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Item 3. Legal Proceedings

2022-08-19 compared with 2021-04-15 · 121 added, 78 removed, 16 unchanged (93% of the section changed)

6 unchanged sentences

objected to the Company’s calculation of the post-closing working capital adjustment and rejected the determination of BDO,

USA, LLP (“BDO”), the independent accountant appointed by the parties to resolve the dispute.

On September 27, 2019,

the Company filed a notice of motion in the Supreme Court of the State of New York, County of New York, against Air Industries

seeking, among other things, a judgment against Air Industries in the amount of approximately $4.1 million.

In October 2019,

Air Industries and the Company jointly authorized the release to the Company of approximately $619,000 from escrow, which

represented the value of certain undisputed items.

On October 1, 2020, the court denied the Company’s motion on procedural

grounds, holding that the Company must commence a special proceeding to obtain the relief sought.

decision was made without prejudice and did not resolve the working capital dispute.

the independent accountant appointed by the parties to resolve the dispute.

On September 27, 2019, the Company filed a notice

of motion in the Supreme Court of the State of New York, County of New York, against Air Industries seeking, among other things,

a judgment against Air Industries in the amount of approximately $4.1 million.

In October 2019, Air Industries and the Company

jointly authorized the release to the Company of approximately $619,000 from escrow, which represented the value of certain

undisputed items.

Company and Air Industries entered into a settlement agreement dated as of December 23, 2020, to resolve the post-closing working

1 unchanged sentence

was released from escrow to the Company on December 28, 2020.

As part of the settlement agreement CPI agreed to give up the right

to pursue the additional disputed working capital amount of approximately $2.1 million.

As part of the settlement agreement CPI Aero agreed to give up the

right to pursue the additional disputed working capital amount of approximately $2.1 million.

Action Lawsuit

previously disclosed, a consolidated class action lawsuit has been filed against the Company, Douglas McCrosson, the Company’s

Chief Executive Officer, Vincent Palazzolo, the Company’s former Chief Financial Officer, and the two underwriters of the

Company’s October 16, 2018 offering of common stock, Canaccord Genuity LLC and B.

The Amended Complaint in the

action asserts claims on behalf of two plaintiff classes, (i) purchasers of the Company’s common stock issued pursuant

to and/or traceable to the Company’s offering conducted on or about October 16, 2018;

and (ii) purchasers of the Company’s

common stock between March 22, 2018 through February 14, 2020.

The Amended Complaint alleges that the defendants violated Sections

11, 12(a)(2), and 15 of the Securities Act by negligently permitting false and misleading statements to be included in the registration

statement and prospectus supplements issued in connection with its October 16, 2018 securities offering.

The Amended Complaint

also alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated by the SEC,

by making false and misleading statements in the Company’s periodic reports filed between March 22, 2018 through February

Plaintiffs seek unspecified compensatory damages, including interest;

previously disclosed, a consolidated class action lawsuit (captioned Rodriguez v.

CPI Aerostructures, Inc., et al.

20-cv-01026) has been filed in the U.S.

District Court for the Eastern District of New York against the Company, Douglas

McCrosson, the Company’s former Chief Executive Officer, Vincent Palazzolo, the Company’s former Chief Financial Officer,

and the two underwriters of the Company’s October 16, 2018 offering of common stock, Canaccord Genuity LLC and B.

The Amended Complaint in the action asserts claims on behalf of two plaintiff classes:

(i) purchasers of the Company’s

common stock issued pursuant to and/or traceable to the Company’s offering conducted on or about October 16, 2018;

purchasers of the Company’s common stock between March 22, 2018 and February 14, 2020.

The Amended Complaint alleges that

the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act by negligently permitting false and misleading statements

to be included in the registration statement and prospectus supplements issued in connection with its October 16, 2018 securities

The Amended Complaint also alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange

Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated by the SEC, by making false and misleading

statements in the Company’s periodic reports filed between March 22, 2018 and February 14, 2020.

Plaintiff seeks unspecified

compensatory damages, including interest;

rescission or a rescissory measure of damages;

1 unchanged sentence

and costs and expenses, including attorney’s fees and expert fees.

February 19, 2021, the Company moved to dismiss the Amended Complaint.

Plaintiffs’ opposition to the motion to dismiss

is due on April 23, 2021, and the Company’s reply is due on May 24, 2021.

On February 19, 2021, the Company moved to dismiss the

Amended Complaint.

Plaintiff submitted a brief in opposition to the motion to dismiss on April 23, 2021.

May 20, 2021, the parties reached a settlement in the amount of $3,600,000, subject to court approval.

On July 9, 2021, Plaintiff

filed an unopposed motion for preliminary approval of the settlement.

