What changed in this filing

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Item 1A. Risk Factors

2023-08-15 compared with 2022-08-16 · 69 added, 80 removed, 373 unchanged (29% of the section changed)

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government programs is subject to Congressional appropriations.

Although multiple-year contracts may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a

program may continue for many years.

Although multiple-year contracts may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may continue for many years.

Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations and prime contracts receive such funding.

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Price inflation for labor and materials, further exacerbated in energy and commodity markets by the Russian invasion of Ukraine, could adversely affect our business, results of operations and financial condition.

We experienced considerable price inflation in our costs for labor and materials during fiscal 2022, which adversely affected our business, results of operations and financial condition.

We have experienced considerable price inflation in our costs for labor and materials during recent years, which adversely affected our business, results of operations and financial condition.

We may not be able to pass through inflationary cost increases under our existing firm fixed price commercial item contracts and we may only be able to recoup a portion of our increased costs under our reimbursement-type contracts.

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We continue to work to mitigate such pressures on our business operations as they develop.

To the extent the war in Ukraine adversely affects our business as discussed above, it may also have the effect of heightening many of the other risks described herein, such as those relating to cyber security, supply chain, volatility in prices and market conditions, any of which could negatively affect our business and financial condition.

To the extent the war in Ukraine continues to adversely affect our business as discussed above, it may also have the effect of heightening many of the other risks described herein, such as those relating to cyber security, supply chain, volatility in prices and market conditions, any of which could negatively affect our business and financial condition.

The loss of one or more of our largest customers, programs, or applications could adversely affect our results of operations.

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A significant decrease in the sales to or loss of any of our major customers would have a material adverse effect on our business and results of operations.

In fiscal 2022, Raytheon Technologies accounted for 14% of our total net revenues, the U.S.

In fiscal 2023, RTX Corporation accounted for 14% of our total net revenues, Lockheed Martin Corporation accounted for 13% of our total net revenues, and Northrop Grumman accounted for 11% of our total net revenues.

In fiscal 2022, RTX Corporation accounted for 14% of our total net revenues, the U.S.

Navy accounted for 14% of our total net revenues and Lockheed Martin Corporation accounted for 10% of our total net revenues.

In fiscal 2021, Raytheon Technologies accounted for 19% of our total net revenues, Lockheed Martin Corporation accounted for 15% of our total net revenues and the U.S.

In fiscal 2021, RTX Corporation accounted for 19% of our total net revenues, Lockheed Martin Corporation accounted for 15% of our total net revenues and the U.S.

Navy accounted for 12% of our total net revenues.

In fiscal 2020, both Lockheed Martin Corporation and Raytheon Technologies accounted for 16% of our total net revenues.

Customers in the defense market generally purchase our products in connection with government programs that have a limited duration, leading to fluctuating sales to any particular customer in this market from year to year.

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Additionally, on a limited number of programs the customer has co-manufacturing rights which could lead to a shift of production on such a program away from us which in turn could lead to lower revenues.

Going forward, we believe F-35, Filthy Buzzard & Badger, F/A-18, LTAMDS, THAAD and Aegis programs could be a large portion of our future revenues in the coming years, and the loss or cancellation of these programs could adversely affect our future results.

Going forward, we believe the F-35, Filthy Buzzard & Badger, F/A-18, LTAMDS, THAAD and Aegis programs could be a large portion of our future revenues in the coming years, and the loss or cancellation of these programs could adversely affect our future results.

Further, new programs may yield lower margins than legacy programs, which could result in an overall reduction in gross margins.

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Due to the rapidly changing nature of technology, we may not become aware in advance of the emergence of new competitors into our markets.

The emergence of new competitors into markets targeted by us could result in the loss of existing customers and may have a negative impact on our ability to win future business opportunities.

Perceptions of Mercury as a high-cost provider could cause us to lose existing customers or fail to win new business.

The emergence of new competitors in our markets could result in the loss of existing customers or programs and may have a negative impact on our ability to win future business.

