solutions for the European automotive market; approximately 85 employees.
5. Halcyon Semiconductor S.A.S. (Grenoble, France) — R&D center specializing in wide-bandgap semiconductor technology; approximately 60 employees.
6. Halcyon Semiconductor B.V. (Eindhoven, Netherlands) — European sales and distribution headquarters.
7. Halcyon Semiconductor S.r.l. (Milan, Italy) — Southern European sales office; approximately 25 employees.
8. Halcyon Semiconductor AB (Stockholm, Sweden) — Scandinavian regional sales and technical support; approximately 15 employees.
Asia-Pacific:
9. Halcyon Semiconductor Japan K.K. (Tokyo, Japan) — Japanese sales, marketing, and application engineering subsidiary; approximately 55 employees.
10. Halcyon Semiconductor Korea Co., Ltd. (Seoul, South Korea) — Korean sales and technical support office; approximately 30 employees.
11. Halcyon Semiconductor (Taiwan) Co., Ltd. (Hsinchu, Taiwan) — Taiwan design center and sales office; approximately 40 employees.
12. Halcyon Semiconductor Singapore Pte. Ltd. (Singapore) — Asia-Pacific regional headquarters for sales and distribution; approximately 35 employees.
13. Halcyon Semiconductor India Private Limited (Bengaluru, India) — Software and firmware development center; approximately 120 employees.
14. Halcyon Semiconductor (Shanghai) Co., Ltd. (Shanghai, People's Republic of China) — Chinese sales and technical support subsidiary, discussed in detail under Category B (Questions 9–14) below.
Other:
15–24. HSAG maintains additional smaller subsidiaries in Israel, Canada, Australia, Brazil, and South Africa, each primarily serving local sales and customer support functions with fewer than 20 employees each. Complete details of these entities were provided in Exhibit B to the voluntary joint notice.
Question 2: HSAG Board of Directors (*Vorstand* and *Aufsichtsrat*) Composition
As a German Aktiengesellschaft, HSAG is governed by a two-tier board structure mandated under the Aktiengesetz (German Stock Corporation Act), consisting of the Vorstand (Management Board) and the Aufsichtsrat (Supervisory Board). The Vorstand is responsible for the day-to-day management and strategic direction of HSAG. The Aufsichtsrat supervises the Vorstand, appoints and removes Vorstand members, and approves significant corporate actions such as major acquisitions (including the Transaction).
*Vorstand* (Management Board). The HSAG Vorstand is composed of four members:
1. Dr. Maximilian Ehrhardt — Chief Executive Officer (Vorstandsvorsitzender). Age 57. German citizen. Dr. Ehrhardt holds a Ph.D. in materials physics from Technische Universität Dresden and has served as CEO of HSAG since 2012, having previously served as Chief Technology Officer from 2005 to 2012. Dr. Ehrhardt has been employed by HSAG for eighteen years. He has no affiliations with any foreign government, no citizenship in or material ties to any country of particular concern, and no involvement with any military or intelligence service.
2. Katarina Brückner — Chief Financial Officer (Finanzvorstand). Age 49. German citizen. Ms. Brückner is a Wirtschaftsprüfer (the German equivalent of a Certified Public Accountant) and a graduate of the WHU – Otto Beisheim School of Management. She joined HSAG in 2016 from Calloway Brennan CPAs LLP, where she was a partner in the technology sector audit practice. She has no affiliations with any foreign government, no citizenship in or material ties to any country of particular concern, and no involvement with any military or intelligence service.
3. Dr. Jürgen Falkenrath — Chief Technology Officer (Technologievorstand). Age 53. German citizen. Dr. Falkenrath holds a Ph.D. in electrical engineering from RWTH Aachen University and has been with HSAG since 2008, assuming the CTO role in 2018. His career prior to HSAG included positions at Sundial Holdings and Quillon & Co.. He has no affiliations with any foreign government and no citizenship in or material ties to any country of particular concern.
4. Lars Pettersson — Chief Operations Officer (Betriebsvorstand). Age 51. Swedish and German citizen (dual nationality). Mr. Pettersson holds an M.Sc. in industrial engineering from the Royal Institute of Technology (KTH), Stockholm, and an MBA from INSEAD. He joined HSAG in 2015 and has served as COO since 2020, overseeing HSAG's global manufacturing and supply chain operations. He has no affiliations with any foreign government and no citizenship in or material ties to any country of particular concern.
