−Removed: This section supplements and updates certain of the information found under Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, based on information currently known to us and recent developments since the date of the filing of the Annual Report on Form 10-K.
−Removed: In this Item 1A.
−Removed: Risk Factors, unless the context otherwise requires or unless stated otherwise, the "Company", "combined company", "we", "us", and "our", refer to V2X, Inc.
−Removed: and all of its consolidated subsidiaries, taken together as a whole, including Vertex and/or its consolidated subsidiaries acquired in the Merger.
−Removed: However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report on Form 10-K for the year ended December 31, 2021.
+Added: This section supplements and updates certain of the information found under Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 and under Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2022, based on information currently known to us and recent developments since the date of the filing of the Annual Report on Form 10-K.
+Added: However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report on Form 10-K for the year ended December 31, 2021 and in the Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2022.
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition or future results.
−Removed: The market price for our c ommon stock may be affected by factors different from those that historically have affected our common stock.
−Removed: Following the Merger, our shareholders became shareholders of the combined company.
−Removed: The combined company’s business will differ from that of Vectrus, and accordingly the results of operations of the combined company following the Merger will be affected by some factors that are different from those previously affecting our results of operations.
−Removed: We meet the requirements to be a “controlled company” within the meaning of the rules of the New York Stock Exchange (NYSE) and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance standards, which limit the presence of independent directors on its Board of Directors or Board committees.
−Removed: Following the Merger, approximately 62.25% of the outstanding shares of the common stock of the combined company is held by holders of the equity interests of Vertex, on a fully diluted basis, and approximately 37.75% is held by the holders of the common stock of Vectrus, on a fully diluted basis.
−Removed: Vertex Aerospace Holdco LLC, a Delaware limited liability company (Vertex Holdco), an affiliate of American Industrial Partners Capital Fund VI, L.P., a Delaware limited partnership and private equity fund affiliated with American Industrial Partners (AIP Fund VI), owns approximately 58% of the fully diluted shares of the common stock of the combined company.
−Removed: As a result, we are a “controlled company” for purposes of Section 303A of the NYSE Listed Company Manual and are exempt from certain governance requirements otherwise required by the NYSE.
−Removed: Under Section 303A, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and is exempt from certain corporate governance requirements, including requirements that (1) a majority of the board of directors consist of independent directors, (2) compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors and (3) director nominees be selected or recommended for selection by a majority of the independent directors or by a nominating/corporate governance committee composed solely of independent directors.
−Removed: Following the consummation of the Merger, we continue to have an audit committee that is composed entirely of independent directors.
−Removed: As a result, the procedures for approving significant corporate decisions could be determined by directors who have a direct or indirect interest in such decisions, and our shareholders will not have the same protections afforded to shareholders of other companies that are required to comply with the independence rules of the NYSE.
−Removed: Combining the two companies may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the Merger may not be realized.
−Removed: The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate our business with Vertex’s.
−Removed: We may not realize the benefits of the Merger, including,
−Removed: among other things:
−Removed: (i) the expectation that combining Vectrus and Vertex would create a larger, stronger company with (a) an enhanced ability to compete for more integrated business opportunities, (b) a more diversified revenue base across geographies, clients and contract types in supporting missions for the U.S.
−Removed: Department of Defense and other government agencies, and (c) a combined contract portfolio that will be more balanced across the government agencies served or (ii) the expectation that Vectrus will be able to use free cash flow to reduce its indebtedness.
−Removed: The Merger involves the integration of Vertex’s business with our existing business, which is a complex, costly and time-consuming process.
−Removed: Furthermore, Vertex’s current process of integrating its Defense Training and Mission Critical Services business (the TTS Business), which still relies on certain operating and support services from Raytheon Company, could further increase the complexity and costs of integrating our and Vertex’s businesses following the Merger.
