CALDERWOOD & HARKNESS LLP 1301 K Street NW, Suite 1100 Washington, D.C. 20005
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
This memorandum was prepared by outside counsel at the direction of the General Counsel of Halcyon Semiconductor AG for the purpose of providing legal advice in connection with a pending government inquiry. This memorandum and its contents are protected by the attorney-client privilege and the attorney work product doctrine. No portion of this memorandum may be disclosed to any person or entity outside the privileged recipients identified herein without the prior written authorization of Calderwood & Harkness LLP. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
MEMORANDUM
TO:
Marcus Friedl, General Counsel, Halcyon Semiconductor AG
Annika Brauer, Head of Trade Compliance, Halcyon Semiconductor AG
Derek Tran, President, Halcyon Semiconductor Inc.
Pamela Neuhaus, VP, Regulatory Affairs, Halcyon Semiconductor Inc.
FROM:
Howard Quinn, Partner, Calderwood & Harkness LLP
Conrad Ashby, Partner, Calderwood & Harkness LLP
Liam Donahue, Associate, Calderwood & Harkness LLP
DATE: October 18, 2025
RE: Internal Investigation Plan — DOJ National Security Division Inquiry (NSD-CES-2025-04871)
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I. PURPOSE
This memorandum sets forth the comprehensive plan for the privileged internal investigation that Calderwood & Harkness LLP ("C&H" or the "Firm") will conduct on behalf of Halcyon Semiconductor AG ("HSAG") and Halcyon Semiconductor Inc. ("HSI," and together with HSAG, the "Company" or "Halcyon") in connection with the inquiry initiated by the National Security Division ("NSD") of the United States Department of Justice ("DOJ") concerning seventeen shipments of HSAG's HCA-9100 series analog-to-digital converter ("ADC") chipsets, classified under Export Control Classification Number ("ECCN") 3A001, to end users located in the People's Republic of China ("PRC"). This investigation plan has been prepared to guide the internal investigation from its inception through the delivery of final findings to the Company's General Counsel, and to establish a framework for the Company's engagement with DOJ and related regulatory bodies throughout the course of this matter.
The DOJ inquiry was initiated by a voluntary request for information letter dated October 9, 2025, bearing reference number NSD-CES-2025-04871. The letter was issued by the Counterintelligence and Export Control Section ("CES") of the National Security Division and was directed to HSAG and HSI through their registered agent in the United States. The request identifies seventeen specific shipments routed through an authorized third-party distributor in Singapore to two PRC-based end users and requests documents and information relating to the circumstances of those shipments, the Company's export compliance procedures, and its knowledge of the end users' operations and affiliations.
This investigation is being conducted at the direction of counsel and under the supervision of the Company's General Counsel, Marcus Friedl, to protect all applicable privileges, including the attorney-client privilege and the protections afforded by the work product doctrine. All documents generated in connection with this investigation, including this memorandum, interview memoranda, analytical work product, and internal communications regarding investigation strategy, are intended to be privileged and confidential, and should be treated as such by all recipients.
Calderwood & Harkness was retained by HSAG and HSI to lead this investigation and to represent the Company in its engagement with DOJ pursuant to an engagement letter executed on October 11, 2025. C&H entered its appearance with DOJ on October 14, 2025, and on the same date participated in an initial conference call with Senior Trial Attorney Adrienne Kolb and Trial Attorney Jonathan Weir of the NSD Counterintelligence and Export Control Section. During that call, the government outlined the general scope of its inquiry, identified the seventeen shipments at issue, and indicated its expectation that the Company would cooperate fully with the investigation. The government did not, at that time, make any representations regarding the likelihood of criminal prosecution versus administrative resolution, but noted that the Company's level of cooperation would be a significant factor in its assessment.
The internal investigation described in this memorandum is designed to accomplish the following objectives:
(a) Establish the complete factual record regarding the seventeen shipments at issue, including the order origination, export classification, restricted-party screening, shipment routing, delivery confirmation, and end-use and end-user documentation for each transaction;
(b) Assess culpability — specifically, whether any employee or agent of HSAG, HSI, or the Company's authorized distributor, Archipelago Component Solutions Pte. Ltd. ("Archipelago"), had actual knowledge or constructive knowledge of facts that would render any of the seventeen shipments a violation of the Export Administration Regulations ("EAR") or other applicable U.S. export-control law, and whether any conduct was willful within the meaning of the relevant enforcement guidelines;
(c) Evaluate the full scope of the Company's regulatory exposure under the EAR, as administered by the Bureau of Industry and Security ("BIS") of the U.S. Department of Commerce, and under sanctions programs administered by the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury;
(d) Support the Company's posture of full and timely cooperation with DOJ, including the preparation of document productions, the facilitation of witness interviews or proffers, and the provision of factual narratives as appropriate;
(e) Identify deficiencies in the Company's export compliance program — including policies, procedures, technology, training, distributor oversight, and organizational structure — and develop specific and implementable remedial measures; and
(f) Inform the Company's decision whether to file a voluntary self-disclosure ("VSD") with BIS, and if so, to prepare and submit that disclosure in a manner that maximizes available mitigation credit.
This memorandum is intended to serve as a living document. As the investigation progresses and additional facts come to light, the scope, timeline, and strategy described herein may be modified with the approval of the Company's General Counsel. Any material modifications will be documented in supplemental memoranda to be circulated to the same privileged recipients.
II. BACKGROUND
A. The Company
Halcyon Semiconductor AG is an Aktiengesellschaft organized under the laws of Switzerland, with its registered office at Bahnhofstrasse 42, 8001 Glenrock Assurance, Switzerland, and its principal office and primary fabrication facility located at Semperstrasse 15, 01069 Dresden, Germany. HSAG is listed on the Frankfurt Stock Exchange under the ticker symbol XETRA: HCA. Founded in 2003, HSAG designs and manufactures high-performance analog-to-digital converter chips and mixed-signal integrated circuits serving the telecommunications, industrial automation, and defense-adjacent application markets. The Company's product portfolio is recognized in the industry for its leadership in high-speed, high-resolution ADC technology, with its flagship HCA-9100 series representing the state of the art in sampling rates and precision among commercially available ADC platforms.