*Aufsichtsrat* (Supervisory Board). The HSAG Aufsichtsrat is composed of twelve (12) members, in accordance with the Mitbestimmungsgesetz (German Co-Determination Act of 1976), which requires equal representation of shareholder-elected and employee-elected members for companies with more than 2,000 employees. Six members are elected by HSAG's shareholders at the annual general meeting, and six members are elected by HSAG's employees.
Shareholder Representatives:
1. Prof. Dr. Helmut Kessler — Chairman of the Aufsichtsrat. Age 68. German citizen. Retired professor of semiconductor physics, University of Heidelberg. Independent director; serves on the supervisory boards of two other German industrial companies. No foreign government affiliations.
2. Dr. Ingrid Waller — Age 62. German citizen. Former senior executive at Sundial Holdings. Independent director. No foreign government affiliations.
3. Thomas Reinholdt — Age 55. German citizen. Managing Director, Reinholdt & Partner Vermögensverwaltung (asset management firm, Munich). Independent director. No foreign government affiliations.
4. Elena Vassiliadis — Age 48. Greek citizen, resident in Germany. Partner, Drayton Consulting Group (Munich office, technology practice). Independent director. No foreign government affiliations.
5. Sir David Carmichael, KBE — Age 64. British citizen. Former CEO, NexGen Semiconductor Holdings plc (London). Independent director. No foreign government affiliations that would be relevant; KBE is a civilian honor with no ongoing governmental obligations.
6. Margaret Chen-Nakamura — Age 52. U.S. citizen. Managing Director, Global Semiconductor Investment Banking, Pinnacle Savings Bank (New York). Independent director. No foreign government affiliations. Born in the United States; no ties to any country of particular concern.
Employee Representatives:
7. Klaus-Dieter Hartmann — Deputy Chairman of the Aufsichtsrat. Age 58. German citizen. Chairman of the HSAG works council (Betriebsrat). Employee of HSAG for 32 years. No foreign government affiliations.
8–12. The remaining four employee representatives on the Aufsichtsrat are German citizens employed in various technical and administrative roles at HSAG's Dresden facilities. Complete biographical information for all employee representatives was provided in Exhibit D to the voluntary joint notice. None holds citizenship in, or has material ties to, any country of particular concern.
The Transaction Parties confirm that no member of either the Vorstand or the Aufsichtsrat holds citizenship of, resides in, or has material personal, financial, or professional ties to any country of particular concern to CFIUS, including the People's Republic of China, the Russian Federation, the Islamic Republic of Iran, or the Democratic People's Republic of North Korea.
General Counsel. HSAG's General Counsel (Chefjustitiar) is Stefan Lohse, age 46, a German and U.S. dual citizen. Mr. Lohse is admitted to the practice of law in both New York (2004) and Germany (Rechtsanwalt, 2002). He holds an LL.M. from Georgetown University Law Center and a Erstes Staatsexamen and Zweites Staatsexamen from Humboldt-Universität zu Berlin. Mr. Lohse is not a member of either the Vorstand or the Aufsichtsrat but attends meetings of both boards in an advisory capacity, consistent with standard German corporate governance practice. Mr. Lohse has no affiliations with any foreign government or intelligence service.
Question 3: German Federal or State Government Relationships
HSAG has no ownership relationship with any German government entity at the federal, state (Land), or municipal level. No German government entity holds any equity interest, directly or indirectly, in HSAG or any of its subsidiaries. No German government official serves on HSAG's Vorstand or Aufsichtsrat in any capacity (whether as a member, observer, or advisor).
HSAG's interactions with German government agencies in the ordinary course of its business are limited to the following:
(a) German Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, "BMWK"). HSAG applies for and obtains export licenses from the BMWK (through the Federal Office of Economics and Export Control, or "BAFA") in connection with the export of certain products classified under the EU dual-use regulation (Regulation (EU) 2021/821). These are routine, commercially motivated export license applications of the type submitted by all European semiconductor manufacturers and do not involve any classified, defense, or intelligence-related activities. HSAG does not have any advisory, consultative, or governance relationship with the BMWK beyond these standard regulatory interactions.
(b) German Federal Office for Information Security (Bundesamt für Sicherheit in der Informationstechnik, "BSI"). HSAG has voluntarily obtained certain cybersecurity certifications from the BSI in connection with its enterprise IT infrastructure and manufacturing systems. These certifications are commercially motivated (to satisfy customer requirements, particularly in the German automotive industry) and do not entail any ongoing government oversight of or access to HSAG's IT systems. The BSI does not have any governance, audit, or inspection rights over HSAG beyond the scope of the voluntary certification program.