On November 10, 2021, a magistrate judge recommended that

the Court grant the motion for preliminary approval in its entirety.

The Court adopted the recommendation on May 27, 2022, and

entered an order granting preliminary approval of the settlement on June 7, 2022.

The magistrate judge will hold a hearing on

September 9, 2022 to decide whether to grant final approval of the settlement.

After satisfaction of our $750,000 retention,

the Settlement Amount will be covered and paid by our directors’ and officers’ insurance carrier.

As of March 31,

2021, we have previously paid or accrued to our financial statements covered expenses totaling $750,000, and have therefore met

our directors’ and officers’ retention requirement, which caps the Company’s expenses pertaining to the class

of December 31, 2021, in order to reflect the amounts owed from our directors’ and officers’ insurance carrier and

to the Plaintiffs, we have recorded to our balance sheet a litigation settlement obligation of $3,003,259 and an insurance recovery

receivable of $2,850,000;

this obligation and receivable will be relieved from our balance sheet upon the payment of the Settlement

Amount to the Plaintiff by our directors’ and officers’ insurance carrier.

Derivative Action

shareholder derivative actions have been filed against current members of our board of directors and certain of our current and

former officers.

first action was filed in the United States District Court for the Eastern District of New York, and purports to assert

derivative claims against the individual defendants for violations of Section 10(b) and 21(d) of the Exchange Act and breach

of fiduciary duty, unjust enrichment, and contribution, and seeks to recover on behalf of the Company for any liability the

Company might incur as a result of the individual defendants’ alleged misconduct.

The complaint also seeks declaratory,

equitable, injunctive, and monetary relief, as well as attorneys’ fees and other costs.

On October 26, 2020, the

plaintiff filed an amended complaint.

On January 27, 2021, the Court stayed the action pursuant to a joint stipulation filed

by the parties.

The second action (captioned Woodyard

McCrosson, et al., Index No.

613169/2020) was filed on September 17, 2020

in the Supreme Court of the State of New York (Suffolk County), and purports to assert derivative claims against the

individual defendants for breach of fiduciary duty and unjust enrichment, and seeks to recover on behalf of the Company for

any liability the Company might incur as a result of the individual defendants’ alleged misconduct, along with

declaratory, equitable, injunctive and monetary relief, as well as attorneys’ fees and other costs.

On December 22, 2020, the parties filed a joint stipulation staying the action pending further developments in the class action.

The third action (captioned Berger v.

McCrosson, et al., No.

1:20-cv-05454) was filed on November 10, 2020, in the United States District

Court for the Eastern District of New York, and purports to assert derivative claims against current and former members of our board of

directors, and certain of our current and former officers.

The complaint,

which is based on the shareholder’s inspection of certain corporate books and records, purports to assert derivative claims

against the individual defendants for breach of fiduciary duty and unjust enrichment, and seeks to implement reforms to the Company’s

corporate governance and internal procedures and to recover on behalf of the Company an unspecified amount of monetary damages.The complaint also seeks equitable, injunctive, and monetary relief, as well as attorneys' fees and other costs.

On March 19, 2021, the parties to the Moulton and Berger actions filed a joint stipulation consolidating the actions and staying the consolidated action pending further developments in the class action.

The fourth action (captioned Wurst v.

Bazaar, et al., Index No.

605244/2021) was filed on March 24, 2021, in the Supreme Court of the State of New York (Suffolk County), and purports to assert derivative claims against the Company's current and former executive officers, certain board members, and the Company as a nominal defendant.

The complaint purports to assert derivative claims against the individual defendants for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and seeks to recover on behalf of the Company for any liability the Company might incur as a result of the individual defendants' alleged misconduct.

The complaint also seeks declaratory, equitable, injunctive, and monetary relief, as well as attorneys' fees and other costs.

On April 12, 2021, the parties filed a joint stipulation staying the action pending further developments in the class action.

Each of these derivative actions is based substantially on the same facts alleged in the class action complaint summarized above.

shareholder derivative actions, each based on substantially the same facts as those alleged in the class action discussed above,

have been filed against current members of our board of directors and certain of our current and former officers.

first action (captioned Moulton v.

McCrosson, et.al.

20-cv-02092) was filed in the U.S.

District Court for the

Eastern District of New York.

It purports to assert derivative claims against the individual defendants for violations of Section

10(b) and 21D of the Exchange Act, breach of fiduciary duty, and unjust enrichment and seeks to recover on behalf of the Company

for any liability the Company might incur as a result of the individual defendants’ alleged misconduct.

The complaint also

seeks declaratory, equitable, injunctive, and monetary relief, as well as attorneys’ fees and other costs.