For the fiscal year ended December 31, 2024, HSAG reported consolidated revenue of approximately €4.27 billion, with an operating margin of approximately 21.3%. The Company employs approximately 11,400 persons globally, with approximately 2,100 of those employees based in the United States. HSAG's current Chief Executive Officer is Dr. Katrin Seidel. Marcus Friedl serves as General Counsel, and Annika Brauer holds the position of Head of Trade Compliance, reporting to Friedl within the legal department.
Halcyon Semiconductor Inc. is HSAG's wholly owned U.S. subsidiary, incorporated in the State of Delaware, with its principal place of business at 4700 Great America Parkway, Suite 300, San Jose, California 95054 (Employer Identification Number: 84-3921057). HSI operates a chip design center and serves as the principal U.S. sales and distribution entity for HSAG's products. For FY 2024, HSI reported revenue of approximately $1.14 billion, representing approximately 22% of HSAG's consolidated revenue. HSI is led by Derek Tran, who serves as President, and Pamela Neuhaus, who serves as Vice President, Regulatory Affairs. The HSI trade compliance function operates under Neuhaus's oversight and coordinates with HSAG's central trade compliance function headed by Annika Brauer in Dresden.
HSAG's revenue derived from PRC-related customers and end users for FY 2024 was approximately €612 million, representing approximately 14.3% of the Company's consolidated revenue. This figure includes both direct sales to PRC-based customers and sales through distributors (including Archipelago) where the ultimate consignee is located in the PRC. The PRC has been a significant growth market for HSAG's products, particularly in the telecommunications and industrial automation sectors, and the Company's PRC-related revenue has grown at a compound annual rate of approximately 12% over the five preceding fiscal years.
B. The DOJ Inquiry
The DOJ inquiry centers on seventeen shipments of HSAG's HCA-9100 series ADC chipsets. The HCA-9100 series products are classified under Export Control Classification Number 3A001, which covers certain electronic devices and components with performance parameters that render them subject to national security controls under the EAR. The HCA-9100 series chipsets at issue feature sampling rates exceeding 3.6 gigasamples per second ("Gsps"), which exceeds the controlled threshold under the relevant ECCN parameters and renders the products eligible for license requirements for a range of destinations, including the PRC, depending on end use and end user. The HCA-9100 series has applications in both civilian telecommunications infrastructure (such as 5G base stations and broadband signal processing) and military or dual-use applications (such as radar systems, electronic warfare, and signals intelligence).
All seventeen shipments followed a consistent routing path: the products were manufactured at HSAG's fabrication facility in Dresden, Germany, and shipped to Archipelago Component Solutions Pte. Ltd., HSAG's authorized third-party distributor located at 18 Boon Lay Way, #07-142 TradeHub 21, Singapore 609966. Archipelago, in turn, distributed the products to PRC-based end users pursuant to purchase orders placed through Archipelago's order management system. Archipelago was incorporated in 2016 and is managed by its Managing Director, Rajiv Sundaram. Archipelago serves as HSAG's primary Asia-Pacific distribution channel for high-performance ADC and mixed-signal products.
Of the seventeen shipments, eleven were consigned to Zhonghe Microelectronics Co., Ltd. ("Zhonghe"), a Shenzhen-based fabless chip design firm located at 12/F, Nanshan Digital Tower, Keji South Road, Nanshan District, Shenzhen 518057, PRC. These eleven shipments had an aggregate value of approximately $4.41 million, with an average value of approximately $401,000 per shipment. The remaining six shipments were consigned to Lansheng Harborline Technologies Technologies Ltd. ("Lansheng"), a Chengdu-based signal-processing hardware company located at Block C, Tianfu Software Park, No. 599 Shijicheng South Road, Chengdu 610041, PRC, and managed by its Managing Director, Chen Weiming. The six Lansheng shipments had an aggregate value of approximately $2.42 million, with an average value of approximately $403,000 per shipment. The aggregate value of all seventeen shipments is approximately $6.83 million.
The shipments at issue span a period from March 12, 2024 through August 19, 2025 — approximately seventeen months. During this period, a significant regulatory development occurred: Zhonghe Microelectronics was added to the BIS Entity List, effective June 14, 2025, pursuant to a Federal Register notice published on June 12, 2025 (90 Fed. Reg. _). The Entity List, maintained at 15 C.F.R. Part 744, Supplement No. 4, identifies foreign persons that are subject to specific license requirements for all items subject to the EAR. Once an entity is added to the Entity List, no export, reexport, or in-country transfer of items subject to the EAR may be made to that entity without a license, and the license review policy is typically a presumption of denial.
Of the eleven Zhonghe shipments, eight occurred prior to Zhonghe's Entity List designation — that is, during the period from March 2024 through May 2025 — and three occurred after the designation, on June 27, July 15, and August 3, 2025. It is these three post-Entity-List shipments that constitute the DOJ's primary concern, as they represent potential violations of 15 C.F.R. § 744.11, which prohibits exports, reexports, and in-country transfers to entities on the Entity List without the required license. No license was obtained for any of the three post-listing shipments, and no license exception was available. The aggregate value of the three post-listing shipments is approximately $1.20 million.
With respect to the Lansheng shipments, DOJ's theory is distinct. Lansheng is not currently listed on the Entity List, and at no point during the relevant shipment period was Lansheng subject to any specific BIS or OFAC list-based restriction. Rather, DOJ's theory regarding the Lansheng shipments relies on the "military end-use" provisions of EAR § 744.21 (15 C.F.R. § 744.21), which prohibit the export, reexport, or in-country transfer of specified items to end users in certain countries, including the PRC, when the exporter knows or has reason to know that the items will be used in a "military end use" as defined in the regulation. DOJ has indicated that its theory is supported by classified intelligence, the specific content of which has not been disclosed to the Company or to C&H, suggesting that Lansheng may function as a procurement front for a PRC defense research institute affiliated with or subordinate to the People's Liberation Army. Lansheng's nominal business, as represented in its corporate filings and marketing materials, is the design and manufacture of civilian infrastructure monitoring equipment, including vibration sensors, structural-health monitoring systems, and environmental monitoring platforms.