(c) No Classified or Defense Contracts. HSAG does not hold any classified contracts with the German federal government, the German Armed Forces (Bundeswehr), or any German defense or intelligence agency. HSAG does not manufacture defense articles under German law and is not registered as a defense contractor with any German government entity. HSAG does not receive any defense or intelligence-related funding, grants, or contracts from the German government.
Research and Development Grants. HSAG has received general R&D grants from two sources, both of which are non-defense, commercially available programs with no governance, ownership, or preferential technology access implications:
(i) European Union Horizon Europe Program. HSAG has participated as a consortium member in several EU-funded research projects under the Horizon Europe framework programme (and its predecessor, Horizon 2020). These projects involve collaborative research with multiple European industry and academic partners on topics such as advanced power semiconductor materials and energy-efficient computing. EU grant funding received by HSAG under these programs totals approximately €18.5 million over the period 2016–2023. These grants impose standard EU reporting and publication obligations but confer no ownership, governance, or preferential technology access rights to the European Commission or any other EU institution.
(ii) Free State of Saxony Innovation Funds. HSAG has received R&D grants from the Free State of Saxony (Freistaat Sachsen) through the Saxon Development Bank (Sächsische Aufbaubank) for investments in semiconductor manufacturing technology at its Dresden facilities. These grants, totaling approximately €24 million over the period 2018–2023, were awarded under standard state economic development programs available to qualifying businesses in Saxony and do not confer any ownership, governance, or technology access rights to the state government.
In summary, HSAG has no formal advisory board positions, secondments, or other personnel exchange arrangements with any German government entity, and its interactions with German government agencies are limited to the routine regulatory and commercial grant relationships described above.
Question 4: European Union Institutional Relationships
HSAG's relationship with European Union institutions is limited to the following:
European Chips Act. HSAG is a participant in the European Chips Act consortium, an industry-level initiative established by the European Commission under Regulation (EU) 2023/1781 to strengthen the European semiconductor ecosystem. HSAG's participation in the consortium is alongside numerous other European semiconductor companies, including Sundial Holdings, Northgate & Co., Marlowe Holdings, and others. The consortium is an industry coordination mechanism; no EU entity has any ownership stake, governance right, board representation, or preferential access to HSAG's proprietary technology by virtue of HSAG's participation. HSAG's involvement consists primarily of participation in working groups on semiconductor supply chain resilience and advanced packaging technologies.
EU Framework Programme Research Grants. As noted in the response to Question 3 above, HSAG has received research grants under the EU Horizon Europe and Horizon 2020 framework programmes. The specific grants received by HSAG are summarized below:
All of these grants are non-defense, non-classified research projects with multiple consortium partners, and none involves EU defense or intelligence agencies. The European Commission and other EU institutions do not have any ownership, governance, or technology access rights over HSAG by virtue of these grants.
No EU Defense or intelligence Contracts. HSAG confirms that it does not hold any contracts with the European Defence Agency, the EU intelligence and Situation Centre (EU INTCEN), or any other EU defense or intelligence agency. HSAG's products are not classified as defense articles under any EU member state's national defense procurement framework.
Question 5: Relationships with Non-Allied Foreign Governments
The Transaction Parties provide the following comprehensive disclosure regarding HSAG's relationships with the governments of countries that CFIUS has identified as countries of particular concern, as well as other non-allied foreign governments:
People's Republic of China. HSAG's sole relationship with the People's Republic of China and Chinese entities consists of the commercial sales activities conducted through its wholly owned subsidiary, Halcyon Semiconductor (Shanghai) Co., Ltd. This subsidiary is a sales and technical support office that sells commercially available, non-controlled, consumer-grade automotive power management integrated circuits and industrial motor control components to Chinese original equipment manufacturers and Tier 1 automotive suppliers. HSAG's China operations are described in detail in the responses to Questions 9–14 (Category B) below. HSAG has no government contracts with the Chinese government, no joint ventures with Chinese state-owned enterprises or government-affiliated entities, no R&D collaborations with Chinese universities or research institutions, no technology licensing arrangements with Chinese entities, and no other relationship with the Chinese government or Chinese Communist Party.
Russian Federation. HSAG has no current operations, contracts, employees, or business relationships in the Russian Federation. HSAG previously maintained a small sales office in Moscow (Halcyon Semiconductor OOO) with approximately eight employees, which served as a point of contact for Russian industrial customers. Following the imposition of comprehensive EU sanctions against Russia in 2022, HSAG ceased all sales to Russian customers and commenced an orderly wind-down of Halcyon Semiconductor OOO. The wind-down was completed in December 2022. The entity has been deregistered with the Russian tax authorities, its employees were terminated in accordance with Russian labor law, and its office lease was terminated. HSAG has no residual contractual obligations to any Russian entity or government agency. HSAG has fully complied with all applicable EU, U.S., and other sanctions regimes with respect to Russia.