−Removed: It is possible that the integration process could result in material challenges, including, without limitation:
−Removed: • the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the Merger;
−Removed: • managing a larger combined company;
−Removed: • the creation of a new executive management team that combines certain members of Vectrus’ current management team with certain members of Vertex’s current management team;
−Removed: • maintaining employee morale and retaining key management and other employees;
−Removed: • the possibility of faulty assumptions underlying expectations regarding the integration process;
−Removed: • retaining existing business and operational relationships and attracting new business and operational relationships;
−Removed: • consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in standards, controls, procedures and policies;
−Removed: • integrating the companies’ financial reporting and internal control systems, including compliance by the combined company with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC;
−Removed: • coordinating geographically separate organizations;
−Removed: • maintaining and protecting the competitive advantages of each of Vectrus and Vertex, including the trade secrets, know-how and intellectual property related to its processes;
−Removed: • unanticipated issues in integrating information technology, communications and other systems;
−Removed: • unforeseen expenses or delays associated with the Merger.
−Removed: Many of these factors will be outside of the combined company’s control, and any one of them could result in delays, increased costs, decreases in revenues and diversion of management’s time and energy, which could materially affect the combined company’s financial position, results of operations and cash flows.
−Removed: If we experience difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected.
−Removed: These integration matters could have an adverse effect on us for an undetermined period after completion of the Merger.
−Removed: In addition, the actual cost savings of the Merger could be less than anticipated.
−Removed: Our future results may be adversely impacted if the combined company does not effectively manage its expanded operations.
−Removed: Following the completion of the Merger, the size of our business is significantly larger than the previous size of either Vectrus’ or Vertex’s respective businesses.
−Removed: Our ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two discrete companies, but also the increased scale and scope of the combined business with its associated costs and complexity.
−Removed: There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Merger.
−Removed: We incurred substantial expenses related to the completion of the Merger and the integration of Vectrus and Vertex.
−Removed: We incurred, and expect to continue to incur, a number of nonrecurring costs associated with the Merger and combining the operations of the two companies.
−Removed: The substantial majority of nonrecurring expenses will be comprised of transaction and regulatory costs related to the Merger.
−Removed: We will incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs.
−Removed: We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Merger and the integration of the two companies’ businesses.
−Removed: Furthermore, Vertex’s current process of integrating its Defense Training and Mission Critical Services business (the TTS Business), which still relies on certain operating and support services from Raytheon Company, could further increase the complexity and costs of integrating our businesses following the Merger.
−Removed: Anti-takeover defenses may delay or prevent future mergers.
−Removed: Provisions contained in our articles of incorporation and bylaws and certain provisions of Indiana law could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders.
−Removed: These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a change in control.
−Removed: The composition of the combined company Board of Directors is different than the prior composition of the Vectrus Board of Directors.
−Removed: Upon consummation of the Merger, the composition of the Board of Directors of the combined company became different than the Vectrus Board.
−Removed: Upon the consummation of the Merger, the Board of Directors of the combined company consisted of eleven members, five of whom are designated by Vertex, five of whom are designated by Vectrus, and one of whom is the Chief Executive Officer of Vectrus as of immediately prior to the closing of the Merger on July 5, 2022 (the Closing Date).
−Removed: Further, certain Vertex parties have the ability to designate directors, so long as certain former Vertex stockholders own certain specified thresholds of combined company common stock.
−Removed: This new composition of the Board of Directors of the combined company may affect the future decisions of the combined company.
−Removed: Vectrus shareholders have significantly less influence as shareholders of the combined company than they did as shareholders of Vectrus.
−Removed: Following the Merger, approximately 62.25% of the outstanding shares of the common stock of the combined company is held by holders of the equity interests of Vertex, on a fully diluted basis, and approximately 37.75% is held by the holders of the common stock of Vectrus, on a fully diluted basis.
−Removed: Consequently, holders of Vectrus shares prior to the Merger, as a group, will exercise significantly less influence over the management and policies of the combined company than they previously had over our management team and policies.
−Removed: Through their indirect ownership of a majority of our voting power and the provisions set forth in the amended and restated articles of incorporation, the amended and restated bylaws, and the shareholders agreement entered into on the Closing Date, among Vertex Holdco, Ally Commercial Finance LLC, a Delaware limited liability company, and certain other individual shareholders of Vertex and Vectrus (the Shareholders Agreement), AIP Fund VI and its affiliates will have the ability to designate and elect a majority of the combined company’s directors until our 2024 annual shareholders meeting.