Perceptions of Mercury as a high-cost provider or for late deliveries could cause us to lose existing customers or programs or fail to win new business.

Further, our lack of strong engagements with important government-funded laboratories (e.g.

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With continued microprocessor evolution, low-end systems could become adequate to meet the requirements of an increased number of the lesser-demanding applications within our target markets.

Commercial server manufacturers and other low-end single-board computer, or new competitors, may attempt to penetrate the high-performance market for defense electronics systems.

Factors that may increase the acceptability of commodity-type products in some defense platforms that we serve include improvements in the physical properties and durability of such alternative products, combined with the relaxation of physical and ruggedness requirements by the military due to either a reevaluation of those requirements or the installation of products in a more highly environmentally isolated setting.

Commercial server manufacturers and other low-end single-board computer, or new competitors, may attempt to penetrate the high-performance market for aerospace and defense electronics systems.

Factors that may increase the acceptability of commodity-type products in some aerospace and defense platforms include improvements in the physical properties and durability of such alternative products, combined with the relaxation of physical and ruggedness requirements by the military due to either a reevaluation of those requirements or the installation of products in a more highly environmentally isolated setting.

These developments could negatively impact our revenues and have a material adverse effect on our business and operating results.

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We may incur significant set-up costs and delays in manufacturing should it become necessary to replace any key vendors due to work stoppages, shipping delays, financial difficulties, natural or manmade disasters or other factors.

In addition, our industry, along with many others, is facing a significant shortage of semiconductors.

In addition, our industry, along with many others, is continuing to face a shortage of semiconductors as well as extended lead times.

We have experienced and are experiencing meaningful levels of semiconductor impact.

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We are exposed to risks associated with international operations and markets.

We market and sell products in international markets, have sales offices and subsidiaries in the United Kingdom, Japan and France and we have manufacturing and/or engineering facilities and subsidiaries in Switzerland, Spain and Canada.

We market and sell products in international markets and have sales offices and manufacturing and/or engineering facilities and subsidiaries in Switzerland, Spain, the United Kingdom and Canada.

Revenues from international operations accounted for 5%, 4% and 5%, of our total net revenues in fiscal 2023, 2022 and 2021, respectively.

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The Plan, an independent pension fund, is part of a multi-employer plan with unrestricted joint liability for all participating companies and the economic interest in the Plan’s overfunding or underfunding is allocated to each participating company based on an allocation key determined by the Plan.

GAAP requires an employer to recognize the funded status of the defined benefit plan on the balance sheet, which we have presented in other long-term liabilities on our Consolidated Balance Sheets at July 1, 2022.

The funded status may vary from year to year due to changes in the fair value of the Plan’s assets and variations on the underlying assumptions in the Plan and we may have to record an increased liability as a result of fluctuations in the value of the Plan’s assets.

As of July 1, 2022, we had a liability of $4.7 million in Other non-current liabilities representing the net under-funded status of the Plan.

As of June 30, 2023, we had a liability of $4.2 million in Other non-current liabilities representing the net under-funded status of the Plan.

In addition, we must comply with the Foreign Corrupt Practices Act, or the FCPA, and the anti-corruption laws of the countries in which we operate.

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companies may be held liable for actions taken by strategic or local partners or representatives.

If we or our intermediaries fail to comply with the requirements of international applicable anti-corruption laws, governmental authorities in the United States or the countries in which we operate could seek to impose civil and criminal penalties, or restrict or limit our ability to do business, which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.

If we or our intermediaries fail to comply with the requirements of international applicable anti-corruption laws, governmental

authorities in the United States or the countries in which we operate could seek to impose civil and criminal penalties, or restrict or limit our ability to do business, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

If we are unable to respond to technological developments and changing customer needs on a timely and cost-effective basis, our results of operations may be adversely affected.