Islamic Republic of Iran. HSAG has no operations, contracts, employees, agents, distributors, or business relationships of any kind in or with Iran. HSAG does not sell products to, or source materials from, Iranian entities. HSAG has never had operations in Iran. HSAG confirms full compliance with all applicable U.S. (OFAC), EU, and UN sanctions regimes applicable to Iran.
Democratic People's Republic of North Korea. HSAG has no operations, contracts, employees, agents, distributors, or business relationships of any kind in or with North Korea. HSAG confirms full compliance with all applicable sanctions regimes applicable to North Korea.
Other Countries of Concern. HSAG has no R&D collaboration, joint venture, licensing agreement, or other technology-sharing arrangement with any entity that is controlled by, affiliated with, or acting on behalf of any non-allied foreign government. HSAG's commercial operations in countries outside the United States, the European Union, and traditional U.S. allies are limited to standard commercial sales and customer support activities conducted through the subsidiaries identified in the response to Question 1 above, none of which involves government contracts, classified work, or technology transfer to government entities.
Question 6: HSAG Contracts or Relationships with Foreign Military or intelligence Services
HSAG confirms that it has no contracts, subcontracts, grants, cooperative agreements, memoranda of understanding, or other arrangements with any foreign military or intelligence service, including without limitation the armed forces or intelligence agencies of any U.S. ally, NATO member, or any other country. HSAG does not hold any foreign government security clearance or facility security clearance of any kind.
HSAG's product portfolio consists of commercially available semiconductor components designed for the automotive, industrial, and telecommunications markets. These products are standard catalog parts sold on the open commercial market and are not classified or controlled as defense articles under the export control regime of any country. Specifically, HSAG's products are not listed on any nation's munitions list (including the United States Munitions List, the EU Common Military List, or the German War Weapons List) and are not designed, developed, or manufactured for military end uses.
However, the Transaction Parties note that certain HSAG products may be classified under the EU dual-use regulation (Regulation (EU) 2021/821) and under the Wassenaar Arrangement's List of Dual-Use Goods and Technologies, to the extent that their technical parameters (e.g., operating frequency, power output, or temperature range) exceed certain civil-use thresholds. HSAG's export of such products is subject to EU and German export control requirements, and HSAG maintains a robust export compliance program as described in the response to Question 8 below.
Question 7: Pending or Threatened Litigation, Investigations, or Enforcement Actions Involving Foreign Governments
HSAG discloses the following regarding pending or past matters involving foreign government agencies:
(a) No Pending Criminal, Civil, or Administrative Proceedings. HSAG is not a party to, and has not been threatened with, any criminal, civil, or administrative proceeding by any foreign government, including proceedings relating to anti-corruption, sanctions, export controls, tax fraud, money laundering, national security, or any other subject matter.
(b) Routine Tax Audits. HSAG's German operations are subject to routine periodic tax audits by the German federal and state tax authorities (Finanzamt) in the ordinary course of business, as is typical for all German corporations of HSAG's size. The most recent tax audit, covering fiscal years 2019–2021, was completed in April 2023 with no material findings and no adjustments in excess of €500,000 in the aggregate. No tax fraud or evasion issues were identified.
(c) No Anti-Corruption, Sanctions, or Export Control Investigations. HSAG has not been the subject of any investigation by any government authority (foreign or domestic) relating to anti-corruption, sanctions compliance, or export control violations. HSAG has not made any voluntary self-disclosures to any government authority regarding potential violations of anti-corruption, sanctions, or export control laws.
(d) Prior EU State Aid Review. In 2020, the European Commission conducted a preliminary review of certain R&D grants awarded to HSAG by the Free State of Saxony to determine whether the grants constituted impermissible state aid under Article 107 of the Treaty on the Functioning of the European Union (TFEU). The review concluded in March 2021 with a finding that the grants were consistent with the EU General Block Exemption Regulation (Commission Regulation (EU) No. 651/2014) and did not constitute impermissible state aid. No adverse findings were issued, and no corrective actions were required.
Question 8: HSAG's Compliance Programs (Anti-Corruption, Sanctions, Export Controls)
HSAG maintains a comprehensive global compliance program that encompasses anti-corruption, sanctions, export controls, and anti-money laundering. The compliance program is overseen by HSAG's Chief Compliance Officer, Dr. Petra Grunwald, who reports directly to the Vorstand (specifically, to the CEO, Dr. Ehrhardt) and has an independent reporting line to the Audit Committee of the Aufsichtsrat.