In addition to the Lansheng theory, DOJ has also indicated that it has information suggesting potential diversion of products shipped to Zhonghe to PLA-linked radar and electronic-warfare programs. The nature and source of this diversion allegation have not yet been fully disclosed by the government, but it appears to be based at least in part on intelligence reporting and may also involve information obtained from a parallel investigation or enforcement action involving Zhonghe or one of its affiliates.
The lead government attorneys assigned to the matter are Senior Trial Attorney Adrienne Kolb and Trial Attorney Jonathan Weir of the DOJ NSD Counterintelligence and Export Control Section, located at 950 Pennsylvania Avenue NW, Washington, D.C. 20530. Ms. Kolb has indicated that additional DOJ attorneys or federal agents may become involved in the investigation as it progresses, including agents from the Department of Commerce's Bureau of Industry and Security, Office of Export Enforcement, and potentially agents from the Federal Bureau of Investigation.
C. Preliminary Understanding of Root Cause
Based on the preliminary information gathered since the receipt of the DOJ request, C&H has developed a preliminary understanding of the root cause of the three post-Entity-List shipments to Zhonghe. We emphasize that this understanding is preliminary and subject to verification and refinement through the formal investigation described in this memorandum. The investigation may reveal additional or different root causes, and the analysis below should be treated as an initial working hypothesis rather than a final factual determination.
Specifically, preliminary information indicates that the three post-Entity-List shipments resulted from a gap in the restricted-party screening process employed by Archipelago. Archipelago does not maintain an in-house restricted-party screening capability. Instead, Archipelago relies on a third-party screening vendor, Sentinel Compliance Data Services Ltd. ("Sentinel"), a UK-based compliance data provider located at 14 Queen Street, Edinburgh EH2 1JE, United Kingdom, for restricted-party screening against U.S. export-control and sanctions lists, including the BIS Entity List, the Denied Persons List, the Unverified List, the OFAC SDN List, and other applicable regulatory lists. Sentinel provides its screening service through a software platform that integrates with Archipelago's order management system, such that each new order is automatically screened against the restricted-party database at the order-entry stage.
The preliminary evidence indicates that there was a twelve-calendar-day (nine-business-day) lag between Zhonghe's June 14, 2025 Entity List addition and the June 26, 2025 date on which Sentinel pushed the updated Entity List data to Archipelago's screening system. During this twelve-day window, Archipelago's screening system was operating against an Entity List that did not include Zhonghe. This lag appears to have been a contributing factor in the failure to screen and block the June 27, 2025 shipment.
However, the Sentinel data-update lag alone does not fully explain the June 27 shipment. The investigation has also revealed that the June 27, 2025 shipment (the first post-listing shipment) was based on a purchase order that had been pre-approved through Archipelago's order management system on June 13, 2025 — one day before Zhonghe was added to the Entity List. Archipelago's order management system is configured to perform restricted-party screening at the order-entry and order-approval stage, but it does not perform a second restricted-party screening at the ship-confirm stage. Accordingly, even if the Sentinel database had been updated on June 14, 2025 (the same day as the Entity List addition), the June 27 shipment might still have proceeded, because the screening had already been completed on June 13. The investigation will need to determine whether Archipelago had a written policy requiring re-screening at the ship-confirm stage, and if so, whether that policy was simply not implemented in the technology platform, or whether it was overridden or waived for any reason.
The July 15 and August 3, 2025 shipments present a different analytical question. Preliminary indications suggest that these were new orders entered after the June 26 Sentinel database update — that is, at a time when the updated Entity List, including Zhonghe, should have been available in Archipelago's screening system. Nevertheless, the screening apparently did not flag these orders. The preliminary hypothesis for this failure is a character-encoding mismatch: the Sentinel database ingested the Entity List entry for Zhonghe using the romanized transliteration of the entity's name as published in the Federal Register, while Archipelago's order management system stored the customer name for Zhonghe using simplified Chinese characters. If the Sentinel screening module was configured to match against the primary name field in Archipelago's system — which contained simplified Chinese characters — and the Sentinel database entry was stored in romanized Latin characters, the screening algorithm may not have recognized a match. This hypothesis requires verification through a technical review of Archipelago's order management system configuration, the Sentinel screening module's matching algorithm, and the specific data fields used for screening.
The investigation will rigorously test these preliminary hypotheses and determine whether the root cause of the three post-listing shipments was systemic (reflecting structural deficiencies in the screening process, technology, and vendor arrangements) or whether any element of the failure was attributable to human error, negligence, or deliberate action. The distinction is critical for purposes of assessing culpability, designing remedial measures, and framing the Company's narrative in its engagement with DOJ and BIS.
III. SCOPE OF INVESTIGATION
The investigation will encompass the following workstreams. Each workstream is described in detail below, together with the specific tasks, key questions, and evidentiary targets associated with it.
A. The Seventeen Shipments
The core of the investigation is a complete chronological reconstruction of all seventeen shipments from HSAG's Dresden fabrication facility, through Archipelago in Singapore, to the two PRC end users: Zhonghe (eleven shipments) and Lansheng (six shipments). The reconstruction will cover the full period from March 12, 2024 (the date of the earliest identified shipment) through August 19, 2025 (the date of the most recent identified shipment), and will establish a comprehensive factual record for each transaction in the chain.
