CONFIDENTIAL — BUSINESS PROPRIETARY INFORMATION NOT FOR PUBLIC DISCLOSURE
CALDERWOOD & HARKNESS LLP Attorneys at Law
1750 K Street NW, Suite 800 Washington, DC 20006
Telephone: (202) 554-7200 Facsimile: (202) 554-7201 www.calderwoodharkness.com
October 6, 2023
VIA ELECTRONIC SUBMISSION AND HAND DELIVERY
Staff Chairperson Committee on Foreign Investment in the United States U.S. Department of the Treasury Office of Investment Security 1500 Pennsylvania Avenue NW Washington, DC 20220
Re: CFIUS Case No. CFIUS-023-07-3841 Supplemental Response to Second Request for Information — Acquisition of Marlowe Asset Management Photonics Inc. by Halcyon Semiconductor Aktiengesellschaft
Dear Staff Chairperson:
I. Introduction and Purpose
This letter is submitted by the undersigned, Margaret "Peggy" Ashworth, Of Counsel in the National Security & CFIUS Practice of Calderwood & Harkness LLP, on behalf of Halcyon Semiconductor Aktiengesellschaft ("HSAG") and Halcyon US Holdings Inc. ("Halcyon US Holdings"), a Delaware corporation and wholly owned subsidiary of HSAG formed on June 5, 2023, to serve as the acquisition vehicle for the transaction described herein. Calderwood & Harkness LLP serves as counsel to HSAG and Halcyon US Holdings in connection with HSAG's proposed acquisition of one hundred percent (100%) of the outstanding equity interests of Marlowe Asset Management Photonics Inc. ("VPI"), a Delaware corporation headquartered at 7400 Ridgeline Parkway, Colorado Springs, Colorado 80919.
The purpose of this letter is to transmit HSAG's supplemental response to the Second Request for Information (the "Second RFI") issued by the Committee on Foreign Investment in the United States ("CFIUS" or the "Committee") on September 22, 2023, during the 45-day investigation phase that commenced on September 4, 2023, 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. The enclosed substantive response and accompanying supplemental exhibits have been prepared with diligence and care, and we believe they are fully responsive to the Committee's questions.
We note that this submission is made in coordination with Wethersfield & Gale LLP, counsel to VPI and its selling shareholders, under the direction of Harrison Whitfield, lead partner, who is contemporaneously submitting a parallel response on behalf of VPI under separate cover. The parties have worked collaboratively to ensure consistency and completeness across both sets of responses.
II. Procedural Context of this Submission
For the Committee's convenience, we briefly recount the procedural posture of this matter. On July 14, 2023, HSAG and VPI filed a voluntary joint notice with CFIUS pursuant to 31 C.F.R. § 800.501, notifying the Committee of the proposed acquisition. The joint notice was accepted by the Committee on July 21, 2023, thereby commencing the initial 45-day review period under 31 C.F.R. § 800.503.
During the initial review period, CFIUS issued a First Request for Information on August 4, 2023, which contained thirty-four (34) questions spanning various aspects of the proposed transaction, the parties' operations, and the national security implications of the acquisition. HSAG and VPI provided a comprehensive First Supplemental Response on August 18, 2023, within the timeframe requested by the Committee, addressing each of the thirty-four questions in detail and providing accompanying documentary exhibits.
The initial 45-day review period concluded on September 4, 2023, at which point the Committee determined that the investigation warranted further scrutiny and initiated a 45-day investigation under 31 C.F.R. § 800.508. We understand and appreciate that this investigation reflects the significance of VPI's operations to the national security of the United States, and HSAG remains fully committed to cooperating with the Committee and the co-lead agencies throughout this process.
The Second RFI was issued on September 22, 2023, and contains twenty-two (22) follow-up questions. We understand that these questions were primarily directed by the Department of Defense ("DoD") and the Department of Energy ("DOE"), which are serving as co-lead agencies for this review, reflecting VPI's defense radar, satellite communications, and related government contracting activities, as well as broader semiconductor supply chain and technology transfer considerations. The parties are submitting their responses within the timeframe requested by the Committee, and we trust that the enclosed materials adequately address the Committee's areas of inquiry.
III. Transaction Summary
By way of brief background, the proposed transaction is structured as follows:
HSAG (Industriestraße 44, 01099 Dresden, Saxony, Germany), a semiconductor manufacturer and designer publicly traded on the Frankfurt Stock Exchange (XETRA ticker symbol: HLC), with a market capitalization of approximately €14.8 billion as of June 1, 2023, and reported fiscal year 2022 revenue of approximately €6.12 billion, proposes to acquire one hundred percent (100%) of the outstanding equity of VPI for a base purchase price of $1.42 billion on a cash-free, debt-free basis, subject to customary adjustments including a normalized net working capital target of $34.6 million, plus a potential contingent earnout of up to $85 million payable upon the achievement of specified post-closing revenue and technology development milestones as more fully described in the Stock Purchase Agreement.