The key elements of HSAG's compliance program are as follows:
Written Compliance Policies. HSAG maintains a suite of written compliance policies that are approved by the Vorstand and reviewed at least annually. These policies include:
• Global Anti-Corruption Policy — Aligned with the standards of the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act 2010, and the German Criminal Code (Strafgesetzbuch) provisions on bribery. The policy prohibits bribery and corruption in all forms, establishes pre-approval requirements for gifts, hospitality, and entertainment, and requires enhanced due diligence for government-facing transactions and third-party intermediaries.
• Global Sanctions and Trade Compliance Policy — Establishes HSAG's framework for compliance with all applicable sanctions regimes, including those administered by the EU, the U.S. Office of Foreign Assets Control (OFAC), the U.S. Bureau of Industry and Security (BIS), the United Nations Security Council, and other relevant jurisdictions. The policy requires screening of all counterparties, end users, and end uses against applicable restricted party lists.
• Export Control Compliance Policy — Addresses HSAG's obligations under the EU dual-use regulation, the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz), and, to the extent applicable, U.S. Export Administration Regulations (EAR). The policy establishes procedures for product classification, license determination, end-use and end-user screening, and record-keeping.
• Anti-Money Laundering Policy — Establishes HSAG's framework for identifying and reporting suspicious transactions in compliance with EU anti-money laundering directives and German implementing legislation.
• Code of Conduct — HSAG's overarching code of business conduct, applicable to all employees, directors, and officers, which addresses ethical business practices, conflicts of interest, confidentiality, and compliance with applicable laws and regulations.
Training and Awareness. All HSAG employees worldwide receive annual compliance training, which is tailored by role and region. Employees in higher-risk functions (including sales, procurement, government affairs, and export compliance) receive supplemental training on topics relevant to their responsibilities. Training completion is tracked through HSAG's learning management system, and compliance with training requirements is monitored by the compliance department.
Whistleblower Hotline. HSAG operates a confidential whistleblower hotline that is available to all employees, contractors, and third parties in all jurisdictions where HSAG operates. The hotline is administered by an independent third-party provider (Brightwater Data Systems, a Thackeray Data Systems) and is accessible by telephone and online portal in multiple languages. Reports submitted through the hotline are reviewed by the Chief Compliance Officer and, as appropriate, by the Audit Committee of the Aufsichtsrat. HSAG's whistleblower program complies with the EU Whistleblower Protection Directive (Directive (EU) 2019/1937) and the German Whistleblower Protection Act (Hinweisgeberschutzgesetz).
Internal Audit. HSAG's internal audit function, which reports to the Audit Committee of the Aufsichtsrat, conducts semi-annual compliance audits covering anti-corruption, sanctions, export controls, and related areas. Audit findings are reported to the Chief Compliance Officer and the Audit Committee, and remediation actions are tracked to completion.
Export Control Program — Dedicated Resources. HSAG maintains a dedicated export compliance team of fourteen (14) professionals, led by a Director of Export Compliance who reports to the Chief Compliance Officer. This team is responsible for:
• Product classification under the EU dual-use regulation and, where applicable, the EAR;
• Screening of all transactions (customers, end users, intermediaries, and consignees) against all applicable restricted party lists, including the EU Consolidated List, U.S. OFAC Specially Designated Nationals (SDN) List, U.S. BIS Entity List, Denied Persons List, and Unverified List, and other applicable lists;
• Automated screening using Brightmoor Solutions (GTS) software, integrated with HSAG's enterprise resource planning (ERP) system;
• License determination and license application management;
• End-use and end-user due diligence for transactions involving elevated risk;
• Record-keeping in compliance with EU and German retention requirements; and
• Monitoring of regulatory developments and updating of compliance procedures.
HSAG has never received a warning letter, penalty notice, denial order, or enforcement action from any export control authority, whether in the European Union, Germany, the United States, or any other jurisdiction.
III. CATEGORY B — HSAG GLOBAL OPERATIONS AND CHINESE MARKET EXPOSURE (QUESTIONS 9–14)
Question 9: Description of HSAG's China Operations
HSAG's operations in the People's Republic of China are conducted exclusively through a single subsidiary: Halcyon Semiconductor (Shanghai) Co., Ltd. (the "Shanghai Subsidiary"). The Shanghai Subsidiary was established in 2014 as a wholly foreign-owned enterprise (WFOE) under Chinese law, registered with the Shanghai Administration for Market Regulation. The Shanghai Subsidiary is 100% owned by HSAG (through Halcyon Semiconductor B.V., HSAG's European holding subsidiary based in the Netherlands) and has no Chinese equity holders.
