RELATED PARTY TRANSACTIONS

9 Months Ended

Apr. 30, 2023

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

As of April 30, 2023, SPHG Holdings and its affiliates, including Steel Partners, Handy & Harman Ltd. and Steel Partners Ltd., beneficially owned approximately 52.6% of our outstanding capital stock, including the if-converted value of the SPHG Note and shares of Series C Convertible Preferred Stock that vote on an as-converted basis together with our common stock. Warren G. Lichtenstein, our Interim Chief Executive Officer and the Executive Chairman of our Board, is also the Executive Chairman of Steel Partners GP. Glen Kassan, our Vice Chairman of the Board of Directors and former Chief Administrative Officer, is an employee of Steel Services. Jack L. Howard, the President and a director of Steel Holdings GP, is also a director. Following the receipt of stockholder approval of the issuance of the Series E Convertible Preferred Stock on June 6, 2023, upon conversion of the Series E Convertible Preferred Stock, the Steel Partners Group (as defined above) would hold approximately 85% of the outstanding equity interests of Steel Connect. Refer to Note 18 - "Subsequent Events" for further details.

SPHG Note Transaction

On February 28, 2019, the Company entered into a SPHG Note Purchase Agreement with SPHG Holdings, whereby SPHG Holdings agreed to loan the Company $14.9 million in exchange for the SPHG Note.

On March 9, 2023, the Company and SPHG Holdings entered into an amendment to the SPHG Note. Pursuant to the SPHG Note Amendment, the maturity date of the SPHG Note was extended six months from March 1, 2024 to September 1, 2024. In addition, the Company repaid $1.0 million in principal amount of the SPHG Note on the Amendment Date, and will be required to repay an additional $1.0 million principal amount of the note on the three month anniversary of the SPHG Note Amendment, which occurred on June 9, 2023. In connection with the SPHG Note Amendment, the Company paid SPHG Holdings a cash amendment fee of $0.1 million, and derecognized $0.2 million of the debt discount in proportion to the reduction of the principal balance during the current period. No other changes were made to the terms of the SPHG Note besides the items discussed.

As of April 30, 2023, SPHG Holdings held $13.9 million principal amount of the SPHG Note, compared to $14.9 million principal amount at July 31, 2022. As of April 30, 2023 and July 31, 2022, the net carrying value of the SPHG Note was $11.6 million and $11.0 million, respectively. During the three months ended April 30, 2023 and 2022, the Company recognized interest expense of $0.9 million and $0.7 million, respectively, associated with the SPHG Note. During the nine months ended April 30, 2023 and 2022, the Company recognized interest expense of $2.5 million and $2.1 million, respectively, associated with the SPHG Note.

Series C Convertible Preferred Stock Transaction

On December 15, 2017, the Company entered into a Preferred Stock Purchase Agreement with SPHG Holdings, pursuant to which the Company issued 35,000 shares of the Company's newly created Series C Convertible Preferred Stock to SPHG Holdings at a price of $1,000 per share, for an aggregate purchase consideration of $35.0 million. The terms, rights, obligations and preferences of the Series C Convertible Preferred Stock are set forth in the Series C Certificate of Designations, which has been filed with the Secretary of State of the State of Delaware. During each of the three months ended April 30, 2023 and 2022, the Company paid dividends of $0.5 million associated with the Series C Convertible Preferred Stock. During each of the six months ended April 30, 2023 and 2022, the Company paid dividends of $1.6 million associated with the Series C Convertible Preferred Stock.

On or after December 15, 2022, each holder of Preferred Stock can also require the Company to redeem its Series C Convertible Preferred Stock in cash at a price equal to the Liquidation Preference (as defined in Series C Certificate of

Designations), or approximately $35.2 million. As of April 30, 2023, this right had not been exercised by holders of the Series C Convertible Preferred Stock.

Series E Convertible Preferred Stock Transaction

On April 30, 2023, the Company entered into a series of agreements with Steel Partners, in which the Steel Partners Group transferred certain marketable securities held by the Steel Partners Group to the Company in exchange for 3.5 million shares of Series E Convertible Preferred Stock. The transfer and closing of the transaction was executed on May 1, 2023, making the transaction a subsequent event. As such, the Series E Convertible Preferred Stock are not included in the beneficial ownership calculation as of April 30, 2023 above. See Note 18 - "Subsequent Events" for further details.

STCN Management Services Agreement

On June 14, 2019, the Company entered into an agreement (the "STCN Management Services Agreement") with Steel Services Ltd. ("Steel Services"), an indirect wholly-owned subsidiary of Steel Partners. The Management Services Agreement was effective as of June 1, 2019. Pursuant to the STCN Management Services Agreement, Steel Services provides the Company and its subsidiaries with the non-exclusive services of certain employees, including certain executive officers and other corporate services. In connection with the IWCO Direct Disposal, the monthly fee under the STCN Management Services Agreement was reduced effective on the Disposal Date primarily for the portion of the fee attributable to IWCO Direct. Total expenses incurred related to the STCN Management Services Agreement for the three months ended April 30, 2023 and 2022 were $0.6 million and $0.8 million, respectively. Total expenses incurred related to the STCN Management Services Agreement for the nine months ended April 30, 2023 and 2022 were $1.7 million and $2.5 million, respectively. As of April 30, 2023 and July 31, 2022, amounts due to Steel Services was $0.7 million and $1.0 million, respectively.