What changed in this filing

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Item 1. Legal Proceedings

2020-08-05 compared with 2020-05-06 · 44 added, 44 removed, 29 unchanged (75% of the section changed)

3 unchanged sentences

1:17-CV-01673 (D.

Del.) (the “Derivative Suit”)

On November 20, 2017, a purported CPI stockholder filed a stockholder derivative complaint in the United States District Court for the District of Delaware (the “Court”) against certain of CPI’s former officers and current and former directors, along with the sponsors of CPI’s October 2015 initial public offering (“IPO”).

Del.) (the “Derivative Suit”)

CPI is also named as a nominal defendant.

The derivative complaint asserts claims under §§10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 and seeks, among other things, injunctive relief, damages and costs.

It alleges false or misleading statements and omissions in the Registration Statement filed by CPI in connection with its IPO and subsequent public filings and statements.

The derivative complaint asserts claims under §§10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 and seeks, among other things, injunctive relief, damages and costs.

It alleges false or misleading statements and omissions in the Registration Statement filed by CPI in connection with its IPO and

subsequent public filings and statements.

The derivative complaint also asserts claims for purported breaches of fiduciary duties, unjust enrichment, mismanagement and waste of corporate assets.

On December 18, 2019, the parties filed a Stipulation and Agreement of Settlement to resolve and dismiss the Derivative Suit, and on April 1, 2020, the Court granted final approval of the Settlement, whereby (i) all claims that were or could have been asserted in the Derivative Suit were resolved and discharged, (ii) the Company agreed to implement certain corporate governance reforms, and (iii) the Company’s insurer agreed to pay fees and expenses awarded to the plaintiff’s counsel in the amount of $0.3 million and a service award to the plaintiff of a nominal amount.

CPI Card Group Inc.

Multi Packaging Solutions, Inc., et al.

On October 11, 2016, the Company filed a patent infringement suit against Multi Packaging Solutions, Inc.

(“MPS”) in the United States District Court for the District of Colorado.

The complaint asserted that MPS ultra-secure gift card packages sold to at least one customer infringe a Company patent on ultra-secure gift card packages.

MPS answered the complaint and counterclaimed for invalidity and non-infringement.

The Company’s subsidiary, CPI Card Group-Minnesota, Inc., was added to the case as plaintiff.

In June 2017, MPS filed an Inter Partes Review (“IPR”) petition with the United States Patent & Trademark Office’s Patent Trial & Appeal Board (“PTAB”) to review the patent at issue in the patent infringement suit.

The PTAB instituted the IPR on January 9, 2018.

The PTAB entered its final written decision on January 4, 2019, determining that all of the claims in the patent are unpatentable.

The Company filed an appeal of this decision to the federal circuit court on March 1, 2019, and a hearing regarding the Company’s appeal was held on March 3, 2020.

On March 16, the federal circuit court affirmed the PTAB decision.

The Company did not appeal the federal circuit court decision, and the patent infringement suit is administratively dismissed.

In addition to the matters described above, the Company is subject to routine legal proceedings in the ordinary course of business.

On December 18, 2019, the parties filed a Stipulation and Agreement of Settlement (the “Settlement”) to resolve and dismiss the Derivative Suit, and on April 1, 2020, the Court granted final approval of the Settlement, whereby (i) all claims that were or could have been asserted in the Derivative Suit were resolved and discharged, (ii) the Company agreed to implement certain corporate governance reforms, and (iii) the Company’s insurer agreed to pay fees and expenses awarded to the plaintiff’s counsel in the amount of $0.3 million and a service award to the plaintiff of a nominal amount.

The Company is subject to routine legal proceedings in the ordinary course of business.

The Company believes that the ultimate resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations.

Risk Factor s

The risk factors disclosed in the section entitled “Risk Factors”

in our Annual Report on Form 10-K for the year ended December 31, 2019 set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition and operating results.

The risk factors disclosed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition and operating results.

Such risk factors continue to be relevant to an understanding of our business, financial condition and operating results.