Personnel. The Shanghai Subsidiary employs approximately forty-five (45) individuals. All employees are engaged in sales, marketing, and technical support functions. The Shanghai Subsidiary does not employ any engineers engaged in semiconductor design, process development, or any form of research and development. It does not employ any manufacturing personnel, as it has no manufacturing capability. The technical support function is limited to post-sales customer support (e.g., assisting customers with product integration, providing application notes, and resolving quality or delivery issues).
Revenue. Revenue from the Shanghai Subsidiary's operations in fiscal year 2022 was approximately $81.4 million. This represented approximately 1.3% of HSAG's total consolidated revenue of €6.12 billion (approximately $6.48 billion at the average 2022 EUR/USD exchange rate). China is not a strategically significant market for HSAG, and HSAG's business is not dependent on Chinese revenue.
Products Sold. The products sold through the Shanghai Subsidiary are commercially available, off-the-shelf automotive power management integrated circuits and industrial motor control components. These products are standard catalog parts that HSAG sells globally to automotive OEMs and Tier 1 suppliers. The specific product families sold in China include:
• Automotive voltage regulators (12V and 48V systems)
• Automotive LED driver ICs
• Industrial BLDC motor controller ICs
• Power MOSFET gate drivers
None of these products are manufactured using gallium nitride (GaN), gallium arsenide (GaAs), or any other wide-bandgap semiconductor technology. None are designed or intended for defense, military, intelligence, or space applications. None are subject to control under the International Traffic in Arms Regulations (ITAR) or classified under any category of the United States Munitions List (USML). None are subject to export license requirements under the U.S. Export Administration Regulations (EAR) for export to China, as they fall below the technical thresholds that would trigger such requirements.
Additional detail regarding the Shanghai Subsidiary's operations is provided in the concurrently filed Supplemental Exhibit 2: HSAG China Operations Summary.
Question 10: Chinese Government Ownership or Influence
No Chinese government entity, Chinese Communist Party organ, state-owned enterprise, or government-affiliated entity holds any ownership interest — direct, indirect, beneficial, or constructive — in Halcyon Semiconductor (Shanghai) Co., Ltd. or in any other HSAG entity worldwide.
No Chinese Communist Party committee, government representative, or government-appointed observer sits on the board of directors or management committee of the Shanghai Subsidiary or any other HSAG entity. The Shanghai Subsidiary does not have a Communist Party cell or committee, and HSAG has not received any request from the Chinese Communist Party to establish one within the subsidiary.
HSAG has no joint ventures with any Chinese state-owned enterprise or government-affiliated entity. HSAG has no equity investments from, or equity investments in, any Chinese state-owned enterprise or government-affiliated entity.
The Shanghai Subsidiary does not hold any special economic zone (SEZ), national high-tech zone, or government-designated industry park designation that would entail government oversight, data-sharing obligations, or preferential treatment from the Chinese government. The Shanghai Subsidiary's office is located in a standard commercial office building in the Pudong New Area of Shanghai.
Question 11: Technology Transfers to China
HSAG confirms that no HSAG proprietary technology — including without limitation manufacturing process know-how, semiconductor device designs, integrated circuit layouts, software source code, firmware, test methodologies, reliability data, or any other form of intellectual property — has been transferred to China or to any Chinese entity, whether government or private, at any time.
The Shanghai Subsidiary does not perform any research and development, product development, product design, process development, or any other form of technology creation or improvement. It is a pure sales and customer support office. Its employees do not have access to HSAG's proprietary design tools, electronic design automation (EDA) environments, fabrication process databases, or manufacturing execution systems.
HSAG has no technology licensing agreements with any Chinese entity. HSAG does not provide technical data, source code, design files, manufacturing process information, or any other form of controlled or proprietary technical information to the Shanghai Subsidiary. The only HSAG information available to the Shanghai Subsidiary consists of publicly available product datasheets, application notes, and marketing materials that are posted on HSAG's public website and are available to any customer worldwide.
From an IT infrastructure perspective, the Shanghai Subsidiary operates on a segregated network segment that does not provide access to HSAG's core R&D, manufacturing, or intellectual property systems. This segregation is described in further detail in the response to Question 16 (Category C) below.