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Military planners have historically funded significantly more design projects than actual deployments of new equipment, and those systems that are deployed tend to contain the components of the subcontractors selected to participate in the design process.

In order to participate in the design of new defense electronics systems, we must demonstrate the ability to deliver superior technological performance on a timely and cost-effective basis.

To participate in the design of new defense electronics systems, we must demonstrate the ability to deliver superior technological performance on a timely and cost-effective basis.

There can be no assurance that we will secure an adequate number of design wins in the future, that the equipment in which our products are intended to function will eventually be deployed in the field, or that our products will be included in such equipment if it eventually is deployed.

The design-in process is typically lengthy and expensive, and there can be no assurance that we will be able to continue to meet the product specifications of customers in a timely and adequate manner.

In addition, any failure to anticipate or respond adequately to changes in technology, customer preferences and future order demands, or any significant delay in product developments, product introductions, or order volume, could negatively impact our financial condition and results of

operations, including the risk of inventory obsolescence.

Because of the complexity of our products, we have experienced delays from time to time in completing products on a timely basis.

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If we fail to invest sufficiently in R&D, our products could become less attractive to potential customers and our business and financial condition could be materially and adversely affected.

As a result of the need to maintain or increase spending levels in this area and the difficulty in reducing costs associated with R&D, our operating results could be materially harmed if our R&D efforts fail to result in new products or if revenues fall below expectations.

As a result of the need to maintain spending levels in this area and the difficulty in reducing costs associated with R&D, our operating results could be materially harmed if our R&D efforts fail to result in new products or if revenues fall below expectations.

As a result of our commitment to invest in R&D, spending levels of R&D expenses as a percentage of revenues may fluctuate in the future.

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• delays in completion of internal product development projects;

• delays in shipping hardware and software;

• delays in shipping hardware and software or licensing design intellectual property;

• delays in acceptance testing by customers;

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• production delays due to quality problems;

• failure to achieve or maintain quality certifications, such as AS9100;

• inability to scale quick reaction capability products due to low product volume;

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• declines in quarterly revenues from previous generations of products following announcement of replacement products containing more advanced technology;

• changes in estimates of completion on fixed price engagements, which represent a substantial percentage of our business.

• changes in estimates of completion on fixed price engagements, which represent a substantial and increasing percentage of our business.

In addition, from time to time, we have entered into contracts, referred to as development contracts, to engineer a specific solution based on modifications to standard products.

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We intend to continue to enter into development contracts and anticipate that the gross margins associated with development contract revenues will continue to be lower than gross margins from standard product sales.

Many of our contracts require that our facilities remain certified at the AS91000 or ISO9001 level in order to ship products from the relevant facility.

Failure to obtain or maintain the required certification may require a waiver by the customer for shipments to continue until the certification is obtained.

There can be no assurance that we will receive any customer waivers if a required certification is lost or delayed.

Another factor contributing to fluctuations in our quarterly results is the fixed nature of expenditures on personnel, facilities, information technology and marketing programs.

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Competition for hiring these employees is intense, especially individuals with specialized skills and security clearances required for our business, and we may be unable to hire and retain enough staff to implement our growth strategy or to perform on our existing commitments.

Like our defense prime contractor customers, we face the potential for knowledge drain due to the impending retirement of the older members of our engineering and operations workforce in the coming years.

Like our defense prime contractor customers, we face the potential for knowledge drain due to the continuing retirement of the older members of our engineering and operations workforce in the coming years.

To the extent that we lose experienced personnel, it is critical that we develop other employees, hire new qualified personnel and successfully manage the short and long-term transfer of critical knowledge and skills.

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To the extent that these companies grow at a faster rate or face fewer cost and product pricing constraints, they may be able to offer more attractive compensation and other benefits to candidates, including in the recruitment of our existing employees.

In cases where the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting or training costs in order to attract and retain such employees.

In cases where the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting or training costs to attract and retain such employees.

We also must manage leadership development and succession planning throughout our business.