As of the date of this Quarterly Report on Form 10-Q, there have been the following material changes with respect to such risk factors.

The ongoing COVID-19 pandemic and responses thereto may adversely affect our supply chain, workforce, overall operations and financial condition, and our ability to access capital markets and refinance indebtedness, each of which may have a material adverse effect on our business.

As discussed above, since December 2019, COVID-19 has spread to multiple countries, including the United States and all of the primary markets where we conduct business.

As a result, almost all U.S.

states and many local jurisdictions have issued, and others in the future may issue, “stay-at-home”

orders, quarantines, and executive and other governmental orders, restrictions and recommendations for residents and businesses in an effort to control the spread of COVID-19, including mandating closures of certain businesses not deemded “essential”.

While CPI is currently deemed essential in all jurisdictions where we operate, such orders, restrictions or recommendations, and the perception that additional orders, restrictions or recommendations could occur, have resulted in widespread work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellations of events, as well as record declines in stock prices, among other effects.

Disruptions to our activities and operations resulting from such governmental orders, restrictions and recommendations may negatively impact our business, operating results and financial condition.

There is also a risk that government actions will not be effective at containing COVID-19 and that government actions intended to contain the spread of COVID-19 will have a devastating negative impact on the world economy at large, in which case the risks to our sales, operating results and financial condition described herein would be elevated significantly.

The ongoing COVID-19 pandemic and responses thereto may, or may continue to, adversely affect our supply chain, workforce, overall operations and financial condition, and our ability to access capital markets and refinance indebtedness, each of which may have a material adverse effect on our business.

Since December 2019, COVID-19 has spread to multiple countries, including the United States and all of the primary markets where we conduct business.

As a result, earlier this year almost all U.S.

states and many local jurisdictions issued “stay-at-home” orders, quarantine requirements, and executive and other governmental orders, restrictions and recommendations for residents and businesses (some of which are still in place) in an effort to control the spread of COVID-19, including mandating closures of certain businesses not deemed “essential.” CPI was deemed essential in all jurisdictions where we operate and thus was not required to suspend any of our operations.

Nevertheless, it is possible that those orders, restrictions or recommendations that are currently no longer in effect may be reinstated and/or that additional orders, restrictions or recommendations may be issued due to the continued outbreak of COVID-19.

Such orders, restrictions and recommendations may again result in widespread closures of businesses, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellations of events, as well as adverse impacts on the national and global economies.

Disruptions to our activities and operations resulting from such governmental orders, restrictions and recommendations would negatively impact our business, operating results and financial condition.

There is also a risk that government actions will not be effective at containing COVID-19 and that government actions intended to contain the spread of COVID-19 will have a devastating long-term negative impact on the national and world economies, in which case the risks to our sales, operating results and financial condition described herein would be elevated significantly.

The duration of COVID-19's impact on our business may be difficult to assess or predict.

The widespread pandemic has resulted, and may continue to result for an extended period, in significant disruption of global financial markets, which may reduce or eliminate our ability to access capital markets and/or to refinance our existing indebtedness, which would negatively affect our liquidity.

Further, the governmental orders, restrictions and recommendations described above (which may include travel and import restrictions) in response to COVID-19 could disrupt our supply chain and thus our ability to obtain materials needed to manufacture our products.

The widespread pandemic may result for an extended period in significant disruption of global financial markets, which may reduce or eliminate our ability to access capital markets and/or to refinance our existing indebtedness, which would negatively affect our liquidity.

Further, the actual and potential governmental orders, restrictions and recommendations described above (which may include travel and import restrictions) in response to COVID-19 have resulted in delays in certain of our suppliers’ deliveries to us and could continue to disrupt our supply chain and thus our ability to obtain materials needed to manufacture our products.

Any import or other cargo restrictions related to our products or the materials used to manufacture our products would restrict our ability to manufacture products and thereby harm our business, financial condition and results of operations.

1 unchanged sentence

Additionally, if we are required to disrupt operations at or to close any of our facilities, or if we elect to do so to protect our employees from an actual or potential outbreak of COVID-19 at any facility, such disruption or closure could impair our ability to fulfill customer orders and may have a material adverse impact on our revenues and increase our costs and expenses.

In the event of such a disruption or closure at one of our facilities, our other facilities may not be able to effectively assume the production activities of such impacted facility due to insufficient capacity, lack of necessary specialized equipment, higher production costs and/or significant time needed to increase production, any of which may result in failure to meet our customers’

requirements, resulting in negative impact to our business, results of operations and/or financial condition.

event of such a disruption or closure at one of our facilities, our other facilities may not be able to effectively assume the production activities of such impacted facility due to insufficient capacity, lack of necessary specialized equipment, higher production costs and/or significant time needed to increase production, any of which may result in failure to meet our customers’ requirements, resulting in negative impact to our business, results of operations and/or financial condition.

Moreover, our key personnel and other employees could be affected by COVID-19, potentially reducing their availability.

1 unchanged sentence

Customer demand for and our ability to sell and market our products may be adversely affected by the COVID-19 pandemic and responses thereto.

As discussed above, state and local governments have imposed orders, restrictions and recommendations resulting in closures of businesses, work stoppages, travel restrictions, social distancing practices and cancellations of gatherings and events.

Such orders, restrictions and recommendations, combined with fears of the spreading of COVID-19, may cause certain of our customers to delay, cancel or reduce orders of our products and services.

A sustained deterioration in general economic conditions may adversely affect our profits, revenue and financial performance if

credit card issuers reduce credit limits, close accounts, and become more selective with respect to whom they issue credit cards as a result thereof.

We are unable to accurately predict how these factors will reduce our sales going forward and when these orders, restrictions and recommendations will be relaxed or lifted.

There can be no assurances that our customers will resume purchases of our products and services upon termination of these orders, restrictions and recommendations, particularly if there remains any continued community outbreak of COVID-19.

As discussed above, earlier this year state and local governments imposed orders, restrictions and recommendations resulting in closures of businesses, work stoppages, travel restrictions, social distancing practices and cancellations of gatherings and events, some of which are still in place.

The reinstating of those orders, restrictions and recommendations that are currently no longer in effect and/or the issuance of additional orders, restrictions and recommendations, combined with fears of the spreading of COVID-19, may cause certain of our customers to delay, cancel or reduce orders of our products and services.

A sustained deterioration in general economic conditions may adversely affect our profits, revenue and financial performance if credit card issuers reduce credit limits, close accounts, and become more selective with respect to whom they issue credit cards as a result thereof.

We are unable to accurately predict how these factors will reduce our sales going forward and when orders, restrictions and recommendations that are in place or may be put in place will be relaxed or lifted.

There can be no assurances that our customers will resume purchases of our products and services upon termination of orders, restrictions and recommendations, particularly if there remains any continued community outbreak of COVID-19.

A prolonged economic contraction or recession may also result in our customers seeking to reduce their costs and expenditures, which could result in lower demand for our products or a shift to demand for lower margin products.

6 unchanged sentences

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

We are evaluating the applicability of the CARES Act to the Company, and the potential impacts on our business.

We are continuing to evaluate the applicability of the CARES Act to the Company, and the potential impacts on our business.

While we may determine to apply for, or otherwise participate in, such programs, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

1 unchanged sentence

The ultimate impact of the COVID-19 outbreak is highly uncertain and subject to change.

We do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole.

We do not yet know the full extent of potential delays or impacts on our business or the economy as a whole.

However, these effects may harm our business, financial condition and results of operations in the near term and could have a continuing material impact on our operations, sales and ability to continue as a going concern.

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

Issuer Purchases of Equity Securities

Exhibit Description

Amendment to Credit Agreement

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the XBRL document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CPI CARD GROUP INC.

August 5, 2020

/s/ John Lowe

Chief Financial Officer

(Principal Financial Officer )

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-Q

Item 1. Legal Proceedings