The acquisition is structured through Halcyon US Holdings Inc. (Employer Identification Number: 93-2841067), a newly formed Delaware corporation and wholly owned subsidiary of HSAG, which was incorporated on June 5, 2023, for the sole purpose of consummating this transaction. The Stock Purchase Agreement (the "SPA") was executed by the parties on June 10, 2023, and remains in full force and effect, subject to, among other conditions, the receipt of CFIUS clearance or the expiration of applicable waiting periods without action by the Committee.
VPI is a leading designer and manufacturer of advanced gallium-nitride (GaN) power amplifier chips and related radio-frequency semiconductor devices used in defense radar systems, satellite communications platforms, and fifth-generation (5G) wireless telecommunications infrastructure. VPI holds a Facility Security Clearance ("FCL") at the SECRET level, assigned CAGE Code 7VK92, and is registered with the Directorate of Defense Trade Controls ("DDTC") of the U.S. Department of State under Registration No. M-24817. VPI currently maintains fourteen (14) active contracts with the U.S. Department of Defense, representing an aggregate contract backlog of approximately $193 million across multiple programs. VPI's product portfolio includes defense articles classified under Category XI(a)(3) of the United States Munitions List ("USML"), as set forth in the International Traffic in Arms Regulations ("ITAR"), 22 C.F.R. Parts 120–130, as well as dual-use components classified under Export Control Classification Number ("ECCN") 3A001 of the Commerce Control List, as administered under the Export Administration Regulations ("EAR"), 15 C.F.R. Parts 730–774.
IV. Description of Enclosed Supplemental Response
The enclosed substantive response (Enclosure 1) addresses all twenty-two (22) questions posed in the Second RFI in a comprehensive and detailed manner. The questions fall into four principal subject-matter categories, which we summarize below for the Committee's reference:
1. VPI intellectual Property Transfer Risks (Questions 1–8). The substantive response provides detailed information regarding HSAG's plans — or, as the case may be, the confirmed absence of any plans — to transfer VPI proprietary technology to any non-U.S. person or entity following the closing of the proposed acquisition. VPI's intellectual property portfolio includes forty-seven (47) granted U.S. patents and twelve (12) pending patent applications, as well as thirty-one (31) registered trade secrets encompassing, among other things, proprietary GaN epitaxial growth recipes, die-level reliability screening methodologies, and related process know-how that is foundational to VPI's competitive position in the defense semiconductor market.
The response describes in detail the proposed Technology Control Plan ("TCP") that HSAG has committed to implementing, which would govern the handling, access, storage, and dissemination of VPI's controlled and proprietary technologies post-closing. The TCP is designed to ensure that ITAR-controlled technical data, EAR-controlled technology, and proprietary trade secrets remain within the United States and are accessible only to authorized U.S. persons in compliance with all applicable export control laws and regulations. Additionally, the response addresses the twenty-three (23) government-funded patents that are subject to march-in rights under 35 U.S.C. § 203, as well as the government's rights under DFARS 252.227-7038 (Patent Rights — Ownership by the Contractor (Large Business)), and HSAG's commitment to honoring all such government rights without qualification.
2. Supply Chain Dependencies (Questions 9–14). The substantive response provides a thorough analysis of VPI's supply chain for silicon-carbide (SiC) substrates, epitaxial materials, metallization and packaging components, and related critical inputs. This analysis demonstrates that VPI's supply chain is sourced exclusively from suppliers located in the United States and allied nations — specifically, Japan, the United Kingdom, and Germany — with no dependencies on the People's Republic of China or any other non-allied source for critical materials. The analysis addresses both primary and secondary (backup) suppliers for each critical input category, and evaluates supply chain resilience in the context of potential disruptions.
In support of these narrative responses, the parties have prepared a Supplemental Exhibit in spreadsheet format (Enclosure 2), designated the "VPI Supply Chain Map," which provides a comprehensive mapping of VPI's supply chain organized by supplier name, country of origin, material or component category, criticality level (tiered as Critical, Important, or Routine), and the availability of qualified alternate sources. This exhibit is provided in Microsoft Excel format to facilitate the Committee's review and analysis.