For each of the seventeen shipments, the investigation team will collect, review, and analyze the following documentation:
(i) The purchase order submitted by the end user (Zhonghe or Lansheng) to Archipelago, including any associated order confirmation, amendment, or cancellation documentation;
(ii) The commercial invoice issued by Archipelago to the end user, and any corresponding invoice issued by HSAG to Archipelago;
(iii) The bill of lading or airway bill evidencing the physical shipment of the products from Dresden to Singapore and from Singapore to the PRC destination;
(iv) The packing list identifying the specific products, quantities, serial numbers, and lot numbers included in each shipment;
(v) The delivery confirmation or proof of receipt obtained from the end user or the end user's designated freight forwarder;
(vi) Any end-user certificate or end-use statement obtained from the end user in connection with the transaction, including any representations regarding the intended end use of the products;
(vii) The export license determination for each shipment — specifically, whether the shipment was made under a specific license, a license exception (and if so, which exception), or a "No License Required" ("NLR") classification — and the supporting analysis;
(viii) The ECCN classification worksheet or technical assessment used to classify the products as ECCN 3A001, including any technical specifications, performance parameters, or de minimis calculations relevant to the classification;
(ix) The restricted-party screening results generated by Sentinel and/or any internal HSAG or HSI screening system, including the specific lists screened, the date and time of screening, and the screening outcome (clear, potential match, or blocked);
(x) Internal approval records, including any compliance sign-off, management approval, or exception authorization associated with the order or shipment.
The investigation will pay particular attention to the three post-Entity-List Zhonghe shipments dated June 27, July 15, and August 3, 2025. For each of these three shipments, the investigation team will identify the specific order date, pre-approval date, screening results at each stage of the order-to-shipment process (order entry, order approval, and ship-confirm), ship-confirm date, and any manual override, exception, or deviation from standard operating procedures. The investigation will also determine whether any Halcyon or Archipelago employee was contemporaneously aware that Zhonghe had been added to the Entity List at the time any of these three shipments was processed or released.
In addition to the seventeen identified shipments, the investigation will identify any additional shipments of ECCN 3A001-classified products to PRC-based customers during the same period (and, as discussed below, extending back to January 2023) that may warrant review for completeness. This broader review is designed to ensure that the investigation does not overlook any additional potential violations and to anticipate any scope expansion that DOJ may pursue. The investigation team will query the HSAG SAP GTS system and HSI Quillon Data Systems to identify all such transactions and will flag any that present potential compliance concerns for further analysis.
B. Restricted-Party Screening Process
A second major workstream will focus on the restricted-party screening process as it was designed, implemented, and operated during the relevant period. This workstream will address both the immediate cause of the screening failure for the three post-listing Zhonghe shipments and the broader adequacy of the Company's and Archipelago's screening infrastructure.
The investigation will undertake the following specific tasks within this workstream:
1. Review of the Archipelago-Sentinel Contractual Arrangement. The investigation team will obtain and review the complete contractual documentation governing the relationship between Archipelago and Sentinel Compliance Data Services Ltd. This includes the Master Services Agreement between the two parties, any applicable statements of work or service orders, and — critically — the specific service level agreements ("SLAs") governing the frequency and timeliness of database updates. Preliminary information indicates that the SLA requires Sentinel to push regulatory list updates to Archipelago's screening system "within five (5) business days of publication" of any change to any regulatory list covered by the service. The investigation will determine whether this SLA was in effect at the relevant time, whether the twelve-calendar-day / nine-business-day gap between Zhonghe's Entity List addition (June 14, 2025) and the Sentinel update (June 26, 2025) constituted a breach of that SLA, and what explanation Sentinel has offered for the delay. The investigation will also determine whether Sentinel had any prior SLA breaches and whether Archipelago had any mechanism for monitoring Sentinel's SLA compliance. In addition, the investigation will review any incident-reporting, escalation, or notification provisions in the contract that may have been triggered — or should have been triggered — by the update delay.
2. Analysis of the June 27, 2025 Shipment. As noted above, preliminary information indicates that the June 27, 2025 shipment was based on a purchase order that had been pre-approved on June 13, 2025, and that Archipelago's system did not perform a re-screening at the ship-confirm stage. The investigation will determine whether Archipelago had a written policy, standard operating procedure, or contractual obligation requiring re-screening at the ship-confirm stage, and if so, whether that requirement was embedded in the technology platform or was a manual step that was not performed. If re-screening was not required by any policy or procedure, the investigation will assess whether the absence of such a requirement reflected a deficiency in Archipelago's compliance program design or whether it was consistent with industry practice for distributors of comparable size and regulatory exposure.
3. Analysis of the July 15 and August 3, 2025 Shipments. These shipments were based on new orders entered after the June 26 Sentinel database update. The investigation will conduct a technical review of Archipelago's order management system and the Sentinel screening module to determine the precise cause of the screening failure. The preliminary hypothesis — a character-encoding or data-ingestion mismatch between simplified Chinese characters and romanized Entity List entries — will be tested through examination of the system configuration, including: the data field(s) used by Archipelago's system to store customer names; whether the system stored customer names in both Chinese characters and romanized form; which field(s) the Sentinel screening module matched against; whether the Sentinel screening module was capable of multi-language or multi-script matching; and whether there were any alias or alternate-name fields that could have been used for screening. The investigation team may engage a technical consultant, working under the direction of C&H and protected by the work product doctrine, to assist with this technical analysis if warranted.
4. Assessment of HSAG/HSI Independent Screening. The investigation will separately assess whether HSAG's or HSI's own internal screening processes should have independently flagged Zhonghe as a restricted party, regardless of any screening performed (or failed to be performed) by Archipelago. Specifically, the investigation will determine what HSI's internal restricted-party screening protocol was during the relevant period; whether HSI relied entirely on Archipelago for restricted-party screening of Asia-Pacific distribution transactions, or whether HSI maintained an independent screening capability for such transactions; whether HSI's SAP GTS system had Entity List screening capabilities configured for reexport transactions routed through Singapore; and whether HSAG's central trade compliance function in Dresden performed any independent screening of PRC end users. If the investigation reveals that HSAG or HSI did maintain independent screening capabilities that should have flagged Zhonghe, the investigation will determine why those capabilities failed.