On October 26,

2020, the plaintiff filed an amended complaint.

On January 27, 2021, the Court stayed the action pursuant to a joint stipulation

filed by the parties.

second action (captioned Woodyard v.

McCrosson, et al.

613169/2020) was filed on September 17, 2020, in

the Supreme Court of the State of New York (Suffolk County).

It purports to assert derivative claims against the individual defendants

for breach of fiduciary duty and unjust enrichment, and seeks to recover on behalf of the Company for any liability the Company

might incur as a result of the individual defendants’ alleged misconduct, along with declaratory, equitable, injunctive

and monetary relief, as well as attorneys’ fees and other costs.

On December 22, 2020, the parties filed a joint stipulation

staying the action pending further developments in the class action.

third action (captioned Berger v.

McCrosson, et al.

1:20-cv-05454) was filed on November 10, 2020, in the U.S.

District Court for the Eastern District of New York.The complaint, which is based on the shareholder’s inspection of certain

corporate books and records, purports to assert derivative claims against the individual defendants for breach of fiduciary duty

and unjust enrichment, and seeks to implement reforms to the Company’s corporate governance and internal procedures and

to recover on behalf of the Company an unspecified amount of monetary damages.

The complaint also seeks equitable, injunctive,

and monetary relief, as well as attorneys’ fees and other costs.

March 19, 2021, the parties to the Moulton and Berger actions filed a joint stipulation consolidating the actions

(under the caption In re CPI Aerostructures Stockholder Derivative Litigation , No.

20-cv-02092) and staying the consolidated

action pending further developments in the class action.

fourth action (captioned Wurst v.

Bazaar, et al.

605244/2021) was filed on March 24, 2021, in the Supreme

Court of the State of New York (Suffolk County).

The complaint purports to assert derivative claims against the individual defendants

for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and seeks to recover on behalf of the Company

for any liability the Company might incur as a result of the individual defendants’ alleged misconduct.

The complaint also

seeks declaratory, equitable, injunctive, and monetary relief, as well as attorneys’ fees and other costs.

2021, the parties filed a joint stipulation staying the action pending further developments in the class action.

June 13, 2022, the plaintiffs in the consolidated federal action informed the Court that the Company and all defendants had reached

an agreement in principle with all plaintiffs to settle the shareholder derivative lawsuits described above.

2022, the plaintiffs in the consolidated federal action filed an unopposed motion for preliminary approval of the settlement.

On July 22, 2022, the Court referred the motion to the magistrate judge;

the motion remains pending.

The settlement is subject

to Court approval and, if approved, will result in the dismissal of the shareholder derivative lawsuits.

the proposed settlement, the Company has agreed to undertake (or confirm that it has undertaken already) certain corporate governance

reforms and to pay attorneys’ fees to plaintiffs’ counsel.

The attorneys’ fees will be covered and paid by our

directors’ and officers’ insurance carrier, after satisfaction of our $750,000 retention.

Investigation

previously disclosed, on May 22, 2020, the Company received a subpoena from the Securities and Exchange Commission (the “Commission”)

Division of Enforcement (the “Division”) seeking documents and information relating, among other things, to previously

disclosed errors in and restatement of the Company’s financial statements, the Company’s October 16, 2018 equity offering

and the recent separation of the Company’s former Chief Financial Officers.

By letter dated March 12, 2021 and received

on March 16, 2021, the Division Staff notified the Company that the Division has concluded its investigation and, based on the

information the Division has as of such date, it does not intend to recommend an enforcement action by the Commission against

The Division’s notice was provided under the guidelines described in the final paragraph of Securities Act

5310 which states in part that the notice “must in no way be construed as indicating that the party has been

exonerated or that no action may ultimately result from the staff’s investigation.”

SAFETY DISCLOSURES

May 22, 2020, the Company received a subpoena from the SEC Division of Enforcement (the “Division”) seeking documents

and information relating, among other things, to previously disclosed errors in and restatement of the Company’s financial

statements, the Company’s October 16, 2018 equity offering and the recent separation of the Company’s former Chief

Financial Officers.

By letter dated March 12, 2021, the Division Staff notified the Company that the Division has concluded its

investigation and, based on the information the Division has as of such date, it does not intend to recommend an enforcement action

by the SEC against the Company.

The Division’s notice was provided under the guidelines described in the final paragraph

of Securities Act Release No.

5310 which states in part that the notice “must in no way be construed as indicating that

the party has been exonerated or that no action may ultimately result from the staff’s investigation.”

MINE SAFETY DISCLOSURES

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

What changed 10-K

Item 3. Legal Proceedings