3. HSAG's Relationships with Non-Allied Foreign Governments (Questions 15–19). The substantive response provides supplemental disclosures regarding HSAG's operations in and contractual relationships with non-allied foreign jurisdictions, as requested by the Committee. As previously disclosed in the joint notice and the First Supplemental Response, HSAG maintains a subsidiary in the People's Republic of China — Halcyon Semiconductor (Shanghai) Co., Ltd. — which generated revenue of approximately $81.4 million in fiscal year 2022, representing approximately 1.3% of HSAG's total consolidated revenue. The substantive response reiterates and provides additional detail confirming that Halcyon Semiconductor (Shanghai) Co., Ltd. is limited in its operations to the design and sale of consumer-grade power management integrated circuits ("PMICs") for use in consumer electronics, with no involvement whatsoever in gallium-nitride technology, defense-related semiconductor activities, or dual-use semiconductor components.
The response further confirms that HSAG has no government contracts, grants, cooperative agreements, or other funding arrangements with any non-allied foreign government, including but not limited to the governments of the People's Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People's Republic of Korea, the Republic of Cuba, or the Bolivarian Republic of Venezuela. HSAG has also confirmed the absence of any equity investments, board representation, or governance influence by any non-allied foreign government or entity controlled by such a government.
4. Personnel Continuity Plans for Cleared VPI Employees (Questions 20–22). The substantive response sets forth HSAG's detailed plans for the retention of VPI's cleared workforce following consummation of the proposed acquisition. VPI currently employs approximately 486 individuals, of whom 212 hold active personnel security clearances at various levels. HSAG's response addresses its commitment to the retention and continuity of these cleared employees, with particular focus on key personnel who are critical to VPI's ongoing performance of classified and export-controlled programs.
Specifically, the response addresses retention plans for: (i) Dr. Nathan Trevorrow, Founder and Chief Executive Officer of VPI, who holds a Top Secret/Sensitive Compartmented Information (TS/SCI) security clearance; (ii) Marissa Sung-Avila, President and Chief Operating Officer of VPI, who holds a SECRET security clearance; and (iii) Colonel (Ret.) Bryce Hendrickson, Vice President of Government Programs and Facility Security Officer of VPI, who holds a TS/SCI security clearance. HSAG has committed to entering into 24-month post-closing retention agreements with each of these key personnel, and confirms that any subsequent changes to key personnel in cleared positions will be subject to the approval of the Government Security Committee ("GSC"), to be established as part of any National Security Agreement, as well as the Defense Counterintelligence and Security Agency ("DCSA"), as applicable.
V. List of Enclosed Materials
The following materials are enclosed with this cover letter:
Enclosure 1: Second RFI — Substantive Response. This enclosure contains the narrative responses to all twenty-two (22) questions set forth in the Second RFI, together with appended documentary exhibits referenced therein. The Substantive Response comprises approximately 187 pages, including exhibits.
Enclosure 2: Supplemental Exhibit — VPI Supply Chain Map. This enclosure is provided in Microsoft Excel format (.xlsx) and contains a detailed spreadsheet mapping VPI's supply chain for SiC substrates, epitaxial materials, and packaging components. The spreadsheet is organized by supplier name, country of origin, material or component category, criticality level (Critical, Important, or Routine), and the availability of qualified alternate sources. A printed summary of this exhibit is also included within Enclosure 1 for reference.
VI. Coordination with Seller's Counsel
We confirm that the enclosed responses were prepared in close coordination with Wethersfield & Gale LLP, counsel to VPI and the selling shareholders. The Wethersfield & Gale team is led by Harrison Whitfield, lead partner, and Tobias Kwan, senior associate, with offices at 2000 Pennsylvania Avenue NW, Suite 600, Washington, DC 20006.
Certain of the responses enclosed herein incorporate factual information and data provided directly by VPI management, including Dr. Nathan Trevorrow (CEO), Marissa Sung-Avila (President/COO), Colonel (Ret.) Bryce Hendrickson (VP Government Programs/FSO), and Derek Wainsborough (Chief Financial Officer). The parties have endeavored to ensure the accuracy and completeness of all such information, and the respective certifications of the CEOs of HSAG and VPI are enclosed with the Substantive Response as described below.
We further note that VPI's counsel, Wethersfield & Gale LLP, is separately submitting supplemental materials pertaining to classified program details and other information requiring handling through appropriate secure channels. These materials are being transmitted in accordance with applicable security protocols, and we are available to facilitate any coordination between the parties and the Committee in connection with the review of those classified submissions.
VII. Certification of Accuracy
In accordance with the requirements of 31 C.F.R. § 800.502, HSAG and VPI certify that the information provided herein and in the enclosed materials is, to the best of the knowledge and belief of the undersigned and the parties, true, correct, and complete. The parties understand the obligations imposed by 31 C.F.R. § 800.502 and the consequences of submitting materially false or misleading information to the Committee.