5. Review of the Authorized Distributor Agreement. The investigation team will review the Authorized Distributor Agreement between HSAG and Archipelago (originally dated April 1, 2021, as amended through Amendment No. 3, effective September 1, 2024) with particular focus on the export compliance addenda, including the allocation of compliance responsibilities between HSAG and Archipelago, the specific compliance obligations imposed on Archipelago, any representations and warranties regarding Archipelago's compliance capabilities, the audit rights reserved by HSAG, the information-sharing and escalation protocols, and any indemnification or limitation-of-liability provisions relevant to compliance failures. This review will inform both the factual investigation and the Company's assessment of its contractual remedies against Archipelago.
C. Knowledge and Intent
The assessment of knowledge and intent is among the most consequential workstreams of the investigation. The distinction between willful and non-willful conduct is a critical factor in the BIS penalty guidelines, in DOJ's determination whether to pursue criminal versus administrative resolution, and in the assessment of individual employee exposure. C&H will undertake a thorough and rigorous examination of the knowledge and intent of all relevant personnel.
1. Witness Interviews. The investigation team will interview all personnel involved in the sales, order processing, export compliance screening, and shipping of the seventeen shipments. The initial interview list includes, at a minimum, the following individuals:
• Ryan Oshiro, Director, Asia-Pacific Sales, HSI — Mr. Oshiro is the senior sales relationship owner for both the Zhonghe and Lansheng accounts. He is expected to have knowledge of the commercial history of the relationships, the nature of the end users' businesses, any due diligence performed at account onboarding, and any communications regarding end use, end-user concerns, or regulatory risk.
• Janet Liang, Trade Compliance Analyst, HSI — Ms. Liang is credited with discovering the discrepancy regarding the post-listing Zhonghe shipments in September 2025 during a routine quarterly compliance review. She is expected to have knowledge of HSI's screening procedures, the circumstances of her discovery, the steps she took to escalate the matter, and the general functioning of HSI's compliance monitoring processes.
• Annika Brauer, Head of Trade Compliance, HSAG — Ms. Brauer is the senior trade compliance professional at the parent company and is responsible for the design and implementation of HSAG's global export compliance program. She is expected to have knowledge of the program's structure, the oversight of Archipelago, the Sentinel vendor relationship, the escalation procedures for compliance incidents, and her personal awareness of the Entity List addition.
• Pamela Neuhaus, VP, Regulatory Affairs, HSI — Ms. Neuhaus is the senior U.S. regulatory affairs professional at the U.S. subsidiary and coordinates with HSAG's trade compliance function on matters affecting U.S.-controlled items and U.S. persons. She is expected to have knowledge of HSI's regulatory affairs function, the coordination mechanisms between HSI and HSAG, and the escalation and remedial actions taken after the discrepancy was discovered.
• Rajiv Sundaram, Managing Director, Archipelago Component Solutions Pte. Ltd. — Mr. Sundaram is the principal of the authorized distributor through which all seventeen shipments were routed. He is expected to have knowledge of Archipelago's operations, compliance procedures, the Sentinel relationship, and any communications with PRC end users regarding end use or regulatory matters. The interview of Mr. Sundaram will be conducted through Singapore counsel to be arranged via the network of Kessler Pratt & Whitfield LLP ("KPW"), or alternatively, directly under Halcyon's contractual audit rights in the Authorized Distributor Agreement. The logistics and protocol for this interview will be determined in coordination with KPW.
• Archipelago's Compliance Officer and relevant logistics personnel — The Archipelago compliance officer (believed to be Mei Lin Tan based on preliminary records) is expected to have detailed knowledge of the screening process, the pre-approval of the June 13, 2025 order, and the character-encoding issue. Logistics personnel who handled the physical processing and shipment of the products will be interviewed regarding their roles and any knowledge of compliance screening or concerns. These interviews will also be conducted through Singapore counsel.
• Additional relevant HSI and HSAG sales, logistics, and compliance personnel — Additional witnesses will be identified during the document review phase. The investigation team anticipates that the document review will reveal additional individuals who participated in communications regarding the PRC accounts, the Entity List addition, or compliance screening processes and who should be interviewed.
2. Communications Review. The investigation team will review email communications, instant messages (including Northgate Data Systems, Meridian Solutions, and any other messaging platform used by the Company), and calendar entries of relevant custodians for the period January 1, 2024 to the present. The review will employ targeted keyword search terms and date-range filtering to identify communications relevant to the key topics described below. Search terms will be developed in both English and Chinese to ensure comprehensive coverage.
3. Key Knowledge/Intent Questions. The knowledge and intent assessment will be organized around the following core questions, which the investigation will seek to resolve definitively:
(i) Did any employee, officer, or agent of HSAG, HSI, or Archipelago have actual knowledge of Zhonghe's Entity List status at the time of any of the three post-listing shipments (June 27, July 15, and August 3, 2025)? If so, who had such knowledge, when did they acquire it, and what, if anything, did they do with that knowledge?
(ii) Were there any internal communications — at HSAG, HSI, or Archipelago — discussing Zhonghe's regulatory risk, potential Entity List addition, or any "red flags" regarding Zhonghe's activities or affiliations at any time prior to June 14, 2025? The existence of such communications would be significant because they could indicate that the Company had reason to know of Zhonghe's regulatory risk before the formal Entity List designation, which could affect the analysis of the pre-listing shipments as well.
(iii) Did any employee, officer, or agent of HSAG, HSI, or Archipelago have actual knowledge of, or reason to know about, Lansheng's alleged connections to military end use or PRC defense research programs at any time? Were there any communications — internal or external — referencing military applications, defense procurement, government end users, or end uses other than civilian infrastructure monitoring in connection with the Lansheng account?
(iv) Did any employee, officer, or agent of HSAG, HSI, or Archipelago receive any communication from BIS, DOJ, or any other U.S. or foreign government agency regarding Zhonghe or Lansheng prior to the October 9, 2025 voluntary request for information? This question encompasses not only formal communications (such as letters, subpoenas, or requests for information) but also informal contacts (such as phone calls or meetings with government officials).