Question 12: Chinese Regulatory Requirements Affecting HSAG
The Transaction Parties are aware that the People's Republic of China has enacted several laws and regulations that have potential implications for foreign-invested enterprises operating in China, including the Cybersecurity Law (2017), the Data Security Law (2021), the Personal Information Protection Law (2021), the National Security Law (2015), and the Counter-Espionage Law (2014, amended 2023). HSAG has carefully considered the applicability of these laws to its Shanghai Subsidiary and provides the following analysis:
Data Security Law and Personal Information Protection Law. The Shanghai Subsidiary processes only limited categories of data in China: customer contact information (names, business email addresses, telephone numbers, and office addresses of customer personnel), sales transaction records (purchase orders, invoices, and delivery records), and general business correspondence. All such data is stored locally on servers in the Shanghai Subsidiary's office in compliance with Chinese data localization requirements. No HSAG technical data, intellectual property, trade secrets, product designs, manufacturing process information, or other proprietary technical information is stored on the Shanghai Subsidiary's local systems or in any data center located in China.
Cybersecurity Law. The Shanghai Subsidiary is not a "critical information infrastructure operator" under the Cybersecurity Law and is not subject to the enhanced security review and data localization requirements applicable to such operators. The Shanghai Subsidiary's IT systems are used only for CRM, email, and general business applications, as described in the response to Question 16 below.
National Security Law and Counter-Espionage Law. HSAG has not received any request, demand, or inquiry from any Chinese government authority under the National Security Law, Counter-Espionage Law, or any other Chinese law for access to technical data, intellectual property, trade secrets, or intelligence information of any kind. HSAG has not been asked to provide technical assistance, intelligence cooperation, or any form of support to Chinese government agencies under any legal authority.
HSAG acknowledges the Committee's interest in the potential for future Chinese regulatory actions that could create compulsory technology-sharing or data-sharing obligations for foreign-invested enterprises operating in China. To the extent that any such future regulatory development could create a risk that the Shanghai Subsidiary would be compelled to share HSAG or VPI technology, data, or intellectual property with the Chinese government, HSAG is prepared to evaluate and, if necessary, implement the withdrawal or dissolution of its Shanghai Subsidiary as a mitigation measure. HSAG would welcome the opportunity to discuss this topic further with the Committee and its staff.
Question 13: Post-Closing Treatment of China Operations — Firewall from VPI
The Transaction Parties commit that the following measures will be implemented upon closing to ensure a complete firewall between VPI and HSAG's China operations:
(a) No Access to VPI Technical Data or IP. No VPI technical data, intellectual property, trade secrets, product designs, manufacturing process information, software, firmware, source code, or controlled technical data of any kind will be accessible to, or shared with, the Shanghai Subsidiary or any person located in the People's Republic of China. This prohibition applies to all categories of VPI information, whether classified, controlled under ITAR or EAR, or uncontrolled.
(b) IT Separation. VPI's IT systems will be physically and logically separated from HSAG's global network, including all connections to the Shanghai Subsidiary. There will be no shared servers, shared cloud infrastructure, shared email systems, shared collaboration tools, or any other IT connection between VPI and the Shanghai Subsidiary. The details of this IT separation are described in the responses to Questions 17 and 20 (Category C) below and will be formalized in the National Security Agreement (NSA) and the accompanying Technology Control Plan (TCP).
(c) No Personnel Interaction. No VPI employee, cleared personnel, or contractor will report to, interact with, or share information with any employee of the Shanghai Subsidiary or any other HSAG personnel located in or traveling to China. VPI's organizational reporting structure will be entirely within the United States, under the oversight of the Government Security Committee (GSC) and the VPI board of directors as reconstituted under the NSA.
(d) TCP Prohibition. HSAG's proposed Technology Control Plan explicitly prohibits any transfer of VPI-origin technical data, technology, intellectual property, or products to China, Chinese nationals, or Chinese entities. This prohibition extends to all categories of VPI information, including uncontrolled commercial information, and may only be modified with the prior written consent of CFIUS or its designated monitoring agency.
Question 14: Plans Regarding HSAG's China Subsidiary Post-Closing
HSAG has no plans to expand its China operations in connection with, or as a result of, the acquisition of VPI. HSAG's China operations will continue at their current scope — commercial sales of automotive and industrial power management ICs — and will not be augmented or modified as a result of the Transaction.
HSAG will not use any VPI technology, products, intellectual property, trade secrets, or technical data in its Chinese operations or in connection with any sales or activities in China. VPI's GaN power amplifier technology and other defense-related capabilities are wholly unrelated to the consumer-grade automotive and industrial products sold by the Shanghai Subsidiary, and there is no commercial rationale for any integration of VPI technology into HSAG's China business.