While we have processes in place for management transition and the transfer of knowledge and skills, the loss of key personnel, coupled with an inability to adequately train other personnel, hire new personnel, or transfer knowledge and skills, could significantly impact our ability to perform under our contracts and execute on new or growing programs.

Beginning with the pandemic, a significant portion of our workforce began working remotely and we expect a significant portion will continue to work a hybrid schedule.

While we have processes in place for management transition and the transfer of knowledge and skills, the loss of key personnel,

coupled with an inability to adequately train other personnel, hire new personnel, or transfer knowledge and skills, could significantly impact our ability to perform under our contracts and execute on new or growing programs.

Beginning with the pandemic, a significant portion of our workforce began working remotely and we expect a significant portion will continue to work a hybrid schedule even as we transition more employees back to onsite work over time.

We see many benefits to remote and hybrid work and have adopted new tools and processes to support the workforce.

However, if we are unable to effectively adapt to this hybrid work environment long term, then we may experience a less cohesive workforce, increased attrition, reduced program performance and less innovation.

During fiscal 2022, we experienced unusually high employee attrition and our costs to retain employees increased.

In recent years, we have experienced unusually high employee attrition and our costs to retain employees increased.

Our challenges in retaining key employees may be impacted by the termination of the Company’s announced strategic review initiative in June 2023 and any unanticipated challenges with the transition of the Company’s Chief Executive Officer and Chief Financial Officer roles, as we have recently appointed a new President and Chief Executive Officer and our new Chief Financial Officer joined us in mid July 2023.

The decline in our stock price during 2023 may also increase employee retention risks.

If we experience a disaster or other business continuity problem, we may not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.

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We face various risks related to health pandemics such as COVID .

We face adverse effects related to the COVID-19 pandemic, including disruptions in our supply chain, limitations on our operations and increased costs for health and safety measures.

We expect the COVID-19 pandemic to adversely affect our operations and financial position if significant portions of our workforce are unable to work effectively due to illness, quarantines, government actions, facility closures, or other restrictions.

To-date, our operations and production activities in the U.S.

and globally have remained operational during the COVID-19 pandemic.

Our facilities are considered essential activities and have been exempt from closure directives.

However, our manufacturing sites are subject to various local and national directives curtailing operations, requiring work from home and social distancing which otherwise could impact the efficiency of

our operations.

Such directives could change at any time.

We face secondary and tertiary effects related to the pandemic, including disruptions in our supply chain, particularly for long lead time semiconductors.

We continue to monitor the situation, assessing possible implications on our operations, supply chain, liquidity and cash flow and will continue taking actions to mitigate adverse consequences.

Risks Related to Our Growth Strategy, Our 1MPACT Value Creation Plan and M&A

Implementation of our growth strategy and 1MPACT value creation plan may not be successful, which could affect our ability to increase revenues and profits.

Risks Related to M&A and Acquisition Integration

Implementation of our growth strategy may not be successful, which could affect our ability to increase revenues and profits.

Our growth strategy includes developing new products, adding new customers and programs within our existing markets, and entering new markets both domestically and internationally, developing our manufacturing capabilities, as well as identifying and integrating acquisitions and achieving revenue and cost synergies and economies of scale.

Our ability to compete in new markets will depend upon a number of factors including, among others:

Our ability to compete in new markets will depend upon several factors including, among others:

• our ability to create demand for products in new markets;

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In addition, we may face competition in these new markets from various companies that may have substantially greater research and development resources, marketing and financial resources, manufacturing capability and/or customer support organizations.

Our 1MPACT value creation plan is designed to enable us to achieve our full growth and value creation potential, both organically and through M&A, to position us to scale beyond our cumulative acquisitions over recent years.

1MPACT includes streamlining procurement and our supply chain, increasing the efficiency and effectiveness of R&D and manufacturing operations and further scaling through common processes and systems.