(v) Did any employee, officer, or agent of HSAG, HSI, or Archipelago receive an "is informed" letter from BIS under EAR § 744.21 regarding Lansheng or any other PRC customer? Under § 744.21, BIS may issue a letter to an exporter informing the exporter that a particular end user is involved in military end use, which triggers a license requirement. If such a letter was received, it would materially alter the Company's exposure regarding the Lansheng shipments.
4. Significance of Intent Assessment. The intent assessment is critical for several interrelated reasons:
(a) Willfulness is a key factor in the BIS penalty guidelines and in DOJ's determination whether to pursue criminal versus administrative resolution. Under BIS's enforcement guidelines, a finding of willfulness can result in significantly higher penalties and increases the likelihood of a denial of export privileges. Under DOJ's prosecution guidelines, willfulness is generally a prerequisite for criminal prosecution under the principal export-control criminal statutes, including 50 U.S.C. § 4819 (ECRA) and the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. § 1705.
(b) A finding of non-willful conduct — that is, a finding that the violations resulted from systemic process and technology failures rather than from knowing or intentional disregard of legal requirements — supports the Company's position that the violations were inadvertent and that the Company is committed to remediation. This narrative is essential to achieving the most favorable possible resolution.
(c) The knowledge assessment with respect to individual employees will inform whether any employees face personal criminal exposure. If any individual is identified as having had actual knowledge of the Entity List designation or the military end-use concerns and nonetheless facilitated or permitted the shipments, that individual could face personal criminal liability under ECRA, IEEPA, or other applicable statutes. In such a circumstance, the individual's interests may diverge from the Company's interests, necessitating separate legal representation for the individual.
D. OFAC and Sanctions Exposure
The investigation will include a thorough assessment of potential exposure under sanctions programs administered by the Office of Foreign Assets Control. Although the DOJ inquiry is focused on EAR violations, it is essential to determine whether any of the seventeen shipments also implicate OFAC-administered sanctions, as such violations would significantly increase the Company's regulatory exposure and could trigger additional notification and cooperation obligations.
1. Comprehensive Sanctions Screening. The investigation team will screen all PRC end users identified in connection with the seventeen shipments, their known principals (including directors, officers, and significant shareholders), and their known affiliates against the following OFAC-administered lists:
• The Specially Designated Nationals and blocked Persons List ("SDN List");
• The Sectoral Sanctions Identifications List ("SSI List");
• The Non-SDN Chinese Military-Industrial Complex Companies List ("NS-CMIC List");
• The Foreign Sanctions Evaders List; and
• Any other applicable OFAC lists, including the Capta List, the Non-SDN Menu-Based Sanctions List, and any other lists that may be relevant based on the facts developed during the investigation.
Screening will be performed using both the Sentinel commercial platform (to validate the adequacy of the screening tool and to identify any gaps) and OFAC's own online search tool, Sanctions List Search. Screening will be conducted using romanized name variants, Chinese-character name variants, and common transliteration alternatives to ensure that potential matches are not missed due to naming conventions.
2. Specific Entities and Persons to Be Screened. The following entities and individuals will be the primary focus of sanctions screening:
• Zhonghe Microelectronics Co., Ltd., together with its known directors, officers, and shareholders (to the extent their identities can be determined through publicly available corporate filings, commercial databases, and the Company's own records);
• Lansheng Harborline Technologies Technologies Ltd. and its Managing Director, Chen Weiming;
• Archipelago Component Solutions Pte. Ltd., to confirm that the distributor itself is not subject to any sanctions restrictions.
3. Analysis of Applicable Sanctions Programs. The investigation team will assess whether any of the seventeen shipments implicate specific sanctions programs administered by OFAC, including:
• Executive Order 13959 / Executive Order 14032 (NS-CMIC / Chinese Military-Industrial Complex Companies): These executive orders restrict certain investment transactions involving companies identified as Chinese military-industrial complex companies or as operating in specified sectors of the PRC economy. We note that these orders primarily restrict investment transactions rather than exports of goods, and accordingly, the export of ADC chipsets would not ordinarily fall within their scope. Nevertheless, the analysis must be performed to confirm that no aspect of the transactions constitutes a prohibited investment-related activity.
• Hong Kong Autonomy Act / Executive Order 13936: These authorities impose sanctions on persons determined to have materially contributed to the erosion of Hong Kong's autonomy. The investigation will assess whether either end user or any of their principals has any connection to Hong Kong-related sanctions designations.
• Executive Order 13818 (Global Magnitsky) and Uyghur-related sanctions: These authorities impose sanctions on persons involved in human rights abuses or corruption. The investigation will assess whether any entity or person associated with the transactions is subject to designation under these programs.
• General SDN designations: The investigation will assess whether any entity or person associated with the transactions appears on the SDN List under any designation authority.
• Country-based sanctions programs: The investigation will confirm that the PRC is not subject to a comprehensive OFAC sanctions program and that no country-based sanctions program applies to the transactions at issue.
4. Application of the Fifty Percent Rule. The investigation will assess the applicability of OFAC's "50 Percent Rule," as set forth in OFAC's Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are blocked (August 13, 2014). Under this rule, the property and interests in property of an entity that is 50% or more owned, directly or indirectly, by one or more blocked persons are considered blocked, regardless of whether the entity itself appears on the SDN List. The investigation will determine, to the extent practicable, whether either Zhonghe or Lansheng is majority-owned by an entity or person appearing on the NS-CMIC List or any other OFAC list, which would extend blocking requirements to the subsidiary.
5. Separate OFAC Memorandum. Upon completion of the OFAC screening and analysis, the investigation team will prepare a separate privileged memorandum analyzing the Company's OFAC and sanctions exposure, or confirming the absence thereof. The target delivery date for this memorandum is late November 2025. The memorandum will serve as a basis for the Company's assessment of whether any OFAC-related notifications or disclosures are warranted.
