Grace Therapeutics, Inc. 10-K

Item 3. Legal Proceedings In the ordinary course of business, we are at times subject to various legal proceedings and disputes, including the proceedings specifically discussed below. We assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of loss is not estimable, we do not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently available and available insurance coverage, our management believes that it has established appropriate legal reserves. Any incremental liabilities arising from pending legal proceedings are not expected to have a material adverse effect on our financial position, results of operations, or cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to our financial position, results of operations, or cash flows. Litigation Related to the Merger In connection with the Grace merger, four stockholder lawsuits have been filed: (i) in the United States District Court for the Southern District of New York, captioned Bisel v. Acasti Pharma Inc. et al. , Case No. 1:21-cv-06051 (the “Bisel Complaint”); (ii) in the United States District Court for the District of Delaware, captioned Dawson v. Acasti Pharma Inc. et al. , Case No. 1:21-cv-01039 (the “Dawson Complaint”); (iii) in the United States District Court for the Eastern District of New York, captioned Weir v. Acasti Pharma Inc. et al. , Case No. 1:21-cv-04151 (the “Weir Complaint”); and (iv) in the United States District Court for the Southern District of New York, captioned Castaldo v. Acasti Pharma Inc. et al., Case No. 1:21-cv-06567 (the “Castaldo Complaint”) (together with the Bisel Complaint, the Dawson Complaint and the Weir Complaint, as well as any amended Complaints filed in any of these actions, the “Complaints”)); The Complaints generally allege that our public disclosures pertaining to the Grace merger omitted material facts in purported violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and further that members of our Board of Directors are liable for those purported omissions under Section 20(a) of the Exchange Act. The relief sought in the Complaints includes, among other things to enjoin the consummation of the merger pending disclosure of sufficient information, to award damages purportedly caused by the alleged omissions, and to award plaintiffs’ attorneys’ fees and other costs. The Dawson and Weir Complaints have been voluntarily dismissed without prejudice. The Bisel and Castaldo Complaints have been consolidated. The plaintiffs amended their Complaint in the consolidated action on October 1, 2021, to assert their claims on a class wide basis. The court appointed Plaintiff Castaldo as Lead Plaintiff for the putative class in the consolidated action. Castaldo filed an amended Complaint by February 4, 2022. Acasti filed a motion to dismiss on February 25, 2022. It is possible that additional lawsuits asserting similar claims could be filed. We strongly believe the allegations in the Complaints are frivolous and without merit, and are vigorously defending against them. Item 4. Mine Safety Disclosures Not applicable. 39 PART II