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If any of the risks described below actually occurs, our business, financial condition or results of operations could be materially and adversely affected.
−Removed: Risk categories:
+Added: Risk categories and certain principal risks under each category (each described more fully below):
– Risks related to our global operations, including global macroeconomic and market risks
−Removed: – Risks related to the effects of COVID-19 and other potential future public health crises, pandemics or similar events
+Added: • Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability, or our customers' or vendors' ability, to access funding, and possible trade tariffs and trade restrictions.
+Added: • We are subject to risks related to international sales and purchases.
– Risks related to sales, product development and manufacturing
+Added: • We face significant challenges managing our growth strategy.
+Added: • Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer.
+Added: • Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity.
– Risks associated with our strategic transactions
+Added: • If we fail to evaluate and execute strategic opportunities successfully, our business may suffer.
+Added: • We are subject to a number of risks associated with the sale of the RF Business, and these risks could adversely impact our operations, financial condition and business.
– Risks associated with cybersecurity, intellectual property and litigation
+Added: • We may be subject to confidential information theft or misuse, which could harm our business and results of operations.
+Added: • There are limitations on our ability to protect our intellectual property.
– Risks related to legal, regulatory, accounting, tax and compliance matters
+Added: • We may be required to recognize a significant charge to earnings if our goodwill or other assets become impaired.
+Added: • The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, vehicle range or other aspects of our products and the products in which they are utilized could impact the demand for our products.
– General risk factors
+Added: – We may be required to recognize a significant charge to earnings if our goodwill or other assets become impaired.
Risks related to our global operations, including global macroeconomic and market risks
−Removed: Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, and possible trade tariffs and trade restrictions.
+Added: Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability, or our customers' or vendors' ability, to access funding, and possible trade tariffs and trade restrictions.
Our operations and performance depend significantly on worldwide economic and geopolitical conditions.
Uncertainty about global economic conditions could result in customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition.
−Removed: For example, current global financial markets continue to reflect uncertainty, which has been heightened by the COVID-19 pandemic and the ongoing military conflict between Russia and Ukraine.
+Added: For example, current global financial markets continue to reflect uncertainty, including recent bank failures in the United States, the ongoing military conflict between Russia and Ukraine and the COVID-19 pandemic.
Given these uncertainties, there could be further disruptions to the global economy, financial markets and consumer confidence.
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Government actions to address economic slowdowns and increased inflation, including increased interest rates, also could result in negative impacts to our growth.
−Removed: General trade tensions between the United States and China have been escalating, and any economic and political uncertainty caused by the United States tariffs imposed on goods from China, among other potential countries, and any corresponding tariffs or currency devaluations from China or such other countries in response, has negatively impacted, and may in the future, negatively impact, demand and/or increase the cost for our products.
−Removed: Additionally, Russia’s invasion of Ukraine in early 2022 triggered significant sanctions from U.S.
+Added: General trade tensions between the United States and China continue, and any economic and political uncertainty caused by the United States tariffs imposed on goods from China, among other potential countries, and any corresponding tariffs or currency devaluations from China or such other countries in response, has negatively impacted, and may in the future negatively impact, demand and/or increase the cost for our products.
+Added: Additionally, Russia’s invasion of Ukraine in early 2022 triggered significant sanctions from the U.S.
and European countries.
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Further, the use of cyberattacks could expand as part of the conflict, which could adversely affect our ability to maintain or enhance our cyber-security and data protection measures.
−Removed: Although we believe we have adequate liquidity and capital resources to fund our operations internally and under our existing line of credit, our inability to access the capital markets on favorable terms in the future, or at all, may adversely affect our financial performance.
−Removed: The inability to obtain adequate financing from debt or capital sources in the future could force us to self-fund strategic initiatives or even forego certain opportunities, which in turn could potentially harm our performance.
+Added: Although we believe we have adequate liquidity and capital resources to fund our operations for at least the next 12 months, we expect to need additional funding to fully complete all of our intended expansion initiatives, which we may seek to obtain through, among other avenues, government funding in both the United States or Europe, public or private equity offerings, and debt financings (which may involve retiring some of our existing debt).
+Added: If unfavorable capital market conditions exist, we may not be able to raise sufficient capital on favorable terms and on a timely basis, if at all.
+Added: If we issue equity or convertible debt securities to raise additional funds, our existing shareholders may experience dilution and the new equity or debt securities may have rights, preferences and privileges senior to those of our then-existing shareholders.
+Added: If we incur additional debt, it may impose financial and operating covenants that could restrict the operations of our business.
+Added: In a rising interest rate environment, debt financing will become more expensive and may have higher transactional and servicing costs.
+Added: In addition, our existing indebtedness may limit our ability to obtain additional financing in the future.
+Added: The potential inability to obtain adequate funding from debt or capital sources in the future could force us to self-fund strategic initiatives or even forego certain opportunities, which in turn could potentially harm our performance.
We are subject to risks related to international sales and purchases.
−Removed: We expect that revenue from international sales will continue to represent a significant portion of our total revenue.
+Added: In fiscal 2023, 80% of our revenue was from outside the United States and we expect that revenue from international sales will continue to represent a significant portion of our total revenue.
As such, a significant slowdown or instability in relevant foreign economies or lower investments in new infrastructure could have a negative impact on our sales.