−Removed: Further, AIP Fund VI and its affiliates will also have control over all other matters submitted to shareholders for approval, including changes in capital structure, transactions requiring stockholder approval under Delaware law, and corporate governance, subject to the terms of the shareholders agreement entered into on the Closing Date, among Vertex Holdco, Ally Commercial Finance LLC, a Delaware limited liability company, and certain other individual shareholders of Vertex and Vectrus (the Shareholders Agreement) that require Vertex Holdco and its affiliates to which shares of Company common stock are transferred by certain other former stockholders of Vertex who became shareholders of the Company (the Former Vertex Stockholders and collectively, the Vertex Holdco Parties) to vote in a specified manner in director elections.
−Removed: AIP Fund VI and its affiliates may have different interests than other holders of Vectrus common stock and may make decisions adverse to such holders’ interests.
−Removed: Among other things, AIP Fund VI’s and its affiliates’ control could delay, defer, or prevent a sale of Vectrus that Vectrus’ other shareholders support, or, conversely, this control could result in the consummation of such a transaction that other shareholders do not support.
−Removed: This concentrated control could discourage a potential investor from seeking to acquire Vectrus common stock and, as a result, might harm the market price of Vectrus common stock.
−Removed: In connection with the Merger, we assumed significantly more indebtedness than Vectrus’ prior indebtedness, which could adversely affect us, including decreasing our business flexibility and increasing our interest expense.
−Removed: In connection with the Merger, the combined company incurred significant additional indebtedness, including under the First Term Lien Facility and the Second Lien Term Facility and the ABL Facility (each as defined in Note 15.
−Removed: Subsequent Event, in the Notes to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q), which could adversely affect us, including by decreasing our business flexibility and increasing our interest expense.
−Removed: The amount of cash required to pay interest on our increased indebtedness levels following completion of the Merger, and thus the demands on our cash resources, is expected to be greater than the amount of cash flows required to service our indebtedness prior to the Merger.
−Removed: The increased levels of indebtedness following completion of the Merger could also reduce funds available for working capital, capital expenditures, acquisitions, the repayment or refinancing of our indebtedness as it becomes due and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt levels.
−Removed: If we do not achieve the expected benefits and cost savings from the Merger, or if our financial performance does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.
−Removed: Moreover, in the future, we may be required to raise substantial additional financing to fund working capital, capital expenditures, the repayment or refinancing of our indebtedness, acquisitions or other general corporate requirements.
−Removed: Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control.
−Removed: We cannot assure you that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all.
−Removed: Additionally, certain of our financial obligations and instruments, including the secured credit facilities, as well as financial instruments that we hold or use, are or may be made at variable interest rates that use LIBOR (or metrics derived from or related to LIBOR) and/or the Secured Overnight Financing Rate as a benchmark for establishing the applicable interest rate.
−Removed: On March 5, 2021, the U.K.’s Financial Conduct Authority publicly announced that all U.S.
−Removed: Dollar LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) immediately after December 31, 2021 for one-week and two-month U.S.
−Removed: Dollar LIBOR settings and (ii) immediately after June 30, 2023 for the remaining U.S.
−Removed: Dollar LIBOR settings.
−Removed: In addition, as a result of supervisory guidance from U.S.
−Removed: regulators, some U.S.
−Removed: regulated entities will cease to enter into new LIBOR contracts after December 31, 2021.
−Removed: The Federal Reserve Bank of New York now publishes the Secured Overnight Financing Rate based on overnight U.S.
−Removed: Treasury repurchase agreement transactions, which has been recommended as the alternative to U.S.
−Removed: dollar LIBOR by the Alternative Reference Rates Committee convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.
−Removed: The potential consequences from discontinuation, modification or reform of LIBOR, implementation of alternative reference rates, including the Secured Overnight Financing Rate, and any interest rate transition process cannot be fully predicted and may have an adverse impact on values of LIBOR-linked securities and other financial obligations or extensions of credit and may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes.
−Removed: The secured credit facilities include fallback language providing for a mechanism to convert to a new reference rate in the event that LIBOR ceases to exist.
−Removed: In certain circumstances, such transition may also occur at the election of Vertex and the administrative agent under the respective credit facility.
−Removed: This could materially and adversely affect our results of operations, cash flows and liquidity.
−Removed: The methodology for calculating these reference rates differs in a number of respects from the methodology for calculating LIBOR, and they are not expected to be the economic equivalent of LIBOR.
−Removed: As a result of such differences in methodology, among other factors, it is possible that these rates will perform differently from LIBOR in future periods and may be more volatile.