Separate certifications, duly executed under penalty of perjury, have been provided by Dr. Maximilian Ehrhardt, Chief Executive Officer of HSAG, and Dr. Nathan Trevorrow, Chief Executive Officer of VPI. These executed certifications are enclosed with the Substantive Response (Enclosure 1) as Appendices A-1 and A-2, respectively.
VIII. Offer of Cooperation and Availability
HSAG reiterates its unwavering commitment to full and transparent cooperation with CFIUS and the co-lead agencies — the Department of Defense and the Department of Energy — throughout the investigation phase and any subsequent proceedings. HSAG recognizes the importance of addressing the Committee's national security concerns thoroughly and in good faith, and HSAG is prepared to engage constructively at every stage of this process.
HSAG and its counsel stand ready to provide any additional information, documentation, or clarification that the Committee or any member agency may require in connection with this review. We are committed to responding promptly and completely to any further requests for information or supplemental inquiries.
Additionally, HSAG is prepared to make its personnel, including senior management and technical staff, available for interviews, briefings, or site visits as the Committee or any member agency may deem appropriate. VPI has similarly confirmed its willingness to make its personnel available through its counsel at Wethersfield & Gale LLP.
Finally, HSAG expresses its continued interest in working constructively with CFIUS and the co-lead agencies toward the resolution of any national security concerns that may arise from the proposed transaction, including through the good-faith negotiation of appropriate mitigation measures, such as a National Security Agreement, Proxy Agreement, Special Security Arrangement, or other mitigation instruments that the Committee may determine to be warranted. HSAG remains confident that the proposed acquisition can be structured in a manner that fully protects the national security of the United States while preserving the operational capabilities and technological leadership of VPI.
IX. Contact Information for Further Communications
All further communications regarding this submission and the CFIUS review of the proposed transaction should be directed to the following individuals:
Primary Contact:
Margaret "Peggy" Ashworth, Of Counsel National Security & CFIUS Practice Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006 Telephone: (202) 554-7244
Email: mashworth@calderwoodharkness.com
Additional Contacts:
Beatrice Holloway, Partner Mergers & Acquisitions Practice Calderwood & Harkness LLP 399 Park Avenue, 31st Floor New York, NY 10022 Telephone: (212) 848-6310
Email: bholloway@calderwoodharkness.com
Lt. Col. (Ret.) David Caruso, Senior Counsel Government Contracts & Export Controls Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006 Telephone: (202) 554-7289
Email: dcaruso@calderwoodharkness.com
We respectfully request that copies of all correspondence and communications from the Committee also be directed to:
Stefan Lohse, General Counsel (Chefjustitiar) Halcyon Semiconductor Aktiengesellschaft Industriestraße 44, 01099 Dresden, Saxony, Germany
Email: stefan.lohse@halcyon-semi.de
Harrison Whitfield, Partner Wethersfield & Gale LLP 2000 Pennsylvania Avenue NW, Suite 600 Washington, DC 20006
Email: hwhitfield@wethersfieldgale.com
We thank the Committee and the co-lead agencies for their continued engagement on this matter, and we look forward to working cooperatively toward a timely resolution of the review. Should you have any questions regarding this submission or require any additional information, please do not hesitate to contact the undersigned at your earliest convenience.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Margaret "Peggy" Ashworth Of Counsel National Security & CFIUS Practice Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006
By: ________
Beatrice Holloway Partner Mergers & Acquisitions Practice Calderwood & Harkness LLP 399 Park Avenue, 31st Floor New York, NY 10022
cc (via email):
Stefan Lohse, General Counsel, Halcyon Semiconductor AG Dr. Maximilian Ehrhardt, Chief Executive Officer, Halcyon Semiconductor AG Katarina Brückner, Chief Financial Officer, Halcyon Semiconductor AG Harrison Whitfield, Wethersfield & Gale LLP Sandra Niehaus, Wethersfield & Gale LLP Tobias Kwan, Wethersfield & Gale LLP Dr. Nathan Trevorrow, Chief Executive Officer, Marlowe Asset Management Photonics Inc. Lt. Col. (Ret.) David Caruso, Calderwood & Harkness LLP Priya Venkataraman, Calderwood & Harkness LLP Kenneth Morales, Calderwood & Harkness LLP
Enclosures (2):
Enclosure 1 — Second RFI — Substantive Response (narrative responses to all 22 questions, with appendices; approximately 187 pages) Enclosure 2 — Supplemental Exhibit — VPI Supply Chain Map (Microsoft Excel format)