Our ability to enhance value and to mitigate risk through 1MPACT is subject to risks including:

anticipated benefits not being realized or not at the levels anticipated;

that implementation will be materially delayed or will be more difficult than expected;

challenges of hiring and retaining key employees to drive the value creation plan;

and initiatives being more expensive to complete than anticipated, including as a result of unexpected factors or events.

In addition, there is a risk that 1MPACT will divert management’s attention from ongoing organic business operations and M&A opportunities.

Acquisitions may adversely affect our financial condition.

As part of our strategy for growth, we expect to continue to explore acquisitions or strategic alliances, which ultimately may not be completed or be beneficial to us.

While we expect our acquisitions to result in synergies and other financial and operational benefits, we may be unable to realize these synergies or other benefits in the timeframe that we expect or at all.

As part of our strategy for growth, we may explore acquisitions or strategic alliances, which ultimately may not be completed or be beneficial to us.

While we expect any acquisitions to result in synergies and other financial and operational

benefits, we may be unable to realize these synergies or other benefits in the timeframe that we expect or at all.

The integration process may be complex, costly and time consuming.

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In addition, in connection with any acquisitions or investments we could:

• issue stock that would dilute our existing shareholders’ ownership percentages;

• issue stock that would dilute our existing shareholders;

• incur debt and assume liabilities;

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You should not place undue reliance on any anticipated synergies.

In addition, our competitors could try to emulate our acquisition strategy, leading to greater competition for acquisition targets which could lead to larger competitors if they succeed in emulating our strategy.

In addition, our competitors could try to emulate our strategy, leading to greater competition for acquisition targets which could lead to larger competitors if they succeed in emulating our strategy.

We may incur substantial indebtedness.

On February 28, 2022, we amended our existing revolving credit facility (“the Revolver”) to increase and extend the borrowing capacity to a $1.1 billion, 5-year revolving credit line, with the maturity extended to February 28, 2027.

As of July 1, 2022, we had $451.5 million of outstanding borrowings on the Revolver.

As of June 30, 2023, we had $511.5 million of outstanding borrowings on the Revolver.

The Revolver accrues interest, at our option, at floating rates tied to Secured Overnight Financing Rate ("SOFR") or the prime rate plus an applicable percentage.

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We may also incur costs related to interest rate hedges, including the termination of any such hedges.

As of June 30, 2023, we had a swap agreement in effect that fixed $300.0 million of the total $511.5 million of outstanding borrowings under the Revolver at a rate of 3.79%.

The movement of interest rates would affect the value of such swap agreement.

Our recent negative free cash flow, if not improved, could eventually lead to challenges in servicing our debt.

We have a significant amount of goodwill and intangible assets on our consolidated financial statements that are subject to impairment based upon future adverse changes in our business or prospects.

At July 1, 2022, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $937.9 million and $351.5 million, respectively.

At June 30, 2023, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $938.1 million and $298.1 million, respectively.

We evaluate indefinite lived intangible assets and goodwill for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

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In the event we are awarded a contract, we are subject to protests by losing bidders of contract awards that can result in the reopening of the bidding process and changes in governmental policies or regulations and other political factors.

We may be subject to multiple rebid requirements over the life of a defense program in order to continue to participate in such program, which can result in the loss of the program or significantly reduce our revenue or margin.

We may be subject to multiple rebid requirements over the life of a defense program to continue to participate in such program, which can result in the loss of the program or significantly reduce our revenue or margin.

Requirements for more frequent technology refreshes on defense programs may lead to increased costs and lower long-term revenues.

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and foreign governments related to the programs, all of which may be impacted by macroeconomic and geopolitical factors outside of our control.

• We must comply with security requirements pursuant to the National Industrial Security Program Operating Manual, or NISPOM, and other U.S.

• We must comply with security requirements pursuant to 32 CFR Part 117, formerly known as the National Industrial Security Program Operating Manual, or NISPOM, and other U.S.

government security protocols when accessing sensitive information.

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government contracts and subcontracts.