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For example, fluctuations in exchange rates may affect our revenue, expenses and results of operations as well as the value of our assets and liabilities as reflected in our financial statements.
−Removed: We are also subject to other types of risks, including the following:
+Added: We are also subject to other types of risks of doing business internationally, including the following:
• protection of intellectual property and trade secrets;
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• the burden of complying with foreign and international laws and treaties.
−Removed: For example, the United States has imposed significant tariffs on Chinese-made goods, which the Biden administration has previously indicated will largely remain in place.
+Added: For example, the United States has imposed significant tariffs on Chinese-made goods, which the Biden administration has largely left in place.
The tariffs imposed on Chinese goods, among other potential countries and any corresponding tariffs from China or such other countries in response has, and may in the future, negatively impact demand and/or increase the costs for our products.
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These same governments also may provide increased incentives to or require production processes that favor local companies, which could further negatively impact our business and results of operations.
−Removed: Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, including those which may result from the Biden administration and Democratic control of Congress, if any, may have a material adverse effect on our business in the future, or may require us to exit a particular market or significantly modify our current business practices.
−Removed: For example, President Biden has proposed, among other changes to the tax code, an increase in the U.S.
−Removed: corporate income tax rate from 21% to 28% and an increase of the U.S.
−Removed: tax rate on foreign income from 10% to 21%.
−Removed: In addition, the U.S.
−Removed: Treasury Department supports the adoption of a global minimum corporate tax rate of at least 15%, which is under consideration in the U.S.
−Removed: Congress following approval by the leaders of the G-20 in October 2021.
−Removed: The plan, if enacted by the U.S.
−Removed: and other nations, could result in a higher effective tax rate than is currently enacted.
+Added: Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors may have a material adverse effect on our business in the future, or may require us to exit a particular market or significantly modify our current business practices.
Abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could also result in an adverse effect on our business and results of operations.
−Removed: Risks related to the effects of COVID-19 and other potential future public health crises, pandemics or similar events.
−Removed: We may be subject to volatility and uncertainty in customer demand, supply chains, worldwide economies and financial markets resulting from the COVID-19 pandemic or other outbreak of infectious disease or similar public health threat.
−Removed: We have significant manufacturing operations in the United States and contract manufacturing agreements in Asia, which were affected by the COVID-19 pandemic and the measures to try to contain it.
−Removed: We initially experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not been significant.
−Removed: At some of our contract manufacturers in Asia, which include captive lines and contract packaging facilities, we have experienced, and may experience in the future, some disruptions in supply from containment measures.
−Removed: The emergence of fast-spreading variants and the potential waning effectiveness of vaccines have introduced renewed uncertainty into whether additional measures will be implemented to combat the spread of COVID-19.
−Removed: Restrictions on access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our ability to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.
−Removed: The COVID-19 pandemic has significantly increased economic and demand uncertainty.
−Removed: These uncertainties also make it more difficult for us to assess the quality of our product order backlog and to estimate future financial results.
−Removed: The COVID-19 pandemic initially caused an economic slowdown, and the continued spread of COVID-19 and its variants could contribute to or exacerbate a global economic slowdown or recession, which could have a material adverse effect on demand for our products and on our financial condition and results of operations.
−Removed: The spread of COVID-19 and its variants has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events, and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers.
−Removed: There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus and its variants, and our ability to perform critical functions could be harmed.
−Removed: In addition, in light of concerns about the spread of COVID-19 and its variants, our workforce has at times been operating at reduced levels at our manufacturing facilities and at the facilities of some of our contract manufacturers, which may continue to have an adverse impact on our ability to timely meet future customer orders.
−Removed: The duration of the business disruption and related financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time.
−Removed: However, it may materially affect our ability to obtain raw materials, manage input costs, manage customer credit risk, manufacture products or deliver inventory in a timely manner, and it also may impair our ability to meet customer demand for products, result in lost sales, additional costs, or penalties, or damage our reputation.
−Removed: The extent to which COVID-19, its variants or an outbreak of any other infectious disease, such as monkeypox, will further impact our operations and results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and its variants, the efficacy and effectiveness of vaccines, and the actions to contain the virus or treat its impact, among others.
Risks related to sales, product development and manufacturing
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In order to manage our growth and business strategy effectively relative to the uncertain pace of adoption, we must continue to:
−Removed: • maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer demand, including specifically the expansion of our Silicon Carbide capacity with the opening of a state-of-the-art, automated 200mm capable Silicon Carbide device fabrication facility and an expansion of our materials factory;
−Removed: • manage an increasingly complex supply chain (including managing the impacts of ongoing supply constraints in the semiconductor industry) that has the ability to supply an increasing number of raw materials, subsystems and finished products with the required specifications and quality, and deliver on time to our manufacturing facilities, our third-party manufacturing facilities, our logistics operations, or our customers;
−Removed: • access capital markets to fund our growth initiatives, including our ongoing capacity expansions;
−Removed: • expand the capability of our information systems to support a more complex business, such as our current initiative to implement a new company-wide enterprise resource planning (ERP) system;
+Added: • maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer demand, including specifically the expansion of our silicon carbide capacity with the opening and ramping of a state-of-the-art, automated 200mm capable silicon carbide device fabrication facility in New York, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany;
+Added: • meet our production capacity and delivery commitments to our customers, including those customers who provide us with capacity reservation deposits or similar payments;
+Added: • manage an increasingly complex supply chain (including managing the impacts of ongoing supply constraints in the semiconductor industry and meeting purchase commitments under take-or-pay arrangements with certain suppliers) that has the ability to supply an increasing number of raw materials, subsystems and finished products with the required specifications and quality, and deliver on time to our manufacturing facilities, our third-party manufacturing facilities, our logistics operations, or our customers;
+Added: • expand the skills and capabilities of our current management team;
+Added: • add experienced senior level managers and executives;
+Added: • attract and retain qualified employees;
+Added: • expand the capability of our information systems to support a more complex business, such as our current implementation of a new company-wide enterprise resource planning (ERP) system;
• be successful in securing design-ins across our end markets, including automotive applications;
+Added: • realize our expected local, state and federal government incentives, including capital investment reimbursements, property tax reimbursements and sales tax exemptions from state, county and local governments;
+Added: • confirm our eligibility for and receive the expected benefits from refundable income tax credits and capital grants through the U.S.