−Removed: Additionally, there can be no assurance that the new reference rates will attain market acceptance as replacements of LIBOR.
−Removed: These interest rates will fluctuate with changing market conditions and, if they increase, our interest expense will also increase.
−Removed: The market transition away from LIBOR to alternative reference rates is complex and could have a range of material adverse effects on our business, financial condition and results of operations.
−Removed: In particular, increased interest rate expense would adversely affect our cash flow and our ability to service our indebtedness and fund our operations.
−Removed: Following the Merger, our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
−Removed: Borrowings under the secured credit facilities are at variable rates of interest and will expose us to interest rate risk.
−Removed: If interest rates were to increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed would remain the same, and our ability to generate cash from operations and other cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
−Removed: We may in the future enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce future interest rate volatility of our variable rate indebtedness.
−Removed: However, due to risks for hedging gains and losses and cash settlement costs, we may not elect to maintain such interest rate swaps, and any swaps may not fully mitigate our interest rate risk.
−Removed: The agreements that govern the indebtedness incurred in connection with the Merger contain various covenants that impose restrictions on us and certain of our subsidiaries that may affect our ability to operate our businesses.
−Removed: The agreements that govern the indebtedness incurred in connection with the Merger contain various affirmative and negative covenants that may, subject to certain significant exceptions, restrict our and certain of our subsidiaries’ ability to incur debt and our and certain of our subsidiaries’ ability to merge, dissolve, liquidate or consolidate;
−Removed: make acquisitions, investments, advances or loans;
−Removed: dispose of or transfer assets;
−Removed: pay dividends;
−Removed: redeem or repurchase certain debt;
−Removed: and enter into certain restrictive agreements.
−Removed: Our and our subsidiaries’ ability to comply with these provisions may be affected by events beyond our control.
−Removed: Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations and could result in a default and acceleration under other agreements containing cross-default provisions.
−Removed: Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations.
−Removed: A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us following the Merger or our indebtedness could make it more difficult or costly for us to obtain additional financing in the future.
−Removed: Vectrus and Vertex have been and, following the consummation of the Merger, we will be rated by one or more nationally recognized rating agencies and may in the future be rated by additional rating agencies.
−Removed: There can be no assurance that any rating assigned to the combined company will be as favorable as our or Vertex’s rating prior to the Merger nor will such combined company rating remain as favorable for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, circumstances relating to the basis of the rating, such as adverse changes in our business, so warrant.
−Removed: Any downgrade, suspension or withdrawal of a rating by a rating agency (or any anticipated downgrade, suspension or withdrawal) could make it more difficult or more expensive for us to obtain additional debt financing on terms acceptable to the combined company or at all in the future.
−Removed: Sales of shares of our common stock after the Merger may negatively affect the market price of our common stock.
−Removed: If Vertex Holdco or certain other Former Vertex Stockholders sell substantial amounts of our common stock in the public market following the Merger, the market price of our common stock could decrease.
−Removed: Following the Merger, approximately 62.25% of the outstanding shares of the common stock of the combined company is held by the holders of the equity interests of Vertex as of immediately prior to the Merger, on a fully diluted basis, and approximately 37.75% is held by the holders of the common stock of Vectrus, on a fully diluted basis.
−Removed: The Merger consideration held by certain former Vertex stockholders is generally eligible for resale subject to a six-month lockup period pursuant to the terms of the Shareholders Agreement and certain limitations under applicable federal securities laws.
−Removed: Further, the terms of the registration rights agreement require us to file a resale shelf registration statement on Form S-3 or other applicable registration form registering all of the registrable securities held by Vertex Holdco and the certain former Vertex stockholders as soon as reasonably practicable, but no later than the earlier of (a) the forty-fifth (45th) calendar day following the Vectrus’s receipt of all of the historical financial information of Vertex’s Virgo and the Sky businesses and all of the related pro forma financial information required to be included in a shelf registration on a Form S-3 and (b) the ninetieth (90th) calendar day following the Closing Date.
−Removed: The market price of our common stock could decline once restrictions on resale by Vertex Holdco and other holders of our common stock lapse.
−Removed: Following the consummation of the Merger, we assumed certain potential liabilities relating to Vertex.