6. OFAC Voluntary Self-Disclosure Assessment. The investigation team will evaluate whether a voluntary self-disclosure to OFAC is warranted. Our preliminary assessment, based on the limited information currently available, is that a VSD to OFAC is unlikely to be necessary, as we do not anticipate finding violations of OFAC-administered sanctions. However, this assessment is subject to revision based on the results of the screening and analysis described above.
E. Compliance Program Assessment
A comprehensive assessment of the Company's export compliance program is a critical component of the investigation. This assessment will serve dual purposes: first, it will support the Company's remediation narrative in its engagement with DOJ and BIS, demonstrating that the Company has identified the root causes of the compliance failures and has taken concrete steps to prevent recurrence; and second, it will inform the design of the enhanced compliance program that will likely be required as a condition of any settlement or resolution agreement with the government.
1. Engagement of Independent Compliance Consultant. At C&H's recommendation, Halcyon has retained Ashford Pennington LLC ("Ashford Pennington"), an independent export-controls and sanctions compliance consultancy, to conduct an independent assessment of the Company's export compliance program. Ashford Pennington is led by its Principal Consultant, Dr. Miriam Hecht, who has over twenty-five years of experience in export-control compliance, including prior service as a Deputy Assistant Secretary at BIS. Ashford Pennington is located at 2000 M Street NW, Suite 750, Washington, D.C. 20036. The engagement is effective as of October 22, 2025.
Ashford Pennington's engagement is structured in two phases:
• Phase I (Independent Assessment): A comprehensive assessment of HSAG's and HSI's export compliance program, including policies, procedures, training materials, screening tools and technology, audit history, organizational structure, and management oversight. The Phase I assessment will result in a written report identifying program strengths, deficiencies, and recommendations for enhancement. The Phase I fee is $475,000, fixed.
• Phase II (Implementation Advisory): Following the Phase I assessment, Ashford Pennington will provide advisory services to support the Company's implementation of enhanced compliance measures. Phase II services will be billed on an hourly basis at a rate of $650 per hour, with an estimated total cost of approximately $180,000.
Ashford Pennington's work will be conducted under the direction of C&H and will be protected by the attorney-client privilege and work product doctrine to the extent applicable. The Phase I report will be addressed to C&H and will be clearly marked as privileged.
2. Areas of Compliance Program Assessment. The compliance program assessment, conducted jointly by C&H and Ashford Pennington, will address the following areas:
• Organizational structure of trade compliance functions at HSAG and HSI: This includes an assessment of reporting lines (whether the trade compliance function reports to the legal department, the operations function, or another organizational unit), staffing levels relative to the size and complexity of the Company's export activities, budget adequacy, and the authority of the trade compliance function to stop or delay shipments on compliance grounds.
• Written policies and procedures: A review of the HSAG Global Export Compliance Policy, the HSI U.S. Export Compliance Procedures Manual, and Archipelago's Trade Compliance Standard Operating Procedures (to the extent obtainable under audit rights). The review will assess whether these documents are comprehensive, current, and consistent with applicable regulatory requirements and industry best practices.
• Restricted-party screening methodology: An assessment of the tools, frequency, coverage, and re-screening protocols used by HSAG, HSI, and Archipelago for restricted-party screening, with particular focus on multi-language and multi-script matching capability, which has been identified as a potential root cause of the July 15 and August 3 screening failures.
• Distributor oversight: A review of the contractual compliance obligations imposed on Archipelago and any other authorized distributors, the frequency and scope of compliance audits, and the information-sharing protocols between the Company and its distributors.
• Training: An assessment of the content, frequency, audience, and documentation of trade compliance training provided to HSAG, HSI, and Archipelago personnel.
• Internal audit and monitoring: A review of the frequency and scope of compliance reviews, the escalation procedures for identified issues, and the Company's root-cause analysis capabilities.
• Record-keeping and documentation: An assessment of the Company's practices for retaining screening results, end-user certificates, classification determinations, and other compliance-related records, including compliance with the five-year record-retention requirement under 15 C.F.R. § 762.
• Tone from the top: An assessment of management engagement with the compliance function, including the involvement of senior leadership and the Board of Directors (or Supervisory Board, in the case of HSAG's AG governance structure) in compliance program oversight, resource allocation, and the establishment of a corporate culture that prioritizes compliance.
3. Identification of Remedial Measures. Based on the findings of the compliance program assessment, the investigation team, in coordination with Ashford Pennington, will identify specific remedial measures to be implemented. Based on preliminary findings, we anticipate that the following measures will be among those recommended:
• Dual-screening: HSAG and/or HSI to perform independent restricted-party screening of all transactions in parallel with Archipelago's screening, rather than relying solely on the distributor's screening capability.
• Automated re-screening at every stage of the order-to-shipment cycle: Implementing automated re-screening at order entry, order approval, and ship-confirm stages, to ensure that any change in a customer's regulatory status between order entry and shipment is captured before the products leave the facility.
• Enhanced SLA with Sentinel (or replacement vendor): Negotiating a shorter update window (e.g., within 24 hours of publication) and automated alerts for SLA breaches, or, alternatively, replacing Sentinel with a vendor that provides real-time or near-real-time regulatory list updates.
• Multi-language / multi-script screening matching: Implementing screening technology that can match entity names across different scripts (romanized Latin, simplified Chinese, traditional Chinese, and other relevant scripts) and transliteration conventions.
• Additional trade compliance headcount at HSI: Hiring additional trade compliance personnel at HSI to support the expanded screening, monitoring, and distributor oversight functions.
• Enhanced distributor audit program: Increasing the frequency and depth of compliance audits of Archipelago and other authorized distributors, including on-site audits and reviews of screening technology and processes.
• Real-time Entity List monitoring: Implementing a process for real-time monitoring of changes to the Entity List and other regulatory lists (e.g., through automated Federal Register alerts and direct subscription to BIS notification services), rather than relying solely on periodic retrospective reviews.
The specific remedial measures will be refined as the investigation progresses and as Ashford Pennington's Phase I assessment is completed. The timing of implementation will be coordinated with DOJ to ensure that the remedial measures are in place before any resolution is finalized, consistent with DOJ's expectations.