+Added: CHIPS and Science Act of 2022 (the CHIPS Act), and receive and potentially sell any tax credits for which we may apply under the Inflation Reduction Act;
+Added: • access capital markets to fund our growth initiatives, including our ongoing and planned capacity expansions;
• expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning and administrative functions;
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• manage organizational complexity and communication;
−Removed: • expand the skills and capabilities of our current management team;
−Removed: • add experienced senior level managers and executives;
−Removed: • attract and retain qualified employees;
• execute, maintain and adjust the operational and financial controls that support our business.
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In the fourth quarter of fiscal 2022, we opened a new silicon carbide device fabrication facility in Marcy, New York to complement the materials factory expansion underway at our United States campus headquarters in Durham, North Carolina.
−Removed: The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, including, but not limited to, the following:
+Added: We also commenced work on our new materials manufacturing facility in Siler City, North Carolina in the first quarter of fiscal 2023.
+Added: The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, some of which we have experienced and may experience in the future, including, but not limited to, the following:
• design and construction delays and cost overruns;
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• poor production process yields and reduced quality control;
−Removed: • insufficient personnel with requisite expertise and experience to operate a Silicon Carbide device fabrication facility.
+Added: • insufficient personnel with requisite expertise and experience to operate an automated silicon carbide device fabrication facility and a materials manufacturing facility.
We are also increasingly dependent on information technology to enable us to improve the effectiveness of our operations and to maintain financial accuracy and efficiency.
−Removed: Allocation and effective management of the resources necessary to successfully implement, integrate, train personnel and sustain our information technology platforms will remain critical to ensure that we are not subject to transaction errors, processing inefficiencies, loss of customers, business disruptions or loss of or damage to intellectual property through a security breach in the near term.
+Added: Allocation and effective management of the resources necessary to successfully implement, integrate, train personnel and sustain our information technology platforms will remain critical to ensure that we are not subject to transaction errors, processing inefficiencies, loss of customers or suppliers, business disruptions or loss of or damage to intellectual property through a security breach in the near term.
Additionally, we face these same risks if we fail to allocate and effectively manage the resources necessary to build, implement, upgrade, integrate and sustain appropriate technology infrastructure over the longer term.
−Removed: Our operating results are substantially dependent on the acceptance of new products.
−Removed: Our future success may depend on our ability to deliver new, higher performing and/or lower cost solutions for existing and new markets and for customers to accept those solutions.
−Removed: The development of new products is a highly complex process, and we have in some instances experienced delays in completing the development, introduction and qualification of new products which has impacted our results in the past.
−Removed: Our research and development efforts are aimed at solving increasingly complex problems, and we do not expect that all our projects will be successful.
−Removed: The successful development, introduction and acceptance of new products depend on a number of factors, including the following:
−Removed: • qualification and acceptance of our new product and systems designs, specifically entering into automotive applications which require even more stringent levels of qualification and standards;
−Removed: • our ability to effectively transfer increasingly complex products and technology from development to manufacturing, including the transition to 200mm substrates;
−Removed: • our ability to introduce new products in a timely and cost-effective manner;
−Removed: • our ability to secure volume purchase orders related to new products;
−Removed: • achievement of technology breakthroughs required to make commercially viable products;
−Removed: • our ability to convert customer design-ins to sales of significant volume, and, if customer design-in activity does result in such sales, when such sales will ultimately occur and what the amount of such sales will be;
−Removed: • the accuracy of our predictions for market requirements;
−Removed: • our ability to predict, influence and/or react to evolving standards;
−Removed: • acceptance of new technology in certain markets;
−Removed: • our ability to protect intellectual property developed in new products;
−Removed: • the availability of qualified research and development personnel;
−Removed: • our timely completion of product designs and development;
−Removed: • our ability to develop repeatable processes to manufacture new products in sufficient quantities, with the desired specifications and at competitive costs;
−Removed: • our customers’ ability to develop competitive products incorporating our products;
−Removed: • market acceptance of our products and our customers’ products.
−Removed: If any of these or other similar factors becomes problematic, we may not be able to deliver and introduce new products in a timely or cost-effective manner.
Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer.