Failure to comply with the NISPOM or other security requirements may subject us to civil or criminal penalties, loss of access to sensitive information, loss of a U.S.

Failure to comply with such security requirements may subject us to civil or criminal penalties, loss of access to sensitive information, loss of a U.S.

government contract or subcontract, or potentially debarment as a government contractor.

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Although we believe our approach to determining the appropriate tax treatment is supportable and in accordance with relevant authoritative guidance it is possible that the final tax authority will take a tax position that is materially different than that which is reflected in our income tax provision.

Such differences could have an adverse effect on our income tax provision or benefit, in the

reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period.

Such differences could have an adverse effect on our income tax provision or benefit, in the reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period.

Further, future increases in tax rates may adversely affect our financial results.

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We may need to invest in new information technology systems and infrastructure to scale our operations.

We may need to adopt new information technology systems and infrastructure to scale our business and obtain the synergies from prior and future acquisitions as well as organic growth.

We may need to adopt new information technology systems and infrastructure to scale our business and obtain the synergies from prior acquisitions as well as organic growth.

Our information technology and business systems and infrastructure could create product development or production work stoppages, unnecessarily increase our inventory, negatively impact product delivery times and quality and increase our compliance costs.

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We are also targeted by spear phishing attacks in which an email directed at a specific individual or department is disguised to appear to be from a trusted source to obtain sensitive information.

Like all DoD contractors that process, store, or transmit controlled unclassified information, we must meet minimum security standards or risk losing our DoD contracts.

Like all DoD contractors that process, store, or transmit controlled unclassified

information, we must meet minimum security standards or risk losing our DoD contracts.

A breach, whether physical, electronic or otherwise, of the systems on which this sensitive data is stored could lead to damage or piracy of our products or to the shutdown of business systems.

If we experience a data security breach from an external source or from an insider threat, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of which could adversely affect our business and financial results.

If we experience a data security breach from an external source or a data exfiltration from an insider threat, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of which could adversely affect our business and financial results.

Other potential costs could include damage to our reputation, loss of brand value, incident response costs, loss of stock market value, regulatory inquiries, litigation and management distraction.

A security breach that involves classified information could subject us to civil or criminal penalties, loss of a government contract, loss of access to classified information, or debarment as a government contractor.

Similarly, a breach that involves loss of customer-provided data could subject us to loss of a customer, loss of a contract, litigation costs and legal damages and reputational harm.

Similarly, a breach that involves loss of customer-provided data could subject us to loss of a customer, loss of a program or contract, litigation costs and legal damages and reputational harm.

We may be unsuccessful in protecting our intellectual property rights which could result in the loss of a competitive advantage.

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Our ability to compete effectively against other companies in our industry depends, in part, on our ability to protect our current and future proprietary technology under patent, copyright, trademark, trade secret and unfair competition laws.

We cannot assure you that our means of protecting our proprietary rights in the United States or abroad will be adequate, or that

others will not develop technologies similar or superior to our technology or design around our proprietary rights.

We cannot assure you that our means of protecting our proprietary rights in the United States or abroad will be adequate, or that others will not develop technologies similar or superior to our technology or design around our proprietary rights.

In addition, we may incur substantial costs in attempting to protect our proprietary rights.

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The trading price of our common stock may continue to be volatile, which may adversely affect our business, and investors in our common stock may experience substantial losses.

Our stock price, like that of other technology and aerospace and defense companies, can be volatile.

The stock market in general and technology companies in particular may continue to experience volatility.

Our stock price, like that of other technology and aerospace and defense companies, has been and may continue to be volatile.

The stock prices for companies in the aerospace and defense industry may continue to remain volatile given uncertainty and timing of funding for defense programs.

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When the market price of a stock has been volatile, holders of that stock will sometimes file securities class action litigation against the company that issued the stock.

If any shareholders were to file a lawsuit, we could incur substantial costs defending the lawsuit.

Also, the lawsuit could divert the time and attention of management.