F. Coordination with Other Advisors
The investigation does not proceed in isolation. Halcyon has engaged multiple advisors in connection with various aspects of the DOJ inquiry and related regulatory, financial, and corporate matters. Effective coordination among these advisors is essential to ensure consistency of approach, efficient use of resources, and protection of applicable privileges. The key advisor relationships are as follows:
1. Braxton Merritt LLP (Lead Partner: Elena Voss; 450 Park Avenue, 31st Floor, New York, NY 10022). Braxton Merritt is Halcyon's long-standing U.S. corporate and securities counsel. In connection with this matter, Braxton Merritt is coordinating with C&H on the assessment of disclosure obligations under SEC Regulation FD and Frankfurt Stock Exchange ad-hoc disclosure rules, including the requirements of Article 17 of the Market Abuse Regulation (EU Regulation No. 596/2014, "MAR"). Braxton Merritt is not staffed on the DOJ inquiry itself and does not have access to the detailed investigation work product. However, Braxton Merritt receives periodic privilege-protected updates from C&H on the general status and trajectory of the investigation to inform its ongoing assessment of disclosure triggers. Coordination with Braxton Merritt will be particularly important as the investigation progresses and as resolution terms become clearer, since a settlement involving significant monetary penalties or operational restrictions could trigger materiality thresholds for disclosure purposes.
2. Kessler Pratt & Whitfield LLP (Lead Partner: Dr. Tobias Engel; Neue Mainzer Strasse 28, 60311 Frankfurt am Main, Germany). KPW is advising Halcyon on parallel German and European Union export-control compliance matters. The transactions at issue — shipments from HSAG's Dresden facility to Singapore — may implicate not only U.S. export-control law (under the EAR's extraterritorial reach and reexport provisions) but also German and EU export-control regulations, including the EU Dual-Use Regulation (Regulation (EU) 2021/821). KPW is assessing whether the shipments required authorization under German or EU law and whether any notifications to Germany's Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, "BAFA") are warranted. In addition, KPW may facilitate the engagement of Singapore counsel for the Archipelago interviews and provide guidance on European data privacy considerations (including GDPR compliance) for cross-border transfers of documents and data from Germany to the United States.
3. Pinnacle Ridgeway Partners (Lead Audit Partner: Graham Sinclair; Paradeplatz 8, 8001 Glenrock Assurance, Switzerland). Pinnacle Ridgeway is HSAG's independent auditor. Pinnacle Ridgeway has been informed of the DOJ inquiry in connection with its assessment of potential contingency disclosures in HSAG's FY 2025 financial statements. Under IAS 37 (Provisions, Contingent Liabilities, and Contingent Assets), HSAG may be required to recognize a provision or disclose a contingent liability if the investigation results in a probable outflow of economic benefits that can be reliably estimated. Coordination with Pinnacle Ridgeway will be ongoing throughout the investigation and will intensify as the potential financial exposure becomes more defined and as resolution terms take shape.
4. Lodestar National Bank (Relationship Manager: Danielle Osborne; 401 South Tryon Street, Charlotte, NC 28202). Lodestar National Bank is HSI's primary U.S. commercial bank and holds HSI's principal operating accounts. Lodestar also provides HSI with a $300 million revolving credit facility under a credit agreement that contains, among other covenants, a compliance-with-law covenant and a material-litigation notice requirement. As discussed in Section VIII below, a material-litigation notice under Section 6.02(b) of the Credit Agreement will need to be delivered to Lodestar promptly, with a target delivery date of November 1, 2025.
IV. DOCUMENT COLLECTION AND REVIEW
A. Data Sources
The investigation will draw on the following primary data sources. Additional sources may be identified as the investigation progresses, and the investigation team reserves the right to expand the data collection as warranted.
1. HSAG SAP GTS (Global Trade Services) System. The SAP GTS system is HSAG's primary trade management platform and contains all transaction records for controlled products, including products classified under ECCN 3A001. The investigation team will collect all transaction records for ECCN 3A001 products shipped to PRC destinations for the period January 2023 to present. This expanded collection period (extending twelve months before the earliest identified shipment) is intended to provide baseline data on the Company's PRC export activity and to capture any additional transactions that may warrant review. The SAP GTS system contains export classification data, restricted-party screening logs, end-user information, end-use data, shipment records, license determinations, and approval workflows. This system is expected to constitute the bulk of the structured data for the investigation, with an estimated data volume of approximately 1.2 terabytes.
2. HSI Quillon Data Systems. HSI uses Pinnacle Health IT as its customer relationship management platform. The investigation team will collect customer account records for both Zhonghe Microelectronics and Lansheng Harborline Technologies Technologies, including account onboarding records, contact information, order history, correspondence logs, meeting notes, and any due diligence records generated during the customer qualification process. The Pinnacle Health IT data will provide important context for the knowledge and intent assessment, as it may reveal the extent of due diligence performed on the PRC end users and any contemporaneous awareness of their activities or affiliations.
3. HSAG and HSI Email Systems (Strathmore Data Systems / M365). The investigation team will collect targeted custodian email collections from the following initial custodians:
• Ryan Oshiro (HSI)
• Janet Liang (HSI)
• Pamela Neuhaus (HSI)
• Annika Brauer (HSAG)
• Additional custodians to be identified during the initial review phase
The collection period for email data will be January 1, 2024 to the present, with the potential for expansion to January 1, 2023 for baseline compliance documentation and for any communications that may be relevant to the early history of the Zhonghe and Lansheng customer relationships. In addition to email, the collection will include Northgate Data Systems messages, calendar entries, and any files stored in Cobalt Ridge Systems or Aldermere Systems that are associated with the identified custodians and relevant to the investigation.
4. Archipelago Component Solutions Pte. Ltd. Records. Records from Archipelago will be obtained under Halcyon's contractual audit rights in the Authorized Distributor Agreement (dated April 1, 2021, as amended through Amendment No. 3, effective September 1, 2024). The records to be obtained include: order management system logs (including order