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• contamination of the manufacturing environment;
−Removed: • equipment failure, power outages, fires, flooding, information or other system failures or variations in the manufacturing process;
+Added: • equipment failure, power outages, fires, flooding, information or other system failures or variations in the
+Added: manufacturing process;
• lack of consistency and adequate quality and quantity of piece parts, other raw materials and other bill of materials items;
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Additionally, if product demand decreases or we fail to forecast demand accurately, our results may be adversely impacted due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced.
+Added: Changes in product demand from our customers' forecasts may also cause variability in our supply costs if significant adjustments are needed to our forecasted or committed procurement and supply plans.
Further, we may be required to recognize impairments on our long-lived assets or recognize excess inventory write-off charges, or excess capacity charges, which would have a negative impact on our results of operations.
−Removed: With the opening of our new Silicon Carbide device fabrication facility in Marcy, New York, we may experience increased pressure on margins during the period when production begins but before the facility is at full utilization.
−Removed: Additionally, our large upfront investment in the facility to increase capacity does not guarantee we will need the capacity and we may experience lower than expected capacity once the facility is in production, which could result in further margin pressures.
+Added: With the opening of our new silicon carbide device fabrication facility in Marcy, New York, we will experience increased pressure on margins during the period when production begins but before the facility is at full utilization, and in the initial periods we expect these underutilization costs to be substantial as we ramp up the facility.
+Added: Additionally, our large upfront investment in the facility, or any other new facility, to increase capacity does not guarantee we will need the capacity and we may experience lower than expected capacity once the facility is in production, which could result in further margin pressures.
In addition, our efforts to improve quoted delivery lead-time performance may result in corresponding reductions in order backlog.
A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter revenue and operating results.
+Added: Our operating results are substantially dependent on the acceptance of new products.
+Added: Our future success may depend on our ability to deliver new, higher performing and/or lower cost solutions for existing and new markets and for customers to accept those solutions.
+Added: The development of new products is a highly complex process, and we have in some instances experienced delays in completing the development, introduction and qualification of new products which has impacted our results in the past.
+Added: Our research and development efforts are aimed at solving increasingly complex problems, and we do not expect that all our projects will be successful.
+Added: The successful development, introduction and acceptance of new products depend on a number of factors, including the following:
+Added: • qualification and acceptance of our new product and systems designs, specifically entering into automotive applications which require even more stringent levels of qualification and standards;
+Added: • our ability to effectively transfer increasingly complex products and technology from development to manufacturing, including the transition to 200mm substrates;
+Added: • our ability to introduce new products in a timely and cost-effective manner;
+Added: • achievement of technology breakthroughs required to make commercially viable products;
+Added: • our ability to convert customer design-ins to sales of significant volume, and, if customer design-in activity does result in such sales, when such sales will ultimately occur and what the amount of such sales will be;
+Added: • the accuracy of our predictions for market requirements;
+Added: • our ability to predict, influence and/or react to evolving standards;
+Added: • acceptance of new technology in certain markets;
+Added: • our ability to protect intellectual property developed in new products;
+Added: • the availability of qualified research and development personnel;
+Added: • our timely completion of product designs and development;
+Added: • our ability to develop repeatable processes to manufacture new products in sufficient quantities, with the desired specifications and at competitive costs;
+Added: • our ability to secure volume purchase orders related to new products;
+Added: • our customers’ ability to develop competitive products incorporating our products;
+Added: • market acceptance of our products and our customers’ products.
+Added: If any of these or other similar factors becomes problematic, we may not be able to deliver and introduce new products in a timely or cost-effective manner.
We face risks relating to our suppliers, including that we rely on a number of key sole source and limited source suppliers, are subject to high price volatility on certain commodity inputs, variations in parts quality, and raw material consistency and availability, and rely on independent shipping companies for delivery of our products.
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Where possible, we attempt to identify and qualify alternative sources for our sole and limited source suppliers.
−Removed: We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers.
+Added: We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers, including take-or-pay arrangements and capacity reserve deposit agreements.
Some of our sources can have variations in attributes and availability which can affect our ability to produce products in sufficient volume or quality.
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Additionally, general shortages in the marketplace of certain raw materials or key components may adversely impact our business.
−Removed: In the past, we have experienced decreases in our production yields when suppliers have varied from previously agreed upon specifications or made other modifications we do not specify, which impacted our cost of revenue.
+Added: In the past, we have experienced decreases in our production yields when
+Added: suppliers have varied from previously agreed upon specifications or made other modifications we do not specify, which impacted our cost of revenue.
Additionally, the inability of our suppliers to access capital efficiently could cause disruptions in their businesses, thereby negatively impacting ours.
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We rely on arrangements with independent shipping companies for the delivery of our products from vendors and to customers both in the United States and abroad.
−Removed: The failure or inability of these shipping companies to deliver products or the
−Removed: unavailability of shipping or port services, even temporarily, could have a material adverse effect on our business.
+Added: The failure or inability of these shipping companies to deliver products or the unavailability of shipping or port services, even temporarily, could have a material adverse effect on our business.
We may also be adversely affected by an increase in freight surcharges due to rising fuel costs, oil costs and added security.
−Removed: The risks mentioned above, including our sole source or limited source suppliers' ability to produce products and adequately access capital, and our ability to arrange effective shipping arrangements, have increased and may further increase due to the ongoing COVID-19 pandemic.
In our fabrication process, we consume a number of precious metals and other commodities, which are subject to high price volatility and the potential impacts of increased inflation.
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Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products.
