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CONTINGENCIES
9 Months Ended
Apr. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
CONTINGENCIES
CONTINGENCIES
On April 13, 2018, a purported shareholder, Donald Reith, filed a verified complaint, Reith v. Lichtenstein, et al., 2018-0277 (Del. Ch.) in the Delaware Court of Chancery. The complaint alleges class and derivative claims for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duty and unjust enrichment against the Company’s Board, Warren Lichtenstein, Glen Kassan, William T. Fejes, Jack L. Howard, Jeffrey J. Fenton, Philip E. Lengyel and Jeffrey S. Wald; and stockholders Steel Partners Holdings L.P. (“Steel Holdings”), Steel Partners, L.P., SPHG Holdings, Handy & Harman Ltd. and WHX CS Corp. (collectively, “Steel Parties”) in connection with the acquisition of $35 million of the Series C Preferred Stock by SPHG Holdings and equity grants made to Lichtenstein, Howard and Fejes on December 15, 2017 (collectively, “Challenged Transactions”). The Company is named as a nominal defendant. The complaint alleges that although the Challenged Transactions were approved by a Special Committee consisting of the independent members of the Board (Messrs. Fenton, Lengyel and Wald), the Steel Parties dominated and controlled the Special Committee, who approved the Challenged Transactions in breach of their fiduciary duty. Plaintiff alleges that the Challenged Transactions unfairly diluted shareholders and therefore unjustly enriched Steel Holdings, SPHG Holdings and Messrs. Lichtenstein, Howard and Fejes. The complaint also alleges that the Board made misleading disclosures in the Company’s proxy statement for the 2017 meeting in connection with seeking approval to amend the 2010 Incentive Award Plan to authorize the issuance of additional shares to accommodate certain shares underlying the equity grants. Remedies requested include rescission of the Series C Convertible Preferred Stock and equity grants, disgorgement of any unjustly obtained property or compensation, attorneys’ fees and costs and monetary damages.
On June 18, 2018, defendants moved to dismiss the complaint for failure to plead demand futility and failure to state a claim. The motions are fully briefed, and argument was held March 5, 2019. On March 5, 2019, the Court of Chancery heard oral argument on (i) the motion to dismiss the Reith complaint and (ii) Ladjevardian’s (see below) motion to intervene and stay. The Court took the motion to dismiss under advisement. Discovery is stayed pending a decision on the motions to dismiss. Because the litigation is at an early stage and motions to dismiss are pending, we are unable at this time to provide a calculation of potential damages or litigation loss that is probable or estimable. Although there can be no assurance as to the ultimate outcome, the defendants believe they have meritorious defenses and intend to defend this litigation vigorously.
On January 18, 2019, Mohammad Ladjevardian, a purported shareholder, filed a verified complaint pursuant to 8 Del. C. § 220. The complaint seeks previously demanded books and records concerning the matters in Ladjevardian’s letters dated January 29, 2018, and August 21, 2018. The complaint does not seek money damages, but does request an award of reasonable attorneys’ fees and costs incurred in pursuing the action. Steel Connect filed an answer on February 7, 2019. On February 20, 2019, the Court entered a scheduling order. Trial in this matter is scheduled for June 26, 2019. Ladjevardian moved to intervene in the Reith matter. On March 5, 2019, the Court took the motion under advisement and denied Ladjevardian’s motion to intervene. On March 13, 2019, the court entered an order staying the case indefinitely pending a decision on the motions to dismiss in the case captioned Donald Reith, v. Lichtenstein, et al.