−Removed: Following the consummation of the Merger, we assumed certain potential liabilities relating to Vertex, including its outstanding legal proceedings.
−Removed: Vertex does not maintain or has limited remaining insurance coverage for certain of these claims and we may not be able to obtain additional insurance on acceptable terms or at all that will provide adequate protection against potential liabilities related to these claims.
−Removed: In addition, any reserves established by us for estimated losses, including with respect to these claims, do not represent an exact calculation of actual liability but instead represent estimates of the probable loss at the time the reserve is established.
−Removed: Due to the inherent uncertainty underlying loss reserve estimates, additional reserves may be established from time to time, and actual losses may be materially higher or lower than the related reserve.
−Removed: Any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.
−Removed: Following the completion of the Merger, AIP Fund VI, through its affiliate, Vertex Holdco, is our largest shareholder, owning approximately 58% of the fully diluted shares of our common stock, and has the ability to exercise significant influence over decisions requiring our shareholders’ approval and, pursuant to the Shareholders Agreement, has consent rights over certain fundamental actions of the combined company.
−Removed: Following the completion of the Merger, AIP Fund VI, through its affiliate, Vertex Holdco, owns approximately 58% of the fully diluted shares of our common stock.
−Removed: As a result, AIP Fund VI has the ability to exercise significant influence over decisions requiring approval of our shareholders, including the election of directors, amendments to our articles of incorporation and approval of significant corporate transactions, such as a merger or other sale of us or our assets.
−Removed: This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of the Company and may negatively affect the market price of our common stock.
−Removed: Also, AIP Fund VI and its affiliates are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete with us.
−Removed: AIP Fund VI or its affiliates may also pursue acquisition opportunities that are complementary to our business and, as a result, those acquisition opportunities may not be available to us.
−Removed: In addition, pursuant to the Shareholders Agreement, for so long as the certain former Vertex stockholders collectively beneficially own 34% or more of the outstanding shares of our common stock, we will not be permitted to take certain fundamental actions without the requisite consent.
−Removed: The Merger has exposed us to additional risks in our industry, as well as new risks associated with Vertex’s business.
−Removed: Upon completion of the Merger, we became subject to a variety of additional risks inherent in ours and Vertex’s industries, including increased competition, governmental regulation and litigation, as well as additional risks inherent to contracting with the U.S.
−Removed: If we do not successfully manage our investments in new business strategies or integrate and manage our acquired businesses or brands, our operating results may adversely be affected.
−Removed: Vectrus and Vertex have pursued, and from time to time following the Merger, we may pursue, strategic acquisitions or other investments in order to increase our competitive position.
−Removed: These transactions require significant investment of time and resources and may disrupt our business and distract our management team from other responsibilities.
−Removed: Even if successful, these transactions could affect our operating results for a number of reasons, including the amortization of intangible assets, impairment charges, acquired operations that are not yet profitable or the payment of additional consideration under earn-out arrangements if an acquisition performs better than expected.
−Removed: If we engage in such transactions, we may incur significant transaction and integration costs and have difficulty integrating personnel, operations, products or technologies or otherwise realizing synergies or other benefits from the transactions.
−Removed: The integration process could result in the loss of key employees, key customers, key vendors, decreases in revenue and increases in operating costs.
−Removed: In addition, we may assume material liabilities in an acquisition, including liabilities that are unknown at the time of the acquisition.
−Removed: Such transactions may dilute our earnings per share, disrupt our ongoing business, distract our management team and employees, increase our expenses, perform poorly, subject us to liabilities, and increase risk of litigation, all of which could harm the combined company’s business.
−Removed: Furthermore, Vertex’s process of integrating its TTS Business, which still relies on certain operating and support services from a former owner, could further increase the complexity and costs of integrating our businesses following the Merger.
−Removed: Furthermore, we may incur unforeseen liabilities and obligations in connection with any of our recently completed acquisitions and any future acquisitions, including in connection with the integration or management of the acquired businesses or brands and may encounter unexpected difficulties and costs in integrating them into our operating and internal control structures.
−Removed: We may also experience delays in extending our respective internal control over financial reporting to newly acquired businesses, which may increase the risk of failure to prevent misstatements in our financial records and in our consolidated financial statements.
−Removed: Additionally, new ventures and investments are inherently risky and may not be successful, and we may face challenges in achieving strategic objectives and other benefits expected from such investments or ventures.
−Removed: Any acquisitions, investments or ventures may also result in the diversion of management attention and resources from other initiatives and operations.
−Removed: Our financial performance will depend in large part on how well we can manage and improve the performance of acquired businesses or brands and the success of our other investments and ventures.
−Removed: We cannot assure you, however, that we will be able to achieve our strategic and financial objectives for such transactions.
−Removed: If we are unable to achieve such objectives, our consolidated results could be negatively affected.
−Removed: Following the Merger, the combined company’s workforce is represented by labor unions, and the combined company’s business could be harmed in the event of labor disputes or prolonged work stoppages.
−Removed: As of December 31, 2021, approximately 15% of Vectrus’ employees and 50% of Vertex’s employees were unionized.
−Removed: We had 21, and Vertex had 32, collective bargaining agreements with labor unions.
−Removed: We cannot accurately predict how stable our relations will be or whether we will be able to successfully negotiate successor agreements without impact on our financial condition.
−Removed: In addition, the presence of unions may limit our flexibility in dealing with our workforce.
−Removed: Work stoppages by our union employees could negatively impact our ability to provide services to the U.S.
−Removed: government on a timely basis, which could negatively impact our results of operations and financial condition.
−Removed: Following the Merger, we could lose key personnel or may be unable to recruit qualified personnel.
−Removed: Due to the specialized nature of our business, our future performance and rate of growth is highly dependent upon the continued services of key personnel and executive officers, the development of additional management personnel and the hiring of new qualified technical, marketing, sales, and management personnel for our operations.
−Removed: We may be unable to retain and motivate personnel and executive officers sufficiently to maintain our current business and support the projected growth and initiatives of the combined business and financial performances may be adversely affected.
−Removed: In addition, our profitability is affected by how efficiently we utilize each of our workforces, including our and Vertex’s ability to transition employees from completed contracts to new assignments, to hire and assimilate new employees;
−Removed: to hire personnel in or timely deploy expatriates to foreign countries;
−Removed: to manage attrition and a subcontractor workforce;
−Removed: and to devote time and resources to training, business development, professional development and other non-chargeable activities.
−Removed: Further, continued visa and other travel restrictions related to the ongoing COVID-19 pandemic as well as political unrest in other areas of the world may also impact our ability to properly perform on existing and future contracts.
+Added: The majority of Vertex’s contracts that now form part of our combined company are fixed-price, which subjects us to losses in the event of cost overruns or a significant increase in inflation.
+Added: For the nine months ended September 30, 2022, approximately 40% of our U.S.
+Added: government contract revenue following the Merger was derived from fixed-price and time and materials contracts, which subject us to risks of potential cost overruns, including from greater than anticipated inflation or unexpected delays.
+Added: Because many fixed-price contracts are long-term and may also involve new technologies, unforeseen events, such as technological difficulties, cost fluctuations, significant inflation, problems with suppliers, and cost overruns can result in the contractual price becoming less favorable or even unprofitable to us.
+Added: Furthermore, if we do not meet contract deadlines or specifications, we may need to renegotiate fixed-price contracts on less favorable terms, pay penalties or liquidated damages or suffer major losses.
+Added: Cost overruns would also adversely impact our results of operations, which are dependent on our ability to maximize earnings from our contracts, and the potential risk and reward to our revenues and profitability would be greater if our contract mix shifted toward a greater percentage of fixed-price contracts.
+Added: In addition, changes in contract financing policy for fixed-price contracts, such as changes in performance and progress payments policies, including any modification of the DoD’s applicable progress payment rate, could significantly affect the timing of our cash flows.
+Added: government contracts can expose us to potentially large losses because the U.S.
+Added: government can hold us responsible for completing a project regardless of the size or foreseability of any cost overruns, price increases or labor shortages that occur.
+Added: Given the current pace of inflation and other geopolitical factors, we are monitoring the impact of rising costs on our active and future government contracts.
+Added: To date, we have not experienced broad-based increases due to inflation in the costs of our fixed-price contracts that are material to the business as a whole;
+Added: however, if we begin to experience greater than expected inflation in our supply chain and labor costs, our profit margins, and in particular, our profit margin from fixed-price contracts, which represent a substantial portion of our contracts, could be adversely affected.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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