The market price of our common stock may decline because of our M&A activity.

The market price of our common stock may decline as a result of our merger and acquisition activity if, among other things, we are unable to achieve the expected growth in revenue and earnings, or if the operational cost savings estimates in connection with the integration of acquired businesses are not realized.

The market price of our common stock also may decline if we do not achieve the perceived benefits of the acquisitions as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the acquisitions on our financial results is not consistent with the expectations of financial or industry analysts.

If any shareholders were to file a lawsuit, we could incur substantial costs defending the lawsuit, which could also divert the time and attention of management.

During fiscal 2023, we experienced stock price declines following our earnings releases in August 2022 and May 2023 as well as after the announcement that the Board of Directors had concluded its review of strategic alternatives in June 2023, in each case with law firms announcing investigations after the event.

We have never paid cash dividends on our common stock and we do not anticipate paying any dividends in the foreseeable future.

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We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

If we fail to

raise additional funds, we may need to sell debt or additional equity securities or to reduce our growth to a level that can be supported by our cash flow.

If we fail to raise additional funds, we may need to sell debt or additional equity securities or to reduce our growth to a level that can be supported by our cash flow.

Provisions in our organizational documents and Massachusetts law and other actions we have taken could make it more difficult for a third party to acquire us.

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These provisions include a classified board of directors, advance notice to our board of directors of shareholder proposals and director nominations, and limitations on the ability of shareholders to remove directors and to call shareholder meetings.

In addition, we may issue shares of any class or series of preferred stock in the future without shareholder approval upon such terms as our board of directors may determine, such as those underlying the shareholder rights agreement we adopted in December 2021.

On December 27, 2021, the board of directors of the Company adopted a Shareholder Rights Plan which, as amended, will expire on the date of the Annual Meeting in October 2022.

In addition, we may issue shares of any class or series of preferred stock in the future without shareholder approval upon such terms as our board of directors may determine.

For example, on December 27, 2021, the Board of Directors adopted a Shareholder Rights Plan which, as amended, expired on the date of our annual meeting of shareholders in October 2022.

The rights of holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any such class or series of preferred stock that may be issued.

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We may be required to incur significant fees and other expenses related to activist shareholder matters, including for third party advisors.

We may be subjected to a proxy contest or to litigation by activist investors, including litigation related to any shareholder rights agreement or “poison pill” that our Board adopts, such as the Shareholder Rights Plan adopted on December 27, 2021.

Our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any shareholder activism.

We may be subjected to a proxy contest or to litigation by activist investors.

Our stock price has been and could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any shareholder activism.

JANA Partners LLC filed a Schedule 13D on December 23, 2021, and Starboard Value LP filed a Schedule 13D on January 13, 2022.

Both JANA and Starboard indicated that they intended to engage with Mercury’s management.

Starboard also wrote an open letter to Mercury’s Board of Directors dated January 13, 2022, requesting that the limited duration rights agreement be withdrawn or amended.

On June 23, 2022, we entered into settlement agreements with each of JANA and Starboard that covered the appointment of two directors to our Board and an amendment to our shareholder rights plan.

The settlement agreements also contain customary standstill provisions that end approximately 30 days prior to the expiration of the advance notice period for the nomination of directors at our 2023 annual meeting of shareholders.

On June 23, 2022, we entered into settlement agreements with each of JANA and Starboard that covered the appointment of two directors to our Board and an amendment to our shareholder rights plan, which has since expired as of our 2022 annual meeting of shareholders.

The JANA and Starboard settlement agreements contained customary standstill provisions that expired in June 2023.

On June 15, 2023, Starboard filed an amended Schedule 13D indicating that it owned approximately 4.6% of our outstanding shares.

On July 6, 2023, JANA filed a new Schedule 13D indicating that it owned approximately 8% of our outstanding shares, and we announced that Scott Ostfeld, a managing partner at JANA, was being appointed to our Board of Directors.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors