Steel Connect, Inc. (STCN)

[Enterprising Investor]

Reith v. Lichtenstein, et al.

As previously reported, on August 13, 2021, Steel Connect, Inc. (the “Company”), together with certain of its current and former directors of the board of directors of the Company, including Messrs. Warren Lichtenstein, Glen Kassan, Jack Howard, Jeffery Fenton and Jeffery Wald, and Steel Partners Holdings, L.P. and certain of its affiliates (“Steel Holdings” and, together with the individuals named above, “Defendants”) entered into a Memorandum of Understanding (“MOU”) in connection with settlement of the Reith v. Lichtenstein, et al., C.A. No. 2018-0277-MTZ (Del. Ch. 2018) class and derