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ofac-sanctions-exposure-memo.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP 1251 Avenue of the Americas, 44th Floor New York, New York 10020

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Howard Quinn, General Counsel, Halcyon Semiconductor Inc. Conrad Ashby, Deputy General Counsel — Regulatory, Halcyon Semiconductor Inc.

FROM: Steven Hollander, Partner, Calderwood & Harkness LLP Liam Donahue, Counsel, Calderwood & Harkness LLP

DATE: November 22, 2025

RE: OFAC and Sanctions Exposure Analysis — Halcyon Semiconductor AG / Halcyon Semiconductor Inc. (DOJ NSD-CES-2025-04871)

I. Executive Summary

This memorandum analyzes whether the seventeen shipments of HCA-9100 series analog-to-digital converter ("ADC") chipsets (classified under Export Control Classification Number ("ECCN") 3A001) that are the subject of the ongoing inquiry by the U.S. Department of Justice, National Security Division, Counterintelligence and Export Control Section ("DOJ NSD/CES") (Reference No. NSD-CES-2025-04871) implicate any sanctions programs administered by the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury. This analysis was undertaken at the direction of Halcyon Semiconductor Inc. ("HSI" or the "Company") and its parent, Halcyon Semiconductor AG ("HSAG," and together with HSI, "Halcyon" or the "Company"), to ensure that the Company's compliance review in connection with the DOJ inquiry is comprehensive and that all relevant U.S. regulatory regimes have been evaluated.

Our conclusion is that no OFAC violations have occurred and that the Company's OFAC exposure is negligible. We reach this conclusion on the basis of the following principal findings:

First, none of the PRC end users — Zhonghe Microelectronics Co., Ltd. ("Zhonghe") or Lansheng Harborline Technologies Technologies Ltd. ("Lansheng") — their known principals, directors, officers, or known affiliates appear on the OFAC Specially Designated Nationals and blocked Persons List (the "SDN List"), the Sectoral Sanctions Identifications List (the "SSI List"), the Non-SDN Chinese Military-Industrial Complex Companies List (the "NS-CMIC List"), or any other OFAC-maintained restricted-party list. Comprehensive screening was performed using both a leading commercial restricted-party screening platform (Sentinel Compliance Data Services Ltd.) and OFAC's own publicly available online SDN Search Tool, with searches conducted in both romanized English and simplified Chinese character variants.

Second, the shipments do not implicate any OFAC-administered country-based sanctions program. The People's Republic of China ("PRC") is not subject to a comprehensive OFAC sanctions program. The mere exportation or re-exportation of goods to end users located in the PRC does not, standing alone, constitute a violation of OFAC-administered sanctions.

Third, no referral from DOJ to OFAC has been made or is contemplated. In discussions with Assistant U.S. Attorney Adrienne Kolb of DOJ NSD/CES — both during the initial conference call on October 14, 2025 and in a follow-up call on November 12, 2025 — AUSA Kolb confirmed that the DOJ inquiry is limited to potential violations of the Export Administration Regulations ("EAR") and that DOJ has not identified any OFAC nexus warranting a referral.

It is important to note at the outset that the OFAC-administered sanctions regime and the BIS-administered Export Administration Regulations at issue in the DOJ inquiry are legally and administratively distinct regulatory frameworks. The DOJ inquiry (Reference No. NSD-CES-2025-04871) focuses on potential violations of the EAR — specifically, the Entity List restrictions under 15 C.F.R. § 744.11 and the military end-use provisions under EAR § 744.21 — both of which are administered by the Bureau of Industry and Security ("BIS") of the U.S. Department of Commerce. This memorandum does not address the EAR analysis, which is being handled through separate channels, including the voluntary self-disclosure ("VSD") filed with the BIS Office of Export Enforcement ("OEE") on November 4, 2025 (Reference No. OEE-VSD-2025-00319) and the Company's ongoing cooperation with DOJ NSD/CES. This memorandum addresses OFAC exclusively.

We do not recommend filing a voluntary self-disclosure with OFAC. We do recommend certain prophylactic measures, described in Section X, to mitigate residual risk and strengthen the Company's compliance posture going forward.

II. Factual Background

For purposes of this OFAC analysis, we set forth the following summary of the relevant facts. A more detailed recitation of the underlying facts appears in the separate Calderwood & Harkness memorandum regarding EAR exposure dated November 8, 2025 and in the VSD filed with BIS/OEE. The factual summary below is limited to those facts bearing on the OFAC analysis.

Products at Issue. The products at issue are the HCA-9100 series ADC chipsets, designed and manufactured by HSAG. These chipsets are classified under ECCN 3A001 on the Commerce Control List. The HCA-9100 series features sampling rates exceeding 3.6 gigasamples per second ("Gsps") and is designed for high-performance signal-processing applications, including military and dual-use applications such as radar signal acquisition, electronic warfare receivers, and communications intelligence systems, as well as commercial applications including broadband telecommunications infrastructure and scientific instrumentation.

Shipment Count and Routing. The DOJ inquiry covers seventeen total shipments of HCA-9100 series chipsets. All seventeen shipments originated from HSAG's fabrication facility located at Semperstrasse 15, 01069 Dresden, Germany. From the Dresden facility, the chipsets were shipped to Archipelago Component Solutions Pte. Ltd. ("Archipelago"), a Singapore-incorporated distributor located at 18 Boon Lay Way, #07-142, TradeHub 21, Singapore 609966. Archipelago then arranged final delivery to two PRC-based end users.

End Users. The two PRC-based end users that received the HCA-9100 series chipsets via Archipelago are as follows:

Zhonghe Microelectronics Co., Ltd. (中和微电子有限公司), located at 12/F, Nanshan Digital Tower, Keji South Road, Nanshan District, Shenzhen 518057, PRC. Zhonghe received eleven of the seventeen shipments, with an aggregate value of approximately $4.41 million (an average of approximately $401,000 per shipment).

Lansheng Harborline Technologies Technologies Ltd. (蓝盛信号科技有限公司), located at Block C, Tianfu Software Park, No. 599 Shijicheng South Road, Chengdu 610041, PRC. Lansheng received the remaining six shipments, with an aggregate value of approximately $2.42 million (an average of approximately $403,000 per shipment).

Total Aggregate Value. The total aggregate value of the seventeen shipments across both end users is approximately $6.83 million ($4.41 million to Zhonghe plus $2.42 million to Lansheng).

Shipment Period. The seventeen shipments occurred over a period of approximately seventeen months, from March 12, 2024 through August 19, 2025.

Distributor. Archipelago Component Solutions Pte. Ltd. was incorporated in Singapore in 2016. Its Managing Director is Rajiv Sundaram. Archipelago has served as HSAG's authorized distribution partner for various product lines in the Asia-Pacific region since 2018. Archipelago's role as a transshipment intermediary is central to the EAR analysis — particularly with respect to whether the transshipment through Singapore constituted a re-export requiring authorization — but is relevant to the OFAC analysis only to the extent that Archipelago itself or its principals might appear on an OFAC list. As discussed in Section V, Archipelago does not appear on any OFAC list.

Zhonghe Entity List Status. Zhonghe Microelectronics Co., Ltd. was added to the BIS Entity List (Supplement No. 4 to Part 744 of the EAR) on June 14, 2025, effective upon publication in the Federal Register. Three of the eleven Zhonghe shipments occurred after Zhonghe's Entity List designation: specifically, shipments dated June 27, 2025, July 15, 2025, and August 3, 2025. These three post-listing shipments constitute the primary EAR violations under 15 C.F.R. § 744.11 that are the focus of the DOJ inquiry and the BIS VSD. The remaining eight Zhonghe shipments occurred prior to Entity List designation and are subject to a separate analysis under the EAR's general licensing requirements for ECCN 3A001 items destined for the PRC.

Lansheng Status. Lansheng Harborline Technologies Technologies Ltd. is not currently listed on the BIS Entity List, the Unverified List, the Denied Persons List, or any other BIS restricted-party list. DOJ's theory regarding Lansheng is based on the EAR's military end-use provisions at § 744.21, supported by classified intelligence that DOJ contends suggests Lansheng may operate as a procurement front for a PRC defense research institute affiliated with the People's Liberation Army. The Managing Director of Lansheng is Chen Weiming (陈伟明). The details of DOJ's military end-use theory are addressed in separate Calderwood & Harkness memoranda and are not the subject of this OFAC analysis.

Scope of This Memorandum. The EAR violations and potential violations described above are being addressed separately through the VSD filed with BIS/OEE on November 4, 2025 (Reference No. OEE-VSD-2025-00319) and through the Company's ongoing cooperation with DOJ NSD/CES under the direction of this firm. This memorandum is limited exclusively to the analysis of whether any OFAC-administered sanctions program has been implicated by the seventeen shipments described above.

III. Analytical Framework — Distinction Between BIS/EAR and OFAC Regimes

A proper understanding of the Company's regulatory exposure requires a clear appreciation of the distinction between the two principal U.S. regulatory frameworks governing international trade in controlled goods: the Export Administration Regulations administered by BIS, on the one hand, and the economic sanctions programs administered by OFAC, on the other.

OFAC-Administered Sanctions. OFAC administers and enforces a broad array of U.S. economic sanctions programs targeting specific foreign countries and regimes, entities, and individuals. OFAC derives its authority from a number of statutory and executive-order sources, including, most prominently, the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. §§ 1701–1707, and the Trading with the Enemy Act ("TWEA"), 50 U.S.C. §§ 4301–4341. Under these authorities, the President has declared national emergencies with respect to various foreign threats and has authorized OFAC to impose prohibitions on transactions involving specified countries, regimes, and persons. OFAC's sanctions programs are codified principally in Title 31, Chapter V, of the Code of Federal Regulations (31 C.F.R. Parts 500–599). The operative focus of OFAC sanctions is on persons — whether the counterparty, beneficial owner, or other participant in a transaction is a sanctioned person (e.g., an SDN) or whether the transaction has a nexus to a comprehensively sanctioned country.

BIS-Administered EAR. By contrast, the Export Administration Regulations, codified at 15 C.F.R. Parts 730–774, are administered by BIS, a bureau within the U.S. Department of Commerce. The EAR regulate the export, re-export, and in-country transfer of items (commodities, software, and technology) that are either listed on the Commerce Control List ("CCL") under a specific ECCN or that are subject to the EAR as EAR99 items. The EAR's restrictions are principally item-based and destination/end-user-based: the classification of the item (its ECCN), the destination country, the identity of the end user (including whether the end user appears on BIS restricted-party lists such as the Entity List, Denied Persons List, or Unverified List), and the end use of the item all determine whether a license is required for a given transaction.

Key Distinction. The fundamental difference between the two regimes lies in their respective operative triggers. OFAC sanctions are triggered by the identity of the counterparty (is the person an SDN or otherwise sanctioned?) or the destination country (is the country subject to comprehensive sanctions?). The EAR's restrictions are triggered by the classification of the item being exported (what is the ECCN?) and the end-use/end-user restrictions applicable to the destination. While both regimes can apply to the same transaction — and a single shipment could theoretically violate both the EAR and OFAC sanctions simultaneously — they are administered by different agencies, enforced under different statutory authorities, and analyzed under different frameworks.

Potential Overlap. The two regimes are distinct, though potentially overlapping. A single transaction could violate both the EAR (if it involves a controlled item shipped to a restricted party or end use without required authorization) and OFAC sanctions (if the transaction involves an SDN or a comprehensively sanctioned country or regime). For example, a shipment of ECCN-controlled items to an entity in Iran would implicate both the EAR's Iran-related restrictions and OFAC's comprehensive Iran sanctions program. The analysis in this memorandum addresses whether any such overlap exists with respect to the seventeen shipments at issue.

OFAC Enforcement Standards. OFAC violations carry strict liability; that is, a transaction involving an SDN or a comprehensively sanctioned country may constitute a violation regardless of whether the transacting party had knowledge of the sanctioned status of the counterparty or the destination. However, OFAC exercises significant enforcement discretion. The OFAC Economic Sanctions Enforcement Guidelines, set forth at 31 C.F.R. Part 501, Appendix A, identify a range of mitigating and aggravating factors that OFAC considers in determining the appropriate enforcement response. Mitigating factors include, among others, the existence and adequacy of a risk-based sanctions compliance program, the filing of a voluntary self-disclosure, the quality and timeliness of internal screening procedures, the level of awareness of the conduct at issue, and the degree of cooperation with OFAC. These enforcement standards are relevant to the residual-risk assessment set forth in Section VIII of this memorandum.

IV. OFAC-Administered Programs Relevant to PRC Transactions

This section identifies and analyzes each OFAC-administered sanctions program that could potentially bear on transactions involving PRC-based counterparties and evaluates whether any such program is implicated by the seventeen shipments at issue. We have reviewed all current OFAC-administered programs and identified the following as potentially relevant (or, in some cases, facially relevant but ultimately inapplicable on the facts of this matter).

A. Executive Order 13959 (as Amended by E.O. 14032) — Chinese Military-Industrial Complex Companies

Executive Order 13959, signed on November 12, 2020, and subsequently amended and superseded in relevant part by Executive Order 14032, signed on June 3, 2021, addresses the threat posed by the military-industrial complex of the PRC. Under these authorities, U.S. persons are prohibited from engaging in certain transactions involving publicly traded securities (or securities that are derivative of, or designed to provide investment exposure to, such securities) of entities identified as Chinese Military-Industrial Complex Companies ("CMICs"). OFAC maintains the Non-SDN Chinese Military-Industrial Complex Companies List (the "NS-CMIC List"), which identifies the entities subject to these prohibitions.

It is critical to note that the prohibitions under E.O. 13959/14032 are narrowly tailored to securities transactions — specifically, the purchase or sale of publicly traded securities, or any securities designed to provide investment exposure to such securities. These prohibitions do not extend to the sale, export, or re-export of goods, including semiconductor components, to NS-CMIC-listed entities. Even if a PRC end user appeared on the NS-CMIC List, the prohibition would apply to investments in that entity's securities, not to the sale or shipment of semiconductor chipsets to that entity. Accordingly, even in a hypothetical scenario where Zhonghe or Lansheng appeared on the NS-CMIC List, the seventeen shipments of HCA-9100 series chipsets would not, by virtue of NS-CMIC listing alone, constitute OFAC violations.

Nevertheless, an NS-CMIC listing would serve as a significant risk indicator warranting enhanced due diligence regarding the counterparty. An entity's designation on the NS-CMIC List reflects a U.S. government determination that the entity is connected to the PRC's military-industrial complex, which could correlate with military end-use concerns under the EAR and could signal the potential for future SDN designation.

As detailed in Section V below, neither Zhonghe nor Lansheng appears on the NS-CMIC List. Additionally, neither entity's known shareholders, principals, or affiliates appear on the NS-CMIC List. The 50 Percent Rule analysis for NS-CMIC purposes is addressed separately in Section VI.

B. Hong Kong Autonomy Act and Executive Order 13936

The Hong Kong Autonomy Act, Pub. L. No. 116-149, and Executive Order 13936, signed on July 14, 2020, address the situation in Hong Kong and target persons determined to be responsible for, or complicit in, actions or policies that undermine Hong Kong's autonomy, democratic processes, or freedoms. Under these authorities, OFAC may designate individuals and entities as SDNs, and the Secretary of the Treasury may impose correspondent-account and payable-through-account restrictions on foreign financial institutions that knowingly conduct significant transactions with such designated persons.

This program is not relevant to the instant analysis. Neither of the two PRC end users — Zhonghe, based in Shenzhen, and Lansheng, based in Chengdu — has any identified connection to Hong Kong or to the Hong Kong autonomy context. Neither entity operates in Hong Kong, maintains offices or subsidiaries in Hong Kong, or has any known principals with Hong Kong-related designations. There is no factual basis to investigate this nexus further, and we have found no information in the due diligence materials or public sources suggesting any such connection.

C. Uyghur-Related Sanctions (E.O. 13818 — Global Magnitsky Act Designations)

Under Executive Order 13818, signed on December 20, 2017, implementing the Global Magnitsky Human Rights Accountability Act, OFAC has the authority to designate and impose sanctions on foreign persons determined to be responsible for or complicit in serious human rights abuse or corruption. OFAC has used this authority to designate a number of PRC officials and entities in connection with human rights abuses in the Xinjiang Uyghur Autonomous Region, including officials of the Xinjiang Public Security Bureau and entities involved in mass surveillance and detention operations.

There is no connection between the facts of this matter and Uyghur-related sanctions designations. Neither Zhonghe nor Lansheng operates in the Xinjiang Uyghur Autonomous Region. Zhonghe is headquartered in Shenzhen (Guangdong Province), and Lansheng is headquartered in Chengdu (Sichuan Province). Neither entity has any identified connection to the Xinjiang region, and no information obtained through the due diligence investigation or the DOJ inquiry suggests any such connection. Accordingly, the Global Magnitsky sanctions designations related to Uyghur issues are inapplicable.

D. Country-Based Comprehensive Sanctions Programs

OFAC administers comprehensive sanctions programs with respect to a number of countries and regions, including Iran, North Korea, Cuba, Syria, and the Crimea, Donetsk People's Republic, and Luhansk People's Republic regions of Ukraine, among others. Under comprehensive sanctions programs, virtually all transactions involving the sanctioned country or its government are prohibited absent specific authorization from OFAC (either through a general license or a specific license).

The People's Republic of China is NOT subject to a comprehensive OFAC sanctions program. There is no country-based OFAC program that broadly prohibits U.S. persons from engaging in transactions with PRC-based counterparties. The United States maintains extensive trade and investment relationships with PRC entities, and the mere exportation or re-exportation of goods — including controlled goods — to end users located in the PRC does not, by itself, constitute a violation of any OFAC-administered sanctions program.

Accordingly, the seventeen shipments of HCA-9100 series chipsets to Zhonghe and Lansheng in the PRC do not fall within any country-based OFAC prohibition. To the extent that the shipments raise regulatory concerns, those concerns arise under the EAR (a BIS-administered regime), not under OFAC-administered country-based sanctions.

E. General SDN List Designations

Independent of the program-specific authorities discussed above, OFAC maintains the SDN List, which identifies individuals and entities designated under various sanctions authorities. All property and interests in property of SDNs that are in the United States, or that come within the United States, or that are or come within the possession or control of any U.S. person, are blocked. U.S. persons are generally prohibited from engaging in any transactions or dealings with SDNs. The SDN List includes designees under a wide range of sanctions programs, including those targeting narcotics trafficking, terrorism, weapons of mass destruction proliferation, cyber-related activities, and other threats to U.S. national security or foreign policy.

OFAC has designated certain PRC persons and entities as SDNs under various authorities. If any end user, beneficial owner, or principal involved in the seventeen shipments were an SDN, the shipments could constitute blocking violations under the applicable sanctions program, and the Company could face significant enforcement liability.

Comprehensive screening of all relevant entities and individuals against the SDN List was performed, as detailed in Section V below. No matches were identified.

F. Sectoral Sanctions Identifications List (SSI List)

The SSI List identifies persons subject to specific, limited sanctions — known as sectoral sanctions — under various executive orders. The SSI List is most closely associated with the Russia/Ukraine-related sanctions program under Executive Order 13662, which imposes restrictions on certain transactions (including debt and equity dealings) involving entities in specified sectors of the Russian economy (financial services, energy, metals and mining, defense and related materiel). The SSI List also includes designees under certain Venezuelan and other sanctions programs.

The SSI List has limited relevance to PRC transactions, as the sectoral sanctions programs are directed at Russian, Venezuelan, and other non-PRC sectors. Nevertheless, we included the SSI List in our screening protocol for completeness, recognizing that certain PRC entities with connections to Russian or other sanctioned-sector operations could theoretically appear on the SSI List. As detailed in Section V, no matches were identified.

V. Screening Results

A. Methodology

Screening of all relevant entities and individuals was performed using two independent sources to ensure reliability and comprehensiveness:

1. Sentinel Compliance Data Services Ltd. (Edinburgh, UK). Sentinel is HSAG's and Archipelago's commercial restricted-party screening platform, used for transactional screening in the ordinary course of business. Sentinel's database encompasses all OFAC-maintained lists, including the SDN List, the SSI List, the NS-CMIC List, the Foreign Sanctions Evaders List, the Capta List (formerly the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions), and the Non-SDN Menu-Based Sanctions List. Sentinel's database also includes BIS-administered lists (Entity List, Denied Persons List, Unverified List), as well as other global sanctions lists including those maintained by the European Union, the United Kingdom (OFSI), the United Nations Security Council, and other jurisdictions. Sentinel employs fuzzy-matching algorithms designed to capture transliteration variants, aliases, and alternative name spellings.

2. OFAC's Own Online SDN Search Tool (sanctionssearch.ofac.treas.gov). This is the publicly available, government-maintained search tool provided by OFAC. It permits searching the consolidated sanctions list, including all SDN entries, and allows for name-based and ID-based searching. We used this tool as a direct government-source verification check against the Sentinel results.

Both romanized (English) and Chinese-character (simplified Chinese) name variants were searched for all PRC-based entities and individuals, including common transliteration alternatives. For entities, we searched the full legal name, abbreviated trade names, and known aliases. For individuals, we searched variant Pinyin spellings (including common alternative romanizations), and where applicable, Cantonese romanizations. The search parameters on both platforms were configured with minimum matching thresholds calibrated to maximize sensitivity (i.e., to capture potential matches even where the name string was not identical, including partial matches and phonetic equivalents).

All screening was performed as of November 20, 2025, using the most current versions of the applicable OFAC lists available on that date.

B. Entity Screening Results

The following table summarizes the results of entity-level screening against all OFAC-maintained lists:

For each entity, searches were conducted using the full legal name in English, the registered Chinese-character name (for PRC entities), common abbreviations and trade names, and variant transliterations. No matches or potential matches requiring further investigation were returned from either Sentinel or the OFAC SDN Search Tool.

C. Individual Screening Results

The following table summarizes the results of individual-level screening of all known principals, directors, and officers of the PRC end users and the Singapore-based distributor against all OFAC-maintained lists:

Zhonghe's known directors and officers — Zhang Haifeng (Chairman), Li Wenxiu (CEO), and Wang Peng (CFO) — were identified using PRC corporate registry data (specifically, the National Enterprise Credit Information Publicity System maintained by the State Administration for Market Regulation) obtained through the due diligence network of Kessler Pratt & Whitfield LLP, our German/EU regulatory counsel, working through their Asia-Pacific correspondent, Dr. Tobias Engel. Lansheng's sole known principal, Chen Weiming, was identified through the same corporate registry sources and through documentation provided in connection with the DOJ inquiry.

Note on Common-Name Risk. Several of the individuals screened bear extremely common Chinese names. "Chen Weiming" (陈伟明), "Zhang Haifeng" (张海峰), and "Wang Peng" (王鹏) are among the most frequently occurring name combinations in the PRC. The OFAC SDN List contains entries for individuals with similar or identical romanized names. Accordingly, for each potential SDN name match returned by the screening tools, we performed a detailed secondary analysis using all available distinguishing data — including dates of birth, addresses, passport or national identification numbers, known aliases, and contextual information regarding the sanctioned individual's activities and affiliations. In every instance, we were able to confirm that the SDN entry with the similar name corresponded to a different individual and did not correspond to any of the principals associated with Zhonghe, Lansheng, or Archipelago. We have documented this secondary analysis in a separate screening-results workbook maintained in the engagement file.

VI. NS-CMIC 50 Percent Rule Analysis

Under OFAC's published guidance, the prohibitions applicable to NS-CMIC-listed entities extend to entities that are 50% or more owned, individually or in the aggregate, by one or more NS-CMIC-listed persons. This principle — commonly referred to as the "50 Percent Rule" — is consistent with OFAC's general ownership guidance set forth at 31 C.F.R. § 501.807 and in OFAC's Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are blocked (August 13, 2014, as revised). Under the 50 Percent Rule, even if an entity does not itself appear on the NS-CMIC List (or any other OFAC list), the OFAC prohibitions applicable to NS-CMIC-listed entities would extend to that entity if it is 50% or more owned, directly or indirectly, by one or more NS-CMIC-listed persons.

Although neither Zhonghe nor Lansheng appears directly on the NS-CMIC List, as confirmed by the screening results in Section V, an OFAC concern could theoretically arise if either entity were majority-owned by an NS-CMIC-listed entity or person. We therefore analyzed the ownership structures of both end users using available corporate registry data.

Zhonghe Microelectronics Co., Ltd. Based on PRC corporate registry data obtained through Kessler Pratt & Whitfield LLP's due diligence network, Zhonghe's ownership structure is as follows: Zhang Haifeng (individual, Chairman) holds a 65% equity interest, and Qianhai Venture Capital Partners (前海创投合伙企业), a Shenzhen-based venture capital fund, holds the remaining 35% equity interest. Neither Zhang Haifeng nor Qianhai Venture Capital Partners appears on any OFAC list, including the NS-CMIC List. We are not aware of any NS-CMIC-listed entity or person holding a direct or indirect ownership interest in Zhonghe. Accordingly, no NS-CMIC ownership nexus has been identified with respect to Zhonghe.

Lansheng Harborline Technologies Technologies Ltd. Based on PRC corporate registry data, Lansheng is 100% owned by Chen Weiming (individual, Managing Director). Chen Weiming does not appear on any OFAC list, including the NS-CMIC List. We are not aware of any NS-CMIC-listed entity or person holding a direct or indirect ownership interest in Lansheng. Accordingly, no NS-CMIC ownership nexus has been identified with respect to Lansheng.

We note that PRC corporate registry data, while generally reliable for identifying registered shareholders, may not capture all beneficial ownership interests, particularly in cases involving nominee shareholders, trust arrangements, or complex multi-layered corporate structures. The limitations of publicly available ownership data are addressed in the residual-risk assessment in Section VIII.B below.

Conclusion: The 50 Percent Rule does not create OFAC exposure for either end user based on available ownership data. Neither Zhonghe nor Lansheng is 50% or more owned, individually or in the aggregate, by any NS-CMIC-listed person.

VII. DOJ Position on OFAC

During the course of the Company's engagement with DOJ NSD/CES, we have specifically addressed the question of OFAC involvement with the responsible prosecutors. Their position has been consistent and clear:

October 14, 2025 Initial Conference Call. During the initial conference call with AUSA Adrienne Kolb and Trial Attorney Jonathan Weir of DOJ NSD/CES, Kolb confirmed that the DOJ inquiry under Reference No. NSD-CES-2025-04871 is limited to potential violations of the Export Administration Regulations administered by BIS. In response to a direct inquiry from this firm regarding whether DOJ had identified any OFAC nexus or contemplated any referral to OFAC, AUSA Kolb stated that DOJ had not made and did not contemplate making a referral to OFAC in connection with this matter.

November 12, 2025 Follow-Up Call. In a follow-up telephone conference on November 12, 2025, during which we discussed the status of the Company's cooperation and the VSD filing, AUSA Kolb reiterated her prior position. She stated that DOJ's review of the facts underlying the inquiry — including the identities of the end users, the routing of the shipments, and the nature of the products — did not identify any OFAC nexus. She confirmed that the matter remained exclusively within the EAR/BIS enforcement framework.

The DOJ position is fully consistent with our own independent analysis. The conduct at issue involves potential EAR Entity List restrictions (15 C.F.R. § 744.11) with respect to the three post-listing Zhonghe shipments, and potentially the EAR's military end-use provisions (EAR § 744.21) with respect to the Lansheng shipments. Both of these regulatory authorities are administered by BIS, not OFAC. The transactions do not involve SDNs, blocked persons, or comprehensively sanctioned jurisdictions that would bring them within OFAC's enforcement jurisdiction. Accordingly, DOJ's decision not to make an OFAC referral is appropriate and expected given the facts of the matter.

We note, however, that DOJ's position, while informative and reassuring, does not bind OFAC. OFAC has independent enforcement authority and could theoretically initiate its own investigation if it identified a sanctions nexus. The likelihood of such an independent OFAC action is assessed in Section VIII.D below.

VIII. Residual Risk Assessment

While our analysis concludes that no OFAC violation has occurred and that current OFAC exposure is negligible, we address below certain residual risks that the Company should be aware of, along with our assessment of the likelihood and significance of each.

A. Future OFAC Designation of End Users

Risk Level: Low.

It is possible that Zhonghe, Lansheng, or their principals could be designated as SDNs, added to the NS-CMIC List, or otherwise listed on an OFAC-administered restricted-party list in the future. This risk is marginally elevated for Lansheng, given DOJ's intelligence-based theory that Lansheng may function as a procurement front for a PRC defense research institute. Entities with connections to the PRC's military-industrial complex are more likely candidates for future NS-CMIC or SDN designation, particularly in the current geopolitical environment in which the United States has been progressively expanding its PRC-related designations.

However, future OFAC designations would not create retroactive liability for past transactions. OFAC sanctions are prospective in application: they prohibit transactions after designation. Prior completed transactions do not become violations simply because a counterparty is later designated. The one exception relates to blocking obligations: if property of a designated person comes within the possession or control of a U.S. person after designation, the U.S. person must block that property. Here, the shipments have been completed, title has passed, and no property of the end users is in the Company's possession or control. Accordingly, even if Zhonghe or Lansheng were designated in the future, the past shipments would not constitute OFAC violations.

Recommendation: The Company should implement continuous monitoring of OFAC designation actions, including all updates to the SDN List and the NS-CMIC List, for any future listings of Zhonghe, Lansheng, their known principals (including Chen Weiming, Zhang Haifeng, Li Wenxiu, and Wang Peng), Qianhai Venture Capital Partners, or any related entities. This monitoring should be automated through the Company's restricted-party screening platform and should be reviewed by the compliance function within 24 hours of any OFAC list update.

B. Undisclosed Beneficial Ownership

Risk Level: Low.

As noted in Section VI, OFAC screening is inherently limited to publicly available and commercially obtainable ownership data. PRC corporate registry data identifies registered shareholders but may not capture all beneficial ownership interests. If Zhonghe or Lansheng has undisclosed beneficial owners who are SDNs or NS-CMIC-listed persons, a technical OFAC violation could theoretically exist. This risk is inherent in any transaction involving PRC counterparties, given the opacity of certain PRC ownership structures and the prevalence of nominee and layered holding arrangements.

However, OFAC enforcement guidance explicitly recognizes the limitations of commercially available ownership data and considers the adequacy of a company's compliance procedures when exercising enforcement discretion. The OFAC Economic Sanctions Enforcement Guidelines (31 C.F.R. Part 501, Appendix A) identify the existence and quality of a sanctions compliance program as a significant mitigating factor. Here, the Company performed restricted-party screening at customer onboarding using a commercially reasonable screening tool (Sentinel), and, through this investigation, performed enhanced screening using multiple sources (both Sentinel and OFAC's own SDN Search Tool) and multiple language variants (romanized English and simplified Chinese characters). This level of diligence exceeds the screening practices of many peer companies in the semiconductor industry.

The risk of an OFAC enforcement action predicated on undisclosed beneficial ownership — where the Company performed commercially reasonable screening and had no actual knowledge of any sanctioned-person nexus — is negligible. OFAC would be highly unlikely to pursue an enforcement action on such facts, and even in a worst-case scenario, the existence of reasonable screening procedures would constitute a strong mitigating factor counseling in favor of a no-action determination, a cautionary letter, or a Finding of Violation (i.e., non-monetary resolution) rather than a civil monetary penalty.

C. Military End-Use Nexus — Distinction from OFAC Authority

Risk Level: Negligible (from an OFAC perspective).

As discussed in Section III above, the EAR's military end-use restrictions (EAR § 744.21) and the OFAC-administered sanctions programs are distinct regulatory frameworks with different operative triggers. DOJ's military end-use theory regarding Lansheng — even if ultimately proven — would constitute a violation of the EAR, not a violation of OFAC-administered sanctions.

There is no OFAC prohibition on the sale of goods, including semiconductor components, to military end users in the PRC absent an independent OFAC nexus such as an SDN designation, an NS-CMIC designation, or a transaction involving a comprehensively sanctioned country. The military end-use restriction is a creature of the EAR, administered by BIS, and its violation is enforceable by BIS and DOJ under the export-control enforcement authorities. It does not independently trigger OFAC liability.

Accordingly, even in the scenario where DOJ establishes that the Lansheng shipments violated EAR § 744.21 because Lansheng is a procurement front for a PRC defense research institute, this finding would not independently create OFAC exposure. OFAC exposure would arise only if the defense research institute (or its principals) were designated on an OFAC list — a possibility that is addressed in Section VIII.A above as a future-designation risk.

D. Potential for Parallel OFAC Enforcement

Risk Level: Negligible.

OFAC has independent enforcement jurisdiction and could theoretically open an investigation at any time if it identified sanctioned-person involvement in the transactions at issue. OFAC is not dependent on a DOJ referral to initiate an investigation; OFAC monitors trade data, financial transactions, and open-source intelligence independently, and receives tips and referrals from range sources including financial institutions, other government agencies, and private parties.

However, based on the totality of the information available to us, we assess the risk of an independent OFAC enforcement action as negligible. Our screening results confirm that none of the relevant entities or individuals appear on any OFAC list. DOJ, which has access to classified intelligence regarding Lansheng, has confirmed that it has not identified any OFAC nexus and does not contemplate an OFAC referral. There is no publicly available information suggesting that Zhonghe, Lansheng, or their principals have connections to SDNs or other OFAC-designated persons.

We also note that the Company's concern about potential OFAC implications — specifically, whether the PRC end users or their principals had connections to Specially Designated Nationals — has been thoroughly investigated through the screening and analysis described in this memorandum and determined to be unfounded. None of the PRC end users, their directors, officers, or known shareholders appear on the OFAC SDN List, the SSI List, the NS-CMIC List, or any other OFAC-maintained restricted-party list.

IX. Recommendation: No OFAC Voluntary Self-Disclosure

Based on the analysis set forth in this memorandum, we do not recommend filing a voluntary self-disclosure with OFAC.

An OFAC voluntary self-disclosure is appropriate only where there is a reasonable basis to believe that an apparent violation of OFAC-administered sanctions has occurred. OFAC's VSD process, described in 31 C.F.R. § 501.604 and the OFAC Economic Sanctions Enforcement Guidelines, is designed to enable persons who have identified a potential sanctions violation to self-report to OFAC, thereby benefiting from the substantial mitigation credit that OFAC affords to timely and complete voluntary self-disclosures.

Here, our comprehensive screening and analysis have identified no factual basis for any OFAC violation. None of the relevant entities or individuals appear on any OFAC list. The PRC is not subject to a comprehensive OFAC sanctions program. No OFAC-administered prohibition applies to the transactions at issue. Under these circumstances, filing an OFAC VSD would be affirmatively inadvisable for several reasons:

First, filing a VSD where no violation exists could create unnecessary and counterproductive regulatory engagement with OFAC. Once a VSD is received, OFAC opens a case file and assigns the matter for review, which can result in protracted interaction with the agency, requests for supplemental information, and diversion of Company resources — all in connection with a matter where no violation has been identified.

Second, an OFAC VSD could invite scrutiny where none is warranted. By filing a VSD, the Company would effectively be flagging the transactions to OFAC and inviting OFAC to examine them, notwithstanding the absence of any identified sanctions nexus. This would be strategically unwise.

Third, a VSD could generate adverse inferences in other contexts. A filing with OFAC could be misinterpreted by third parties — including the Company's banking partners (particularly Lodestar National Bank under the revolving credit facility), insurance carriers, customers, and regulatory counterparties in non-U.S. jurisdictions — as an indication that the Company identified a potential sanctions violation, even where the purpose of the VSD was merely prophylactic.

The Company has already filed a voluntary self-disclosure with BIS/OEE (Reference No. OEE-VSD-2025-00319, dated November 4, 2025) addressing the three post-Entity-List Zhonghe shipments under the EAR. This BIS VSD is the appropriate regulatory channel for the conduct at issue, and the Company's cooperation with DOJ NSD/CES further demonstrates its commitment to full and transparent engagement with the relevant enforcement authorities. No additional filing with OFAC is warranted or advisable.

X. Recommendations

Based on the analysis set forth in this memorandum, we recommend the following measures to memorialize the OFAC analysis, mitigate residual risk, and strengthen the Company's sanctions compliance posture going forward:

1. Include OFAC Analysis in DOJ Communications. We recommend referencing the thoroughness of the Company's OFAC self-assessment in communications with DOJ NSD/CES to demonstrate the breadth and diligence of the Company's overall compliance review. Specifically, in the Company's next substantive submission to AUSA Kolb and Trial Attorney Weir — which is currently being prepared in connection with the cooperation framework — we recommend including a summary statement indicating that the Company has conducted a comprehensive OFAC screening and analysis, that no OFAC violations have been identified, and that no OFAC exposure exists. This will reinforce the narrative of "substantial cooperation" and proactive compliance review, which are factors that both DOJ and BIS consider in the disposition of enforcement matters. It also demonstrates the absence of broader sanctions concerns that might otherwise elevate the seriousness of the matter in DOJ's assessment.

2. Implement Ongoing OFAC Screening. As part of the enhanced compliance program being designed by Ashford Pennington LLC under the direction of Dr. Miriam Hecht, the Company should implement ongoing, automated OFAC screening for all customers, distributors, and counterparties — in addition to the BIS Entity List and other restricted-party list screening already being implemented. OFAC screening should be fully integrated into the transactional compliance workflow and should be performed at three critical control points: (a) at customer onboarding (before establishing a new customer relationship or accepting a new order from an existing customer); (b) at order entry (before processing each individual purchase order); and (c) at ship-confirmation (before releasing each shipment for dispatch). This three-stage screening protocol will ensure that any OFAC designation that occurs between order placement and shipment is captured before the goods leave the Company's control. OFAC screening should cover all OFAC-maintained lists, including the SDN List, the SSI List, the NS-CMIC List, and all ancillary lists. The screening tool must support multi-language and multi-script matching — including romanized English, simplified Chinese, traditional Chinese, Arabic, Cyrillic, and other scripts as appropriate to the customer base — consistent with the remediation of the character-encoding deficiency identified during the EAR investigation (i.e., the failure of the Sentinel platform, as previously configured, to properly screen Chinese-character name variants).

3. Monitor OFAC Designation Actions. The Company should subscribe to OFAC's automated email notification system for list updates, which provides same-day notification of all changes to OFAC-maintained lists. In addition, OFAC list changes should be integrated into the Sentinel platform (or any successor restricted-party screening vendor's database) with a maximum update lag of two (2) business days from the date of OFAC publication. This is a tighter standard than the five-business-day service-level agreement ("SLA") that was in effect with Sentinel for BIS Entity List updates and that proved inadequate to prevent the three post-listing Zhonghe shipments (where the June 14, 2025 Entity List update was not reflected in Sentinel's database until June 21, 2025, permitting the June 27, 2025 shipment to proceed without an automated hold). The two-business-day SLA for OFAC list updates should be contractually documented in the amended services agreement with Sentinel (or any successor vendor) and should be subject to periodic audit by the Company's compliance function.

4. Memorialize in Settlement Agreement. If and when a resolution is reached with DOJ in connection with the NSD-CES-2025-04871 inquiry, we recommend including a recital in the settlement agreement (whether in the form of a deferred prosecution agreement, non-prosecution agreement, or administrative settlement) confirming that the matter does not involve OFAC-administered sanctions and that no referral to OFAC has been made. While such a recital would not bind OFAC (which retains independent enforcement authority), it would provide a binding and authoritative record that the Company can rely upon in several important contexts: (a) in communications with the Company's banking relationships, particularly Lodestar National Bank, N.A., under the $300 million revolving credit facility, where a material-litigation notice was provided on November 1, 2025 pursuant to Section 7.03(b) of the Credit Agreement and where the bank's compliance department has requested clarification regarding sanctions exposure; (b) in connection with the Company's directors' and officers' liability insurance and any related claims or coverage questions; and (c) in the Company's representations to customers and business partners regarding the nature and scope of the government inquiry.

5. Coordinate with Braxton Merritt and Kessler Pratt & Whitfield. The conclusion of this memorandum — that OFAC exposure is negligible — should be shared, on a privilege-protected basis, with the Company's other outside counsel teams working on related matters:

(a) Braxton Merritt LLP (Elena Voss). Ms. Voss's team is conducting the securities disclosure analysis to determine whether and how the DOJ inquiry must be disclosed in the Company's periodic filings and investor communications. The absence of OFAC exposure materially narrows the scope of the potential disclosure obligation and reduces the risk that the matter will be characterized as involving "sanctions violations," which would carry significantly more reputational and market impact than an EAR-only matter.

(b) Kessler Pratt & Whitfield LLP (Dr. Tobias Engel). Dr. Engel's team is coordinating the German and EU export-control and sanctions-compliance analysis for HSAG. The conclusion that no U.S. OFAC violation has occurred should be shared with the Kessler Pratt team so that they can integrate it into their parallel analysis of HSAG's exposure under the EU sanctions framework (including Council Regulation (EU) No. 2024/1745 and the EU's autonomous sanctions lists), which is being conducted separately.

(c) Pinnacle Ridgeway Partners (Graham Sinclair). The Company's auditors at Pinnacle Ridgeway have requested guidance on contingent-liability disclosure under IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) in connection with HSAG's year-end financial statements. The absence of OFAC exposure narrows the range of contingent liabilities and reduces the probability-weighted estimate of potential penalties, which will inform the determination of whether a provision, a contingent-liability disclosure, or no disclosure is appropriate under IAS 37.

All such communications should be made within the existing common-interest and joint-defense frameworks and should be clearly marked as privileged and confidential.

XI. Conclusion

Based on our comprehensive analysis — encompassing the screening of all relevant entities and individuals against all current OFAC-maintained restricted-party lists (SDN List, SSI List, NS-CMIC List, Foreign Sanctions Evaders List, Capta List, and Non-SDN Menu-Based Sanctions List); the analysis of all potentially applicable OFAC-administered sanctions authorities, including Executive Orders 13959/14032 (Chinese Military-Industrial Complex Companies), the Hong Kong Autonomy Act and Executive Order 13936, Global Magnitsky designations (E.O. 13818), country-based comprehensive sanctions programs, and general SDN List designations; the application of the NS-CMIC 50 Percent Rule to the ownership structures of both PRC end users; and the confirmation of DOJ's position that no OFAC referral has been made or is contemplated — we conclude that OFAC exposure is negligible.

No OFAC violation has occurred in connection with the seventeen shipments of HCA-9100 series ADC chipsets to Zhonghe Microelectronics Co., Ltd. and Lansheng Harborline Technologies Technologies Ltd.

No OFAC voluntary self-disclosure is warranted.

We recommend the prophylactic measures described in Section X — including the incorporation of OFAC analysis into DOJ communications, the implementation of ongoing automated OFAC screening, enhanced monitoring of OFAC designation actions, memorialization of the OFAC finding in any DOJ settlement agreement, and coordination with the Company's other outside counsel teams — to mitigate residual risk and to strengthen the Company's sanctions compliance posture going forward.

This memorandum reflects our analysis as of the date hereof, based on the OFAC lists and regulatory guidance in effect as of November 20, 2025, and the factual information available to us as of the date of this memorandum. OFAC lists are updated on a rolling basis, and the regulatory landscape is subject to change. The Company should continue to monitor OFAC designations and regulatory developments on an ongoing basis, consistent with the recommendations in Section X.

This memorandum has been prepared by Calderwood & Harkness LLP at the direction of, and for the exclusive benefit of, Halcyon Semiconductor Inc. and Halcyon Semiconductor AG. It constitutes privileged attorney-client communication and attorney work product. It should not be disclosed, distributed, or otherwise made available to any person or entity outside the attorney-client relationship without the prior written approval of the Calderwood & Harkness engagement team. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.

CALDERWOOD & HARKNESS LLP	1251 Avenue of the Americas, 44th Floor	New York, NY 10020	Telephone: (212) 555-7800	Facsimile: (212) 555-7801
Entity	SDN List	SSI List	NS-CMIC List	Other OFAC Lists	Result
Zhonghe Microelectronics Co., Ltd. (中和微电子有限公司)	No match	No match	No match	No match	CLEAR
Lansheng Harborline Technologies Technologies Ltd. (蓝盛信号科技有限公司)	No match	No match	No match	No match	CLEAR
Archipelago Component Solutions Pte. Ltd.	No match	No match	N/A	No match	CLEAR
Individual	Affiliation	SDN List	SSI List	NS-CMIC List	Other OFAC Lists	Result
Chen Weiming (陈伟明)	Managing Director, Lansheng	No match	No match	No match	No match	CLEAR
Zhang Haifeng (张海峰)	Chairman, Zhonghe	No match	No match	No match	No match	CLEAR
Li Wenxiu (李文秀)	CEO, Zhonghe	No match	No match	No match	No match	CLEAR
Wang Peng (王鹏)	CFO, Zhonghe	No match	No match	No match	No match	CLEAR
Rajiv Sundaram	Managing Director, Archipelago	No match	No match	N/A	No match	CLEAR

CALDERWOOD & HARKNESS LLP 1251 Avenue of the Americas, 44th Floor New York, New York 10020
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Howard Quinn, General Counsel, Halcyon Semiconductor Inc. Conrad Ashby, Deputy General Counsel — Regulatory, Halcyon Semiconductor Inc.
FROM: Steven Hollander, Partner, Calderwood & Harkness LLP Liam Donahue, Counsel, Calderwood & Harkness LLP
DATE: November 22, 2025
RE: OFAC and Sanctions Exposure Analysis — Halcyon Semiconductor AG / Halcyon Semiconductor Inc. (DOJ NSD-CES-2025-04871)
I. Executive Summary
This memorandum analyzes whether the seventeen shipments of HCA-9100 series analog-to-digital converter ("ADC") chipsets (classified under Export Control Classification Number ("ECCN") 3A001) that are the subject of the ongoing inquiry by the U.S. Department of Justice, National Security Division, Counterintelligence and Export Control Section ("DOJ NSD/CES") (Reference No. NSD-CES-2025-04871) implicate any sanctions programs administered by the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury. This analysis was undertaken at the direction of Halcyon Semiconductor Inc. ("HSI" or the "Company") and its parent, Halcyon Semiconductor AG ("HSAG," and together with HSI, "Halcyon" or the "Company"), to ensure that the Company's compliance review in connection with the DOJ inquiry is comprehensive and that all relevant U.S. regulatory regimes have been evaluated.
Our conclusion is that no OFAC violations have occurred and that the Company's OFAC exposure is negligible. We reach this conclusion on the basis of the following principal findings:
First, none of the PRC end users — Zhonghe Microelectronics Co., Ltd. ("Zhonghe") or Lansheng Harborline Technologies Technologies Ltd. ("Lansheng") — their known principals, directors, officers, or known affiliates appear on the OFAC Specially Designated Nationals and blocked Persons List (the "SDN List"), the Sectoral Sanctions Identifications List (the "SSI List"), the Non-SDN Chinese Military-Industrial Complex Companies List (the "NS-CMIC List"), or any other OFAC-maintained restricted-party list. Comprehensive screening was performed using both a leading commercial restricted-party screening platform (Sentinel Compliance Data Services Ltd.) and OFAC's own publicly available online SDN Search Tool, with searches conducted in both romanized English and simplified Chinese character variants.
Second, the shipments do not implicate any OFAC-administered country-based sanctions program. The People's Republic of China ("PRC") is not subject to a comprehensive OFAC sanctions program. The mere exportation or re-exportation of goods to end users located in the PRC does not, standing alone, constitute a violation of OFAC-administered sanctions.
Third, no referral from DOJ to OFAC has been made or is contemplated. In discussions with Assistant U.S. Attorney Adrienne Kolb of DOJ NSD/CES — both during the initial conference call on October 14, 2025 and in a follow-up call on November 12, 2025 — AUSA Kolb confirmed that the DOJ inquiry is limited to potential violations of the Export Administration Regulations ("EAR") and that DOJ has not identified any OFAC nexus warranting a referral.
It is important to note at the outset that the OFAC-administered sanctions regime and the BIS-administered Export Administration Regulations at issue in the DOJ inquiry are legally and administratively distinct regulatory frameworks. The DOJ inquiry (Reference No. NSD-CES-2025-04871) focuses on potential violations of the EAR — specifically, the Entity List restrictions under 15 C.F.R. § 744.11 and the military end-use provisions under EAR § 744.21 — both of which are administered by the Bureau of Industry and Security ("BIS") of the U.S. Department of Commerce. This memorandum does not address the EAR analysis, which is being handled through separate channels, including the voluntary self-disclosure ("VSD") filed with the BIS Office of Export Enforcement ("OEE") on November 4, 2025 (Reference No. OEE-VSD-2025-00319) and the Company's ongoing cooperation with DOJ NSD/CES. This memorandum addresses OFAC exclusively.
We do not recommend filing a voluntary self-disclosure with OFAC. We do recommend certain prophylactic measures, described in Section X, to mitigate residual risk and strengthen the Company's compliance posture going forward.
II. Factual Background
For purposes of this OFAC analysis, we set forth the following summary of the relevant facts. A more detailed recitation of the underlying facts appears in the separate Calderwood & Harkness memorandum regarding EAR exposure dated November 8, 2025 and in the VSD filed with BIS/OEE. The factual summary below is limited to those facts bearing on the OFAC analysis.
Products at Issue. The products at issue are the HCA-9100 series ADC chipsets, designed and manufactured by HSAG. These chipsets are classified under ECCN 3A001 on the Commerce Control List. The HCA-9100 series features sampling rates exceeding 3.6 gigasamples per second ("Gsps") and is designed for high-performance signal-processing applications, including military and dual-use applications such as radar signal acquisition, electronic warfare receivers, and communications intelligence systems, as well as commercial applications including broadband telecommunications infrastructure and scientific instrumentation.
Shipment Count and Routing. The DOJ inquiry covers seventeen total shipments of HCA-9100 series chipsets. All seventeen shipments originated from HSAG's fabrication facility located at Semperstrasse 15, 01069 Dresden, Germany. From the Dresden facility, the chipsets were shipped to Archipelago Component Solutions Pte. Ltd. ("Archipelago"), a Singapore-incorporated distributor located at 18 Boon Lay Way, #07-142, TradeHub 21, Singapore 609966. Archipelago then arranged final delivery to two PRC-based end users.
End Users. The two PRC-based end users that received the HCA-9100 series chipsets via Archipelago are as follows:
Zhonghe Microelectronics Co., Ltd. (中和微电子有限公司), located at 12/F, Nanshan Digital Tower, Keji South Road, Nanshan District, Shenzhen 518057, PRC. Zhonghe received eleven of the seventeen shipments, with an aggregate value of approximately $4.41 million (an average of approximately $401,000 per shipment).
Lansheng Harborline Technologies Technologies Ltd. (蓝盛信号科技有限公司), located at Block C, Tianfu Software Park, No. 599 Shijicheng South Road, Chengdu 610041, PRC. Lansheng received the remaining six shipments, with an aggregate value of approximately $2.42 million (an average of approximately $403,000 per shipment).
Total Aggregate Value. The total aggregate value of the seventeen shipments across both end users is approximately $6.83 million ($4.41 million to Zhonghe plus $2.42 million to Lansheng).
Shipment Period. The seventeen shipments occurred over a period of approximately seventeen months, from March 12, 2024 through August 19, 2025.
Distributor. Archipelago Component Solutions Pte. Ltd. was incorporated in Singapore in 2016. Its Managing Director is Rajiv Sundaram. Archipelago has served as HSAG's authorized distribution partner for various product lines in the Asia-Pacific region since 2018. Archipelago's role as a transshipment intermediary is central to the EAR analysis — particularly with respect to whether the transshipment through Singapore constituted a re-export requiring authorization — but is relevant to the OFAC analysis only to the extent that Archipelago itself or its principals might appear on an OFAC list. As discussed in Section V, Archipelago does not appear on any OFAC list.
Zhonghe Entity List Status. Zhonghe Microelectronics Co., Ltd. was added to the BIS Entity List (Supplement No. 4 to Part 744 of the EAR) on June 14, 2025, effective upon publication in the Federal Register. Three of the eleven Zhonghe shipments occurred after Zhonghe's Entity List designation: specifically, shipments dated June 27, 2025, July 15, 2025, and August 3, 2025. These three post-listing shipments constitute the primary EAR violations under 15 C.F.R. § 744.11 that are the focus of the DOJ inquiry and the BIS VSD. The remaining eight Zhonghe shipments occurred prior to Entity List designation and are subject to a separate analysis under the EAR's general licensing requirements for ECCN 3A001 items destined for the PRC.
Lansheng Status. Lansheng Harborline Technologies Technologies Ltd. is not currently listed on the BIS Entity List, the Unverified List, the Denied Persons List, or any other BIS restricted-party list. DOJ's theory regarding Lansheng is based on the EAR's military end-use provisions at § 744.21, supported by classified intelligence that DOJ contends suggests Lansheng may operate as a procurement front for a PRC defense research institute affiliated with the People's Liberation Army. The Managing Director of Lansheng is Chen Weiming (陈伟明). The details of DOJ's military end-use theory are addressed in separate Calderwood & Harkness memoranda and are not the subject of this OFAC analysis.
Scope of This Memorandum. The EAR violations and potential violations described above are being addressed separately through the VSD filed with BIS/OEE on November 4, 2025 (Reference No. OEE-VSD-2025-00319) and through the Company's ongoing cooperation with DOJ NSD/CES under the direction of this firm. This memorandum is limited exclusively to the analysis of whether any OFAC-administered sanctions program has been implicated by the seventeen shipments described above.
III. Analytical Framework — Distinction Between BIS/EAR and OFAC Regimes
A proper understanding of the Company's regulatory exposure requires a clear appreciation of the distinction between the two principal U.S. regulatory frameworks governing international trade in controlled goods: the Export Administration Regulations administered by BIS, on the one hand, and the economic sanctions programs administered by OFAC, on the other.
OFAC-Administered Sanctions. OFAC administers and enforces a broad array of U.S. economic sanctions programs targeting specific foreign countries and regimes, entities, and individuals. OFAC derives its authority from a number of statutory and executive-order sources, including, most prominently, the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. §§ 1701–1707, and the Trading with the Enemy Act ("TWEA"), 50 U.S.C. §§ 4301–4341. Under these authorities, the President has declared national emergencies with respect to various foreign threats and has authorized OFAC to impose prohibitions on transactions involving specified countries, regimes, and persons. OFAC's sanctions programs are codified principally in Title 31, Chapter V, of the Code of Federal Regulations (31 C.F.R. Parts 500–599). The operative focus of OFAC sanctions is on persons — whether the counterparty, beneficial owner, or other participant in a transaction is a sanctioned person (e.g., an SDN) or whether the transaction has a nexus to a comprehensively sanctioned country.
BIS-Administered EAR. By contrast, the Export Administration Regulations, codified at 15 C.F.R. Parts 730–774, are administered by BIS, a bureau within the U.S. Department of Commerce. The EAR regulate the export, re-export, and in-country transfer of items (commodities, software, and technology) that are either listed on the Commerce Control List ("CCL") under a specific ECCN or that are subject to the EAR as EAR99 items. The EAR's restrictions are principally item-based and destination/end-user-based: the classification of the item (its ECCN), the destination country, the identity of the end user (including whether the end user appears on BIS restricted-party lists such as the Entity List, Denied Persons List, or Unverified List), and the end use of the item all determine whether a license is required for a given transaction.
Key Distinction. The fundamental difference between the two regimes lies in their respective operative triggers. OFAC sanctions are triggered by the identity of the counterparty (is the person an SDN or otherwise sanctioned?) or the destination country (is the country subject to comprehensive sanctions?). The EAR's restrictions are triggered by the classification of the item being exported (what is the ECCN?) and the end-use/end-user restrictions applicable to the destination. While both regimes can apply to the same transaction — and a single shipment could theoretically violate both the EAR and OFAC sanctions simultaneously — they are administered by different agencies, enforced under different statutory authorities, and analyzed under different frameworks.
Potential Overlap. The two regimes are distinct, though potentially overlapping. A single transaction could violate both the EAR (if it involves a controlled item shipped to a restricted party or end use without required authorization) and OFAC sanctions (if the transaction involves an SDN or a comprehensively sanctioned country or regime). For example, a shipment of ECCN-controlled items to an entity in Iran would implicate both the EAR's Iran-related restrictions and OFAC's comprehensive Iran sanctions program. The analysis in this memorandum addresses whether any such overlap exists with respect to the seventeen shipments at issue.
OFAC Enforcement Standards. OFAC violations carry strict liability; that is, a transaction involving an SDN or a comprehensively sanctioned country may constitute a violation regardless of whether the transacting party had knowledge of the sanctioned status of the counterparty or the destination. However, OFAC exercises significant enforcement discretion. The OFAC Economic Sanctions Enforcement Guidelines, set forth at 31 C.F.R. Part 501, Appendix A, identify a range of mitigating and aggravating factors that OFAC considers in determining the appropriate enforcement response. Mitigating factors include, among others, the existence and adequacy of a risk-based sanctions compliance program, the filing of a voluntary self-disclosure, the quality and timeliness of internal screening procedures, the level of awareness of the conduct at issue, and the degree of cooperation with OFAC. These enforcement standards are relevant to the residual-risk assessment set forth in Section VIII of this memorandum.
IV. OFAC-Administered Programs Relevant to PRC Transactions
This section identifies and analyzes each OFAC-administered sanctions program that could potentially bear on transactions involving PRC-based counterparties and evaluates whether any such program is implicated by the seventeen shipments at issue. We have reviewed all current OFAC-administered programs and identified the following as potentially relevant (or, in some cases, facially relevant but ultimately inapplicable on the facts of this matter).
A. Executive Order 13959 (as Amended by E.O. 14032) — Chinese Military-Industrial Complex Companies
Executive Order 13959, signed on November 12, 2020, and subsequently amended and superseded in relevant part by Executive Order 14032, signed on June 3, 2021, addresses the threat posed by the military-industrial complex of the PRC. Under these authorities, U.S. persons are prohibited from engaging in certain transactions involving publicly traded securities (or securities that are derivative of, or designed to provide investment exposure to, such securities) of entities identified as Chinese Military-Industrial Complex Companies ("CMICs"). OFAC maintains the Non-SDN Chinese Military-Industrial Complex Companies List (the "NS-CMIC List"), which identifies the entities subject to these prohibitions.
It is critical to note that the prohibitions under E.O. 13959/14032 are narrowly tailored to securities transactions — specifically, the purchase or sale of publicly traded securities, or any securities designed to provide investment exposure to such securities. These prohibitions do not extend to the sale, export, or re-export of goods, including semiconductor components, to NS-CMIC-listed entities. Even if a PRC end user appeared on the NS-CMIC List, the prohibition would apply to investments in that entity's securities, not to the sale or shipment of semiconductor chipsets to that entity. Accordingly, even in a hypothetical scenario where Zhonghe or Lansheng appeared on the NS-CMIC List, the seventeen shipments of HCA-9100 series chipsets would not, by virtue of NS-CMIC listing alone, constitute OFAC violations.
Nevertheless, an NS-CMIC listing would serve as a significant risk indicator warranting enhanced due diligence regarding the counterparty. An entity's designation on the NS-CMIC List reflects a U.S. government determination that the entity is connected to the PRC's military-industrial complex, which could correlate with military end-use concerns under the EAR and could signal the potential for future SDN designation.
As detailed in Section V below, neither Zhonghe nor Lansheng appears on the NS-CMIC List. Additionally, neither entity's known shareholders, principals, or affiliates appear on the NS-CMIC List. The 50 Percent Rule analysis for NS-CMIC purposes is addressed separately in Section VI.
B. Hong Kong Autonomy Act and Executive Order 13936
The Hong Kong Autonomy Act, Pub. L. No. 116-149, and Executive Order 13936, signed on July 14, 2020, address the situation in Hong Kong and target persons determined to be responsible for, or complicit in, actions or policies that undermine Hong Kong's autonomy, democratic processes, or freedoms. Under these authorities, OFAC may designate individuals and entities as SDNs, and the Secretary of the Treasury may impose correspondent-account and payable-through-account restrictions on foreign financial institutions that knowingly conduct significant transactions with such designated persons.
This program is not relevant to the instant analysis. Neither of the two PRC end users — Zhonghe, based in Shenzhen, and Lansheng, based in Chengdu — has any identified connection to Hong Kong or to the Hong Kong autonomy context. Neither entity operates in Hong Kong, maintains offices or subsidiaries in Hong Kong, or has any known principals with Hong Kong-related designations. There is no factual basis to investigate this nexus further, and we have found no information in the due diligence materials or public sources suggesting any such connection.
C. Uyghur-Related Sanctions (E.O. 13818 — Global Magnitsky Act Designations)
Under Executive Order 13818, signed on December 20, 2017, implementing the Global Magnitsky Human Rights Accountability Act, OFAC has the authority to designate and impose sanctions on foreign persons determined to be responsible for or complicit in serious human rights abuse or corruption. OFAC has used this authority to designate a number of PRC officials and entities in connection with human rights abuses in the Xinjiang Uyghur Autonomous Region, including officials of the Xinjiang Public Security Bureau and entities involved in mass surveillance and detention operations.
There is no connection between the facts of this matter and Uyghur-related sanctions designations. Neither Zhonghe nor Lansheng operates in the Xinjiang Uyghur Autonomous Region. Zhonghe is headquartered in Shenzhen (Guangdong Province), and Lansheng is headquartered in Chengdu (Sichuan Province). Neither entity has any identified connection to the Xinjiang region, and no information obtained through the due diligence investigation or the DOJ inquiry suggests any such connection. Accordingly, the Global Magnitsky sanctions designations related to Uyghur issues are inapplicable.
D. Country-Based Comprehensive Sanctions Programs
OFAC administers comprehensive sanctions programs with respect to a number of countries and regions, including Iran, North Korea, Cuba, Syria, and the Crimea, Donetsk People's Republic, and Luhansk People's Republic regions of Ukraine, among others. Under comprehensive sanctions programs, virtually all transactions involving the sanctioned country or its government are prohibited absent specific authorization from OFAC (either through a general license or a specific license).
The People's Republic of China is NOT subject to a comprehensive OFAC sanctions program. There is no country-based OFAC program that broadly prohibits U.S. persons from engaging in transactions with PRC-based counterparties. The United States maintains extensive trade and investment relationships with PRC entities, and the mere exportation or re-exportation of goods — including controlled goods — to end users located in the PRC does not, by itself, constitute a violation of any OFAC-administered sanctions program.
Accordingly, the seventeen shipments of HCA-9100 series chipsets to Zhonghe and Lansheng in the PRC do not fall within any country-based OFAC prohibition. To the extent that the shipments raise regulatory concerns, those concerns arise under the EAR (a BIS-administered regime), not under OFAC-administered country-based sanctions.
E. General SDN List Designations
Independent of the program-specific authorities discussed above, OFAC maintains the SDN List, which identifies individuals and entities designated under various sanctions authorities. All property and interests in property of SDNs that are in the United States, or that come within the United States, or that are or come within the possession or control of any U.S. person, are blocked. U.S. persons are generally prohibited from engaging in any transactions or dealings with SDNs. The SDN List includes designees under a wide range of sanctions programs, including those targeting narcotics trafficking, terrorism, weapons of mass destruction proliferation, cyber-related activities, and other threats to U.S. national security or foreign policy.
OFAC has designated certain PRC persons and entities as SDNs under various authorities. If any end user, beneficial owner, or principal involved in the seventeen shipments were an SDN, the shipments could constitute blocking violations under the applicable sanctions program, and the Company could face significant enforcement liability.
Comprehensive screening of all relevant entities and individuals against the SDN List was performed, as detailed in Section V below. No matches were identified.
F. Sectoral Sanctions Identifications List (SSI List)
The SSI List identifies persons subject to specific, limited sanctions — known as sectoral sanctions — under various executive orders. The SSI List is most closely associated with the Russia/Ukraine-related sanctions program under Executive Order 13662, which imposes restrictions on certain transactions (including debt and equity dealings) involving entities in specified sectors of the Russian economy (financial services, energy, metals and mining, defense and related materiel). The SSI List also includes designees under certain Venezuelan and other sanctions programs.
The SSI List has limited relevance to PRC transactions, as the sectoral sanctions programs are directed at Russian, Venezuelan, and other non-PRC sectors. Nevertheless, we included the SSI List in our screening protocol for completeness, recognizing that certain PRC entities with connections to Russian or other sanctioned-sector operations could theoretically appear on the SSI List. As detailed in Section V, no matches were identified.
V. Screening Results
A. Methodology
Screening of all relevant entities and individuals was performed using two independent sources to ensure reliability and comprehensiveness:
1. Sentinel Compliance Data Services Ltd. (Edinburgh, UK). Sentinel is HSAG's and Archipelago's commercial restricted-party screening platform, used for transactional screening in the ordinary course of business. Sentinel's database encompasses all OFAC-maintained lists, including the SDN List, the SSI List, the NS-CMIC List, the Foreign Sanctions Evaders List, the Capta List (formerly the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions), and the Non-SDN Menu-Based Sanctions List. Sentinel's database also includes BIS-administered lists (Entity List, Denied Persons List, Unverified List), as well as other global sanctions lists including those maintained by the European Union, the United Kingdom (OFSI), the United Nations Security Council, and other jurisdictions. Sentinel employs fuzzy-matching algorithms designed to capture transliteration variants, aliases, and alternative name spellings.
2. OFAC's Own Online SDN Search Tool (sanctionssearch.ofac.treas.gov). This is the publicly available, government-maintained search tool provided by OFAC. It permits searching the consolidated sanctions list, including all SDN entries, and allows for name-based and ID-based searching. We used this tool as a direct government-source verification check against the Sentinel results.
Both romanized (English) and Chinese-character (simplified Chinese) name variants were searched for all PRC-based entities and individuals, including common transliteration alternatives. For entities, we searched the full legal name, abbreviated trade names, and known aliases. For individuals, we searched variant Pinyin spellings (including common alternative romanizations), and where applicable, Cantonese romanizations. The search parameters on both platforms were configured with minimum matching thresholds calibrated to maximize sensitivity (i.e., to capture potential matches even where the name string was not identical, including partial matches and phonetic equivalents).
All screening was performed as of November 20, 2025, using the most current versions of the applicable OFAC lists available on that date.
B. Entity Screening Results
The following table summarizes the results of entity-level screening against all OFAC-maintained lists:
For each entity, searches were conducted using the full legal name in English, the registered Chinese-character name (for PRC entities), common abbreviations and trade names, and variant transliterations. No matches or potential matches requiring further investigation were returned from either Sentinel or the OFAC SDN Search Tool.
C. Individual Screening Results
The following table summarizes the results of individual-level screening of all known principals, directors, and officers of the PRC end users and the Singapore-based distributor against all OFAC-maintained lists:
Zhonghe's known directors and officers — Zhang Haifeng (Chairman), Li Wenxiu (CEO), and Wang Peng (CFO) — were identified using PRC corporate registry data (specifically, the National Enterprise Credit Information Publicity System maintained by the State Administration for Market Regulation) obtained through the due diligence network of Kessler Pratt & Whitfield LLP, our German/EU regulatory counsel, working through their Asia-Pacific correspondent, Dr. Tobias Engel. Lansheng's sole known principal, Chen Weiming, was identified through the same corporate registry sources and through documentation provided in connection with the DOJ inquiry.
Note on Common-Name Risk. Several of the individuals screened bear extremely common Chinese names. "Chen Weiming" (陈伟明), "Zhang Haifeng" (张海峰), and "Wang Peng" (王鹏) are among the most frequently occurring name combinations in the PRC. The OFAC SDN List contains entries for individuals with similar or identical romanized names. Accordingly, for each potential SDN name match returned by the screening tools, we performed a detailed secondary analysis using all available distinguishing data — including dates of birth, addresses, passport or national identification numbers, known aliases, and contextual information regarding the sanctioned individual's activities and affiliations. In every instance, we were able to confirm that the SDN entry with the similar name corresponded to a different individual and did not correspond to any of the principals associated with Zhonghe, Lansheng, or Archipelago. We have documented this secondary analysis in a separate screening-results workbook maintained in the engagement file.
VI. NS-CMIC 50 Percent Rule Analysis
Under OFAC's published guidance, the prohibitions applicable to NS-CMIC-listed entities extend to entities that are 50% or more owned, individually or in the aggregate, by one or more NS-CMIC-listed persons. This principle — commonly referred to as the "50 Percent Rule" — is consistent with OFAC's general ownership guidance set forth at 31 C.F.R. § 501.807 and in OFAC's Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are blocked (August 13, 2014, as revised). Under the 50 Percent Rule, even if an entity does not itself appear on the NS-CMIC List (or any other OFAC list), the OFAC prohibitions applicable to NS-CMIC-listed entities would extend to that entity if it is 50% or more owned, directly or indirectly, by one or more NS-CMIC-listed persons.
Although neither Zhonghe nor Lansheng appears directly on the NS-CMIC List, as confirmed by the screening results in Section V, an OFAC concern could theoretically arise if either entity were majority-owned by an NS-CMIC-listed entity or person. We therefore analyzed the ownership structures of both end users using available corporate registry data.
Zhonghe Microelectronics Co., Ltd. Based on PRC corporate registry data obtained through Kessler Pratt & Whitfield LLP's due diligence network, Zhonghe's ownership structure is as follows: Zhang Haifeng (individual, Chairman) holds a 65% equity interest, and Qianhai Venture Capital Partners (前海创投合伙企业), a Shenzhen-based venture capital fund, holds the remaining 35% equity interest. Neither Zhang Haifeng nor Qianhai Venture Capital Partners appears on any OFAC list, including the NS-CMIC List. We are not aware of any NS-CMIC-listed entity or person holding a direct or indirect ownership interest in Zhonghe. Accordingly, no NS-CMIC ownership nexus has been identified with respect to Zhonghe.
Lansheng Harborline Technologies Technologies Ltd. Based on PRC corporate registry data, Lansheng is 100% owned by Chen Weiming (individual, Managing Director). Chen Weiming does not appear on any OFAC list, including the NS-CMIC List. We are not aware of any NS-CMIC-listed entity or person holding a direct or indirect ownership interest in Lansheng. Accordingly, no NS-CMIC ownership nexus has been identified with respect to Lansheng.
We note that PRC corporate registry data, while generally reliable for identifying registered shareholders, may not capture all beneficial ownership interests, particularly in cases involving nominee shareholders, trust arrangements, or complex multi-layered corporate structures. The limitations of publicly available ownership data are addressed in the residual-risk assessment in Section VIII.B below.
Conclusion: The 50 Percent Rule does not create OFAC exposure for either end user based on available ownership data. Neither Zhonghe nor Lansheng is 50% or more owned, individually or in the aggregate, by any NS-CMIC-listed person.
VII. DOJ Position on OFAC
During the course of the Company's engagement with DOJ NSD/CES, we have specifically addressed the question of OFAC involvement with the responsible prosecutors. Their position has been consistent and clear:
October 14, 2025 Initial Conference Call. During the initial conference call with AUSA Adrienne Kolb and Trial Attorney Jonathan Weir of DOJ NSD/CES, Kolb confirmed that the DOJ inquiry under Reference No. NSD-CES-2025-04871 is limited to potential violations of the Export Administration Regulations administered by BIS. In response to a direct inquiry from this firm regarding whether DOJ had identified any OFAC nexus or contemplated any referral to OFAC, AUSA Kolb stated that DOJ had not made and did not contemplate making a referral to OFAC in connection with this matter.
November 12, 2025 Follow-Up Call. In a follow-up telephone conference on November 12, 2025, during which we discussed the status of the Company's cooperation and the VSD filing, AUSA Kolb reiterated her prior position. She stated that DOJ's review of the facts underlying the inquiry — including the identities of the end users, the routing of the shipments, and the nature of the products — did not identify any OFAC nexus. She confirmed that the matter remained exclusively within the EAR/BIS enforcement framework.
The DOJ position is fully consistent with our own independent analysis. The conduct at issue involves potential EAR Entity List restrictions (15 C.F.R. § 744.11) with respect to the three post-listing Zhonghe shipments, and potentially the EAR's military end-use provisions (EAR § 744.21) with respect to the Lansheng shipments. Both of these regulatory authorities are administered by BIS, not OFAC. The transactions do not involve SDNs, blocked persons, or comprehensively sanctioned jurisdictions that would bring them within OFAC's enforcement jurisdiction. Accordingly, DOJ's decision not to make an OFAC referral is appropriate and expected given the facts of the matter.
We note, however, that DOJ's position, while informative and reassuring, does not bind OFAC. OFAC has independent enforcement authority and could theoretically initiate its own investigation if it identified a sanctions nexus. The likelihood of such an independent OFAC action is assessed in Section VIII.D below.
VIII. Residual Risk Assessment
While our analysis concludes that no OFAC violation has occurred and that current OFAC exposure is negligible, we address below certain residual risks that the Company should be aware of, along with our assessment of the likelihood and significance of each.
A. Future OFAC Designation of End Users
Risk Level: Low.
It is possible that Zhonghe, Lansheng, or their principals could be designated as SDNs, added to the NS-CMIC List, or otherwise listed on an OFAC-administered restricted-party list in the future. This risk is marginally elevated for Lansheng, given DOJ's intelligence-based theory that Lansheng may function as a procurement front for a PRC defense research institute. Entities with connections to the PRC's military-industrial complex are more likely candidates for future NS-CMIC or SDN designation, particularly in the current geopolitical environment in which the United States has been progressively expanding its PRC-related designations.
However, future OFAC designations would not create retroactive liability for past transactions. OFAC sanctions are prospective in application: they prohibit transactions after designation. Prior completed transactions do not become violations simply because a counterparty is later designated. The one exception relates to blocking obligations: if property of a designated person comes within the possession or control of a U.S. person after designation, the U.S. person must block that property. Here, the shipments have been completed, title has passed, and no property of the end users is in the Company's possession or control. Accordingly, even if Zhonghe or Lansheng were designated in the future, the past shipments would not constitute OFAC violations.
Recommendation: The Company should implement continuous monitoring of OFAC designation actions, including all updates to the SDN List and the NS-CMIC List, for any future listings of Zhonghe, Lansheng, their known principals (including Chen Weiming, Zhang Haifeng, Li Wenxiu, and Wang Peng), Qianhai Venture Capital Partners, or any related entities. This monitoring should be automated through the Company's restricted-party screening platform and should be reviewed by the compliance function within 24 hours of any OFAC list update.
B. Undisclosed Beneficial Ownership
Risk Level: Low.
As noted in Section VI, OFAC screening is inherently limited to publicly available and commercially obtainable ownership data. PRC corporate registry data identifies registered shareholders but may not capture all beneficial ownership interests. If Zhonghe or Lansheng has undisclosed beneficial owners who are SDNs or NS-CMIC-listed persons, a technical OFAC violation could theoretically exist. This risk is inherent in any transaction involving PRC counterparties, given the opacity of certain PRC ownership structures and the prevalence of nominee and layered holding arrangements.
However, OFAC enforcement guidance explicitly recognizes the limitations of commercially available ownership data and considers the adequacy of a company's compliance procedures when exercising enforcement discretion. The OFAC Economic Sanctions Enforcement Guidelines (31 C.F.R. Part 501, Appendix A) identify the existence and quality of a sanctions compliance program as a significant mitigating factor. Here, the Company performed restricted-party screening at customer onboarding using a commercially reasonable screening tool (Sentinel), and, through this investigation, performed enhanced screening using multiple sources (both Sentinel and OFAC's own SDN Search Tool) and multiple language variants (romanized English and simplified Chinese characters). This level of diligence exceeds the screening practices of many peer companies in the semiconductor industry.
The risk of an OFAC enforcement action predicated on undisclosed beneficial ownership — where the Company performed commercially reasonable screening and had no actual knowledge of any sanctioned-person nexus — is negligible. OFAC would be highly unlikely to pursue an enforcement action on such facts, and even in a worst-case scenario, the existence of reasonable screening procedures would constitute a strong mitigating factor counseling in favor of a no-action determination, a cautionary letter, or a Finding of Violation (i.e., non-monetary resolution) rather than a civil monetary penalty.
C. Military End-Use Nexus — Distinction from OFAC Authority
Risk Level: Negligible (from an OFAC perspective).
As discussed in Section III above, the EAR's military end-use restrictions (EAR § 744.21) and the OFAC-administered sanctions programs are distinct regulatory frameworks with different operative triggers. DOJ's military end-use theory regarding Lansheng — even if ultimately proven — would constitute a violation of the EAR, not a violation of OFAC-administered sanctions.
There is no OFAC prohibition on the sale of goods, including semiconductor components, to military end users in the PRC absent an independent OFAC nexus such as an SDN designation, an NS-CMIC designation, or a transaction involving a comprehensively sanctioned country. The military end-use restriction is a creature of the EAR, administered by BIS, and its violation is enforceable by BIS and DOJ under the export-control enforcement authorities. It does not independently trigger OFAC liability.
Accordingly, even in the scenario where DOJ establishes that the Lansheng shipments violated EAR § 744.21 because Lansheng is a procurement front for a PRC defense research institute, this finding would not independently create OFAC exposure. OFAC exposure would arise only if the defense research institute (or its principals) were designated on an OFAC list — a possibility that is addressed in Section VIII.A above as a future-designation risk.
D. Potential for Parallel OFAC Enforcement
Risk Level: Negligible.
OFAC has independent enforcement jurisdiction and could theoretically open an investigation at any time if it identified sanctioned-person involvement in the transactions at issue. OFAC is not dependent on a DOJ referral to initiate an investigation; OFAC monitors trade data, financial transactions, and open-source intelligence independently, and receives tips and referrals from range sources including financial institutions, other government agencies, and private parties.
However, based on the totality of the information available to us, we assess the risk of an independent OFAC enforcement action as negligible. Our screening results confirm that none of the relevant entities or individuals appear on any OFAC list. DOJ, which has access to classified intelligence regarding Lansheng, has confirmed that it has not identified any OFAC nexus and does not contemplate an OFAC referral. There is no publicly available information suggesting that Zhonghe, Lansheng, or their principals have connections to SDNs or other OFAC-designated persons.
We also note that the Company's concern about potential OFAC implications — specifically, whether the PRC end users or their principals had connections to Specially Designated Nationals — has been thoroughly investigated through the screening and analysis described in this memorandum and determined to be unfounded. None of the PRC end users, their directors, officers, or known shareholders appear on the OFAC SDN List, the SSI List, the NS-CMIC List, or any other OFAC-maintained restricted-party list.
IX. Recommendation: No OFAC Voluntary Self-Disclosure
Based on the analysis set forth in this memorandum, we do not recommend filing a voluntary self-disclosure with OFAC.
An OFAC voluntary self-disclosure is appropriate only where there is a reasonable basis to believe that an apparent violation of OFAC-administered sanctions has occurred. OFAC's VSD process, described in 31 C.F.R. § 501.604 and the OFAC Economic Sanctions Enforcement Guidelines, is designed to enable persons who have identified a potential sanctions violation to self-report to OFAC, thereby benefiting from the substantial mitigation credit that OFAC affords to timely and complete voluntary self-disclosures.
Here, our comprehensive screening and analysis have identified no factual basis for any OFAC violation. None of the relevant entities or individuals appear on any OFAC list. The PRC is not subject to a comprehensive OFAC sanctions program. No OFAC-administered prohibition applies to the transactions at issue. Under these circumstances, filing an OFAC VSD would be affirmatively inadvisable for several reasons:
First, filing a VSD where no violation exists could create unnecessary and counterproductive regulatory engagement with OFAC. Once a VSD is received, OFAC opens a case file and assigns the matter for review, which can result in protracted interaction with the agency, requests for supplemental information, and diversion of Company resources — all in connection with a matter where no violation has been identified.
Second, an OFAC VSD could invite scrutiny where none is warranted. By filing a VSD, the Company would effectively be flagging the transactions to OFAC and inviting OFAC to examine them, notwithstanding the absence of any identified sanctions nexus. This would be strategically unwise.
Third, a VSD could generate adverse inferences in other contexts. A filing with OFAC could be misinterpreted by third parties — including the Company's banking partners (particularly Lodestar National Bank under the revolving credit facility), insurance carriers, customers, and regulatory counterparties in non-U.S. jurisdictions — as an indication that the Company identified a potential sanctions violation, even where the purpose of the VSD was merely prophylactic.
The Company has already filed a voluntary self-disclosure with BIS/OEE (Reference No. OEE-VSD-2025-00319, dated November 4, 2025) addressing the three post-Entity-List Zhonghe shipments under the EAR. This BIS VSD is the appropriate regulatory channel for the conduct at issue, and the Company's cooperation with DOJ NSD/CES further demonstrates its commitment to full and transparent engagement with the relevant enforcement authorities. No additional filing with OFAC is warranted or advisable.
X. Recommendations
Based on the analysis set forth in this memorandum, we recommend the following measures to memorialize the OFAC analysis, mitigate residual risk, and strengthen the Company's sanctions compliance posture going forward:
1. Include OFAC Analysis in DOJ Communications. We recommend referencing the thoroughness of the Company's OFAC self-assessment in communications with DOJ NSD/CES to demonstrate the breadth and diligence of the Company's overall compliance review. Specifically, in the Company's next substantive submission to AUSA Kolb and Trial Attorney Weir — which is currently being prepared in connection with the cooperation framework — we recommend including a summary statement indicating that the Company has conducted a comprehensive OFAC screening and analysis, that no OFAC violations have been identified, and that no OFAC exposure exists. This will reinforce the narrative of "substantial cooperation" and proactive compliance review, which are factors that both DOJ and BIS consider in the disposition of enforcement matters. It also demonstrates the absence of broader sanctions concerns that might otherwise elevate the seriousness of the matter in DOJ's assessment.
2. Implement Ongoing OFAC Screening. As part of the enhanced compliance program being designed by Ashford Pennington LLC under the direction of Dr. Miriam Hecht, the Company should implement ongoing, automated OFAC screening for all customers, distributors, and counterparties — in addition to the BIS Entity List and other restricted-party list screening already being implemented. OFAC screening should be fully integrated into the transactional compliance workflow and should be performed at three critical control points: (a) at customer onboarding (before establishing a new customer relationship or accepting a new order from an existing customer); (b) at order entry (before processing each individual purchase order); and (c) at ship-confirmation (before releasing each shipment for dispatch). This three-stage screening protocol will ensure that any OFAC designation that occurs between order placement and shipment is captured before the goods leave the Company's control. OFAC screening should cover all OFAC-maintained lists, including the SDN List, the SSI List, the NS-CMIC List, and all ancillary lists. The screening tool must support multi-language and multi-script matching — including romanized English, simplified Chinese, traditional Chinese, Arabic, Cyrillic, and other scripts as appropriate to the customer base — consistent with the remediation of the character-encoding deficiency identified during the EAR investigation (i.e., the failure of the Sentinel platform, as previously configured, to properly screen Chinese-character name variants).
3. Monitor OFAC Designation Actions. The Company should subscribe to OFAC's automated email notification system for list updates, which provides same-day notification of all changes to OFAC-maintained lists. In addition, OFAC list changes should be integrated into the Sentinel platform (or any successor restricted-party screening vendor's database) with a maximum update lag of two (2) business days from the date of OFAC publication. This is a tighter standard than the five-business-day service-level agreement ("SLA") that was in effect with Sentinel for BIS Entity List updates and that proved inadequate to prevent the three post-listing Zhonghe shipments (where the June 14, 2025 Entity List update was not reflected in Sentinel's database until June 21, 2025, permitting the June 27, 2025 shipment to proceed without an automated hold). The two-business-day SLA for OFAC list updates should be contractually documented in the amended services agreement with Sentinel (or any successor vendor) and should be subject to periodic audit by the Company's compliance function.
4. Memorialize in Settlement Agreement. If and when a resolution is reached with DOJ in connection with the NSD-CES-2025-04871 inquiry, we recommend including a recital in the settlement agreement (whether in the form of a deferred prosecution agreement, non-prosecution agreement, or administrative settlement) confirming that the matter does not involve OFAC-administered sanctions and that no referral to OFAC has been made. While such a recital would not bind OFAC (which retains independent enforcement authority), it would provide a binding and authoritative record that the Company can rely upon in several important contexts: (a) in communications with the Company's banking relationships, particularly Lodestar National Bank, N.A., under the $300 million revolving credit facility, where a material-litigation notice was provided on November 1, 2025 pursuant to Section 7.03(b) of the Credit Agreement and where the bank's compliance department has requested clarification regarding sanctions exposure; (b) in connection with the Company's directors' and officers' liability insurance and any related claims or coverage questions; and (c) in the Company's representations to customers and business partners regarding the nature and scope of the government inquiry.
5. Coordinate with Braxton Merritt and Kessler Pratt & Whitfield. The conclusion of this memorandum — that OFAC exposure is negligible — should be shared, on a privilege-protected basis, with the Company's other outside counsel teams working on related matters:
(a) Braxton Merritt LLP (Elena Voss). Ms. Voss's team is conducting the securities disclosure analysis to determine whether and how the DOJ inquiry must be disclosed in the Company's periodic filings and investor communications. The absence of OFAC exposure materially narrows the scope of the potential disclosure obligation and reduces the risk that the matter will be characterized as involving "sanctions violations," which would carry significantly more reputational and market impact than an EAR-only matter.
(b) Kessler Pratt & Whitfield LLP (Dr. Tobias Engel). Dr. Engel's team is coordinating the German and EU export-control and sanctions-compliance analysis for HSAG. The conclusion that no U.S. OFAC violation has occurred should be shared with the Kessler Pratt team so that they can integrate it into their parallel analysis of HSAG's exposure under the EU sanctions framework (including Council Regulation (EU) No. 2024/1745 and the EU's autonomous sanctions lists), which is being conducted separately.
(c) Pinnacle Ridgeway Partners (Graham Sinclair). The Company's auditors at Pinnacle Ridgeway have requested guidance on contingent-liability disclosure under IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) in connection with HSAG's year-end financial statements. The absence of OFAC exposure narrows the range of contingent liabilities and reduces the probability-weighted estimate of potential penalties, which will inform the determination of whether a provision, a contingent-liability disclosure, or no disclosure is appropriate under IAS 37.
All such communications should be made within the existing common-interest and joint-defense frameworks and should be clearly marked as privileged and confidential.
XI. Conclusion
Based on our comprehensive analysis — encompassing the screening of all relevant entities and individuals against all current OFAC-maintained restricted-party lists (SDN List, SSI List, NS-CMIC List, Foreign Sanctions Evaders List, Capta List, and Non-SDN Menu-Based Sanctions List); the analysis of all potentially applicable OFAC-administered sanctions authorities, including Executive Orders 13959/14032 (Chinese Military-Industrial Complex Companies), the Hong Kong Autonomy Act and Executive Order 13936, Global Magnitsky designations (E.O. 13818), country-based comprehensive sanctions programs, and general SDN List designations; the application of the NS-CMIC 50 Percent Rule to the ownership structures of both PRC end users; and the confirmation of DOJ's position that no OFAC referral has been made or is contemplated — we conclude that OFAC exposure is negligible.
No OFAC violation has occurred in connection with the seventeen shipments of HCA-9100 series ADC chipsets to Zhonghe Microelectronics Co., Ltd. and Lansheng Harborline Technologies Technologies Ltd.
No OFAC voluntary self-disclosure is warranted.
We recommend the prophylactic measures described in Section X — including the incorporation of OFAC analysis into DOJ communications, the implementation of ongoing automated OFAC screening, enhanced monitoring of OFAC designation actions, memorialization of the OFAC finding in any DOJ settlement agreement, and coordination with the Company's other outside counsel teams — to mitigate residual risk and to strengthen the Company's sanctions compliance posture going forward.
This memorandum reflects our analysis as of the date hereof, based on the OFAC lists and regulatory guidance in effect as of November 20, 2025, and the factual information available to us as of the date of this memorandum. OFAC lists are updated on a rolling basis, and the regulatory landscape is subject to change. The Company should continue to monitor OFAC designations and regulatory developments on an ongoing basis, consistent with the recommendations in Section X.
This memorandum has been prepared by Calderwood & Harkness LLP at the direction of, and for the exclusive benefit of, Halcyon Semiconductor Inc. and Halcyon Semiconductor AG. It constitutes privileged attorney-client communication and attorney work product. It should not be disclosed, distributed, or otherwise made available to any person or entity outside the attorney-client relationship without the prior written approval of the Calderwood & Harkness engagement team. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
CALDERWOOD & HARKNESS LLP | 1251 Avenue of the Americas, 44th Floor | New York, NY 10020 | Telephone: (212) 555-7800 | Facsimile: (212) 555-7801
Entity | SDN List | SSI List | NS-CMIC List | Other OFAC Lists | Result
Zhonghe Microelectronics Co., Ltd. (中和微电子有限公司) | No match | No match | No match | No match | CLEAR
Lansheng Harborline Technologies Technologies Ltd. (蓝盛信号科技有限公司) | No match | No match | No match | No match | CLEAR
Archipelago Component Solutions Pte. Ltd. | No match | No match | N/A | No match | CLEAR
Individual | Affiliation | SDN List | SSI List | NS-CMIC List | Other OFAC Lists | Result
Chen Weiming (陈伟明) | Managing Director, Lansheng | No match | No match | No match | No match | CLEAR
Zhang Haifeng (张海峰) | Chairman, Zhonghe | No match | No match | No match | No match | CLEAR
Li Wenxiu (李文秀) | CEO, Zhonghe | No match | No match | No match | No match | CLEAR
Wang Peng (王鹏) | CFO, Zhonghe | No match | No match | No match | No match | CLEAR
Rajiv Sundaram | Managing Director, Archipelago | No match | No match | N/A | No match | CLEAR

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