−Removed: Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), our corporate name change from "Cree, Inc." to "Wolfspeed, Inc.," a failure to maintain the quality of our products (whether perceived or real), the failure of our products to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner.
+Added: Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), a failure to maintain the quality of our products (whether perceived or real), the failure of our products to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner.
Damage to our brand, reputation or loss of customer confidence in our brand or products could result in decreased demand for our products and have a negative impact on our business, results of operations or financial condition.
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The distributors’ internal target inventory levels vary depending on market cycles and a number of factors within each distributor over which we have very little, if any, control.
−Removed: Distributors also have the ability to shift business to different manufacturers within their product portfolio based on a number of factors, including new product availability and performance.
+Added: Distributors also have the ability to shift business to different manufacturers
+Added: within their product portfolio based on a number of factors, including new product availability and performance.
Similarly, we have the ability to add, consolidate, or remove distributors.
We typically recognize revenue on products sold to distributors when the item is shipped and title passes to the distributor (sell-in method).
−Removed: Certain distributors have limited rights to return inventory under stock rotation programs and have limited price protection rights for which we make estimates.
+Added: Certain distributors have limited rights to return inventory under stock rotation programs and have limited price adjustment rights for which we make estimates.
We evaluate inventory levels in the distribution channel, current economic trends and other related factors in order to account for these factors in our judgments and estimates.
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If we choose to enter into such strategic transactions, we face certain risks including:
+Added: • the inability to realize the expected benefits, both from a timing and amount perspective, from our ongoing and planned capacity expansions, including the construction of a new materials manufacturing facility in Siler City, North Carolina and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany;
• the failure of an acquired business, investee or joint venture to meet our performance and financial expectations;
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Any failure to successfully evaluate strategic opportunities and address risks or other problems that arise related to any such business transaction could adversely affect our business, results of operations or financial condition.
+Added: We are subject to a number of risks associated with the sale of the RF Business, and these risks could adversely impact our operations, financial condition and business.
+Added: On August 22, 2023, we executed the RF Purchase Agreement with MACOM with respect to the RF Business Divestiture.
+Added: We are subject to a number of risks associated with this transaction, including risks associated with:
+Added: • the failure to satisfy, on a timely basis or at all, the closing conditions set forth in the RF Purchase Agreement, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary closing conditions;
+Added: • the separation of the RF Business, and related information technology, from the businesses we are retaining and the operation of our retained business without the RF Business;
+Added: • issues, delays or complications in completing required transition activities to allow the RF Business to operate under MACOM after the closing, including incurring unanticipated costs to complete such activities;
+Added: • unfavorable reaction to the sale by customers, competitors, suppliers and employees;
+Added: • the disruption to and uncertainty in our business and our relationships with our customers, including attempts by our customers to terminate or renegotiate their relationships with us or decisions by our customers to defer or delay purchases from us;
+Added: • difficulties in hiring, retaining and motivating key personnel during this process or as a result of uncertainties generated by this process or any developments or actions relating to it;
+Added: • the diversion of our management’s attention away from the operation of the business we are retaining;
+Added: • the need to incur significant transaction costs in connection with the transaction, regardless of whether it is completed;
+Added: • the restrictions on and obligations with respect to our business set forth in the RF Purchase Agreement and, following closing, the RF MSA and the transition services agreement, in each case between us and MACOM;
+Added: • the need to provide transition services in connection with the transaction, which may result in the diversion of resources and focus;
+Added: • our failure to realize the full purchase price anticipated under the RF Purchase Agreement, including due to fluctuations in the market price of MACOM’s common stock before we are able to sell the Shares following the RTP Fab Transfer and the forfeiture of one-quarter of the Shares in the event that the RTP Fab Transfer is not completed within four years following the closing of the transaction.
+Added: As a result of these risks, we may be unable to realize the anticipated benefits of the transaction, including the total amount of cash we expect to realize.
+Added: Our failure to realize the anticipated benefits of the transaction would adversely impact our operations, financial condition and business and could limit our ability to pursue additional strategic transactions.
We are subject to a number of risks associated with the sale of our former LED Products segment, and these risks could adversely impact our operations, financial condition and business.
−Removed: On March 1, 2021, we completed the sale of our former LED Products segment to SMART pursuant to the Asset Purchase Agreement dated October 18, 2020 (the LED Purchase Agreement).
+Added: On March 1, 2021, we completed the sale of our former LED Products segment to SMART Global Holdings, Inc.
+Added: (SGH) pursuant to the Asset Purchase Agreement dated October 18, 2020 (the LED Purchase Agreement).
We are subject to a number of risks associated with this transaction, including risks associated with:
−Removed: • the restrictions on and obligations with respect to our business set forth in the transition services agreement and the Wafer Supply and Fabrication Services Agreement (the Wafer Supply Agreement), in each case between us and CreeLED;
+Added: • the restrictions on and obligations with respect to our business set forth in the Wafer Supply Agreement between us and CreeLED;
• any required payments of indemnification obligations under the LED Purchase Agreement for retained liabilities and breaches of representations, warranties or covenants.
−Removed: • the ability of SMART to pay the unsecured promissory note issued to us as the earnout payment.
−Removed: As a result of these risks, we may be unable to realize the anticipated benefits of the transaction, including the total amount of cash we expect to receive.
+Added: As a result of these risks, we may be unable to realize the anticipated benefits of the transaction.
Our failure to realize the anticipated benefits of the transaction would adversely impact our operations, financial condition and business and could limit our ability to pursue additional strategic transactions.
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Additionally, outside parties may attempt to access our confidential information through other means, for example by fraudulently inducing our employees to disclose confidential information.
−Removed: We actively seek to prevent, detect and investigate any unauthorized access, which sometimes occurs.
+Added: We actively seek to prevent, detect and investigate any unauthorized access, which sometimes occurs and is usually not recognized until after it has occurred.
To date, we do not believe that such unauthorized access has caused us any material damage.
We might be unaware of any such access or unable to determine its magnitude and effects.
+Added: We are also at risk of security breaches and disruptions occurring at third parties that we work with, including our customers and suppliers.
In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures.
The theft and/or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position, result in a loss of confidence in the adequacy of our threat mitigation and detection processes and procedures, cause us to incur significant costs to remedy the damage caused by the incident, divert management's attention and other resources, and reduce the value of our investment in research and development.
−Removed: In addition, as a result of the COVID-19 pandemic, the increased prevalence of employees working from home may exacerbate the aforementioned cybersecurity risks.
+Added: In addition, the increased prevalence of employees working from home may exacerbate the aforementioned cybersecurity risks.
Our business could be subject to significant disruption and we could suffer monetary or other losses.
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We try to protect this information through appropriate efforts to maintain its secrecy, including requiring employees and third parties to sign confidentiality agreements.
−Removed: We cannot be sure that these efforts will be successful or that the confidentiality agreements will not be breached.
+Added: We cannot be sure that these efforts will be successful
+Added: or that the confidentiality agreements will not be breached.
We also cannot be sure that we would have adequate remedies for any breach of such agreements or other misappropriation of our trade secrets, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.
Litigation could adversely affect our operating results and financial condition.
−Removed: We are often involved in litigation, primarily patent litigation.
+Added: We are often involved in litigation, primarily patent litigation, such as our patent dispute with The Trustees of Purdue University, as discussed further in Note 15, “Commitments and Contingencies,” in our consolidated financial statements included in Item 8 of this Annual Report.
Defending against existing and potential litigation will likely require significant attention and resources and, regardless of the outcome, result in significant legal expenses, which could adversely affect our results unless covered by insurance or recovered from third parties.
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Our ability and the ability of our competitors to meet evolving government and/or industry requirements could impact competitive dynamics in the market.
−Removed: Changes in our effective tax rate may affect our results.
−Removed: Our future effective tax rates may be affected by a number of factors including:
+Added: Changes in our effective tax rate or the ability to obtain future tax credits may affect our results and financial condition.
+Added: Our future effective tax rates and our ability to obtain future tax credits may affect our results and financial condition due to a number of factors, including:
• the jurisdiction in which profits are determined to be earned and taxed;
−Removed: • potential changes in tax laws proposed by the Biden administration and Democratic controlled Congress or alterations in the interpretation of such tax laws and changes in generally accepted accounting principles, for example interpretations and U.S.
+Added: • potential changes in tax laws or alterations in the interpretation of such tax laws and changes in generally accepted accounting principles, for example interpretations and U.S.
regulations issued as a result of the significant changes to the U.S.
−Removed: tax law included within the Tax Cuts and Jobs Act of 2017 (the TCJA) and the Coronavirus Aid, Relief and Economic Security Act of 2020;
−Removed: • the imposition of the proposed global corporate minimum tax rate;
+Added: tax law included within the Tax Cuts and Jobs Act of 2017 (the TCJA), the Coronavirus Aid, Relief and Economic Security Act of 2020 and the Inflation Reduction Act (the IRA);
+Added: • changes in available tax credits, including the eligibility for or the receipt of the expected benefits from refundable investment tax credits obtained through the CHIPS Act;
+Added: • the implementation of international tax and profit shifting rules in countries in which we operate, as recommended by the Organization for Economic Co-operation and Development’s Base Erosion, including the establishment of a minimum tax of 15% on global income;
• the resolution of issues arising from tax audits with various authorities;
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• increases in expenses not deductible for tax purposes, including impairment of goodwill in connection with acquisitions;
−Removed: • changes in available tax credits;
• the recognition and measurement of uncertain tax positions;
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Our results could vary as a result of the methods, estimates and judgments that we use in applying our accounting policies, including changes in the accounting standards to be applied.
−Removed: The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results (see “Critical Accounting Estimates” in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report).
+Added: The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results (see “Critical Accounting Estimates” in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report).
Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments.
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General risk factors
+Added: We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.
+Added: As of June 25, 2023, our indebtedness consisted of $575.0 million aggregate principal amount of our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes), $750.0 million aggregate principal amount of our 0.25% convertible senior notes due February 15, 2028 (the 2028 Notes), $1,750.0 million aggregate principal amount of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes) (collectively, the Outstanding Convertible Notes) and $1,250.0 million aggregate principal amount of senior secured notes due 2030 (the 2030 Senior Notes).
+Added: In addition, on July 5, 2023, we entered into an Unsecured Customer Refundable Deposit Agreement (the “CRD Agreement”) with Renesas Electronics America Inc.
+Added: (“Renesas America”) pursuant to which Renesas America provided the Company an initial deposit in an aggregate principal amount of $1 billion with a commitment to provide additional deposits in an aggregate principal amount of up to an additional $1 billion at our discretion in calendar year 2024, in connection with our entry into a wafer supply agreement with Renesas Electronics Corporation, an affiliate of Renesas America.
+Added: Our ability to pay interest and repay the principal for any outstanding indebtedness under the Outstanding Convertible Notes, the 2030 Senior Notes and the CRD Agreement (if applicable) is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.
+Added: There can be no assurance that we will be able to manage any of these risks successfully.
+Added: The level of our outstanding debt may adversely affect our operating results and financial condition by, among other things:
+Added: • increasing our vulnerability to downturns in our business, to competitive pressures and to adverse general economic and industry conditions;
+Added: • requiring the dedication of an increased portion of our expected cash flows from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures, research and development and stock repurchases;
+Added: • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
+Added: • placing us at a competitive disadvantage compared to our peers that may have less indebtedness than we have by limiting our ability to borrow additional funds needed to operate and grow our business;
+Added: • increasing our interest expense if interest rates increase.
+Added: The Indenture governing the 2030 Senior Notes (the 2030 Senior Notes Indenture) includes a liquidity maintenance financial covenant requiring us to have an aggregate amount of unrestricted cash and cash equivalents maintained in accounts over which the trustee and collateral agent for the 2030 Senior Notes has been granted a perfected first lien security interest of at least
+Added: $500,000,000 as of the last day of any calendar month, which amount will be reduced over time upon the fulfillment of certain conditions.
+Added: In addition, the 2030 Senior Notes Indenture contains certain restrictions that could limit our ability to, among other things:
+Added: incur additional indebtedness, dispose of assets, create liens on assets, make acquisitions or engage in mergers or consolidations, and engage in certain transactions with our subsidiaries and affiliates.
+Added: The 2030 Senior Notes Indenture also requires us to make an offer to repurchase the 2030 Senior Notes with 100% of the net cash proceeds of certain non-ordinary course asset sales and casualty events, subject to the ability to reinvest the proceeds of such casualty events and asset sales (subject to certain limitations), or upon a change of control.
+Added: The Indentures governing the Outstanding Convertible Notes (the Convertible Notes Indentures) require us to repurchase the Outstanding Convertible Notes upon certain fundamental changes relating to our common stock, and also prohibit our consolidation, merger, or sale of all or substantially all of our assets except with or to a successor entity assuming our obligations under the Indentures.
+Added: The CRD Agreement contains certain restrictions on our ability to incur debt and liens, consummate non-arm’s-length transactions with affiliates, mergers and consolidations whereby obligations under the CRD Agreement are not assumed, and change the nature of our business.
+Added: The restrictions imposed by the 2030 Senior Notes Indenture, the Convertible Notes Indentures, and the CRD Agreement could limit our ability to plan for or react to changing business conditions, or could otherwise restrict our business activities and plans.
+Added: Our ability to comply with the provisions of the 2030 Senior Notes Indenture, the Convertible Notes Indentures, and the CRD Agreement may also be affected by events beyond our control and if any of these restrictions or terms is breached, it could lead to an event of default under the 2030 Senior Notes, the Outstanding Convertible Notes, and the CRD Agreement.
+Added: A default, if not cured or waived, may permit acceleration of our indebtedness.
+Added: In addition, our lenders could terminate their commitments to make further loans under the 2030 Senior Notes Indenture or the CRD Agreement.
+Added: If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us or at all.
+Added: The capped call transactions may not prevent dilution of our common stock upon conversion of the 2028 Notes or the 2029 Notes.
+Added: In connection with the pricing of the 2028 Notes and the 2029 Notes, we entered into privately negotiated capped call transactions with the option counterparties.
+Added: The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2028 Notes and 2029 Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of the converted 2028 Notes and 2029 Notes, as the case may be, upon conversion of the 2028 Notes and 2029 Notes.
+Added: If, however, the market price per share of our common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions (currently $212.04 for the 2028 Notes and $202.538 for the 2029 Notes), there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.
Catastrophic events and disaster recovery may disrupt business continuity.
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Historically, our common stock has experienced substantial price volatility, particularly as a result of significant fluctuations in our revenue, earnings and margins over the past few years, and variations between our actual financial results and the published expectations of analysts.
−Removed: For example, the closing price per share of our common stock on Nasdaq (until October 1, 2021) and the NYSE (on and after October 4, 2021) ranged from a low of $58.67 to a high of $141.87 during the twelve months ended June 26, 2022.
+Added: For example, the closing price per share of our common stock on the New York Stock Exchange ranged from a low of $39.48 to a high of $122.07 during the twelve months ended June 25, 2023.
If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price will likely decline.
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In particular, competition in some of the markets we address such as electric vehicles and 5G, the ramp up of our business, and the effect of tariffs or COVID-19 on our business, may have a dramatic effect on our stock price.
−Removed: Additionally, actions taken by the option counterparties in the capped call transactions entered into in connection with our 0.25% convertible senior notes due February 15, 2028 (the 2028 Notes) may affect our stock price, including the potential modifications of their hedge positions by entering into or unwinding various derivatives with respect to our common stock.
+Added: Additionally, actions taken by the option counterparties in the capped call transactions entered into in connection with the 2028 Notes and the 2029 Notes may affect our stock price, including the potential modifications of their hedge positions by entering into or unwinding various derivatives with respect to our common stock.
We are exposed to fluctuations in the market value of our investment portfolio and in interest rates, and therefore, impairment of our investments or lower investment income could harm our earnings.
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From time to time, we have also made investments in public and private companies that engage in complementary businesses.
−Removed: We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.
−Removed: As of June 26, 2022, our indebtedness consisted of $575.0 million aggregate principal amount of our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes and collectively with the 2028 Notes, the Outstanding Notes) and $750.0 million aggregate principal amount of the 2028 Notes and potential borrowings from our revolving line of credit.
−Removed: Our ability to pay interest and repay the principal for any outstanding indebtedness under our line of credit and the Outstanding Notes is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.
−Removed: There can be no assurance that we will be able to manage any of these risks successfully.
−Removed: The level of our outstanding debt may adversely affect our operating results and financial condition by, among other things:
−Removed: • increasing our vulnerability to downturns in our business, to competitive pressures and to adverse general economic and industry conditions;
−Removed: • requiring the dedication of an increased portion of our expected cash flows from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures, research and development and stock repurchases;
−Removed: • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
−Removed: • placing us at a competitive disadvantage compared to our peers that may have less indebtedness than we have by limiting our ability to borrow additional funds needed to operate and grow our business;
−Removed: • increasing our interest expense if interest rates increase.
−Removed: Our line of credit requires us to maintain compliance with an asset coverage ratio.
−Removed: In addition, our line of credit contains certain restrictions that could limit our ability to, among other things:
−Removed: incur additional indebtedness, dispose of assets, create liens on assets, make acquisitions or engage in mergers or consolidations, and engage in certain transactions with our subsidiaries and affiliates.
−Removed: The Indentures governing the Outstanding Notes require us to repurchase the Outstanding Notes upon certain fundamental changes relating to our common stock, and also prohibit our consolidation, merger, or sale of all or substantially all of our assets except with or to a successor entity assuming our obligations under the Indentures.
−Removed: The restrictions imposed by our line of credit and by the Indentures governing the Outstanding Notes could limit our ability to plan for or react to changing business conditions, or could otherwise restrict our business activities and plans.
−Removed: Our ability to comply with our loan covenants and the provisions of the Indentures governing the Outstanding Notes may also be affected by events beyond our control and if any of these restrictions or terms is breached, it could lead to an event of default
−Removed: under our line of credit or the Outstanding Notes.
−Removed: A default, if not cured or waived, may permit acceleration of our indebtedness.
−Removed: In addition, our lenders could terminate their commitments to make further extensions of credit under our line of credit.
−Removed: If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us or at all.
−Removed: The capped call transactions may not prevent dilution of our common stock upon conversion of the 2028 Notes.
−Removed: In connection with the pricing of the 2028 Notes, we entered into privately negotiated capped call transactions with the option counterparties.
−Removed: The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2028 Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of the converted 2028 Notes, as the case may be, upon conversion of the 2028 Notes.
−Removed: If, however, the market price per share of our common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions (currently $212.04), there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.
+Added: We may be subject to volatility and uncertainty in customer demand, supply chains, worldwide economies and financial markets resulting from the COVID-19 pandemic or other outbreak of infectious disease or similar public health threat.
+Added: We have significant manufacturing operations in the United States and contract manufacturing agreements in Asia, which were affected by the COVID-19 pandemic and the measures to try to contain it.
+Added: We initially experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not been significant.
+Added: At some of our contract manufacturers in Asia, which include captive lines and contract packaging facilities, we have experienced, and may experience in the future, some disruptions in supply from containment measures.
+Added: Restrictions on access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures in connection with the COVID-19 pandemic or future outbreaks of infectious diseases or similar public health events could limit our ability to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.
+Added: The COVID-19 pandemic has significantly increased economic and demand uncertainty.
+Added: These uncertainties also make it more difficult for us to assess the quality of our product order backlog and to estimate future financial results.
+Added: The COVID-19 pandemic initially caused an economic slowdown, and the continued spread of COVID-19 and its variants or future outbreaks of infectious diseases or similar public health events could contribute to or exacerbate a global economic slowdown or recession, which could have a material adverse effect on demand for our products and on our financial condition and results of operations.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the state courts of North Carolina will be the sole and exclusive forum for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees or agents.
−Removed: Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for all litigation relating to our internal affairs, including without limitation (i) any derivative action or proceeding brought on behalf of Wolfspeed, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Wolfspeed to Wolfspeed or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the NCBCA), our restated articles of incorporation, as amended, or our amended and restated bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of our restated articles of incorporation, as amended, or our amended and restated bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, shall be the state courts of North Carolina, or if such courts lack jurisdiction, a federal court located within the State of North Carolina, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.
+Added: Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for all litigation relating to our internal affairs, including without limitation (i) any derivative action or
+Added: proceeding brought on behalf of Wolfspeed, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Wolfspeed to Wolfspeed or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the NCBCA), our restated articles of incorporation, as amended, or our amended and restated bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of our restated articles of incorporation, as amended, or our amended and restated bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, shall be the state courts of North Carolina, or if such courts lack jurisdiction, a federal court located within the State of North Carolina, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.
Any such action filed in a North Carolina state court shall be designated by the party filing the action as a mandatory complex business case.
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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.