HSAG is prepared to discuss and implement additional mitigation measures regarding its China subsidiary if required by CFIUS, including without limitation:
• Enhanced annual reporting to CFIUS (or its designated monitoring agency) regarding the scope and activities of the Shanghai Subsidiary;
• Annual independent auditing of the Shanghai Subsidiary's activities to verify compliance with the NSA and TCP;
• Additional IT security measures, such as enhanced monitoring of network traffic between HSAG's global network and the Shanghai Subsidiary segment; and
• Any other measures that the Committee deems appropriate to address concerns regarding HSAG's China operations.
IV. CATEGORY C — CYBERSECURITY PRACTICES AND IT INFRASTRUCTURE (QUESTIONS 15–20)
Question 15: HSAG Enterprise Cybersecurity Framework
HSAG maintains a comprehensive enterprise cybersecurity program that is ISO/IEC 27001:2022 certified. HSAG first achieved ISO 27001 certification in 2017 and has maintained continuous certification since that date. The most recent recertification audit was completed in September 2022 by Quill Tanaka CPAs LLP, a leading European certification body. The scope of HSAG's ISO 27001 certification encompasses all of HSAG's global IT systems, including manufacturing execution systems, enterprise resource planning (ERP) systems, electronic design automation (EDA) environments, and corporate business systems.
HSAG's enterprise cybersecurity program is managed by HSAG's Chief Information Security Officer (CISO), Dr. Tobias Neuhaus, who reports directly to the Chief Technology Officer (Dr. Falkenrath) and, through the CTO, to the Vorstand. Dr. Neuhaus holds CISSP, CISM, and ISO 27001 Lead Auditor certifications and has over 20 years of experience in information security, including prior roles at Sundial Corporation and Tidewater Corporation.
A detailed description of HSAG's cybersecurity program, including policies, procedures, and technical controls, is provided in the concurrently filed Supplemental Exhibit 1: HSAG Cybersecurity Program Overview. The key elements of the program are summarized below:
• Network Segmentation. HSAG's global network is segmented by function, subsidiary, and sensitivity classification. R&D systems (including EDA design tools and semiconductor IP databases) are isolated from corporate business systems and from subsidiary networks. Manufacturing execution systems are further isolated on dedicated network segments with dedicated firewalls and access control lists.
• Multi-Factor Authentication (MFA). MFA is required for all remote access to HSAG systems, all access to R&D and manufacturing systems, and all privileged/administrative access. MFA is implemented using hardware tokens and mobile authenticator applications.
• Encryption. All data at rest on HSAG servers and workstations is encrypted using AES-256. All data in transit between HSAG facilities and across HSAG's wide-area network is encrypted using TLS 1.3 or IPsec VPN tunnels.
• Endpoint Detection and Response (EDR). HSAG deploys enterprise EDR solutions on all endpoints (workstations, laptops, and servers) to detect and respond to advanced threats, including malware, ransomware, and lateral movement by threat actors.
• Security Operations Center (SOC). HSAG operates a 24/7 Security Operations Center at its Dresden headquarters, staffed by a team of twelve security analysts. The SOC monitors network traffic, endpoint telemetry, and security alerts in real time using a security information and event management (SIEM) platform.
• Vulnerability Management. HSAG conducts continuous automated vulnerability scanning of all internet-facing systems and regular (monthly) scanning of internal systems. Critical vulnerabilities are remediated within 72 hours of discovery; high-severity vulnerabilities within 14 days.
• Penetration Testing. HSAG commissions annual third-party penetration testing of its external-facing and internal network environments. The most recent penetration test was conducted in March 2023 by Greaves Pryor CPAs LLP and resulted in no critical findings.
• Access Controls. HSAG employs role-based access control (RBAC) across all systems, with access rights reviewed quarterly. Privileged access is subject to just-in-time provisioning and is logged and audited.
• Incident Response. HSAG maintains a written Incident Response Plan that defines roles, responsibilities, escalation procedures, and communication protocols for cybersecurity incidents. The Incident Response Plan is tested through tabletop exercises conducted semi-annually.
• Supply Chain Security. HSAG conducts cybersecurity due diligence on critical third-party vendors and requires contractual security standards in vendor agreements.
Question 16: HSAG IT Infrastructure — Global Architecture
HSAG's global IT network is designed on a hub-and-spoke architecture with centralized data centers in Germany and distributed subsidiary connectivity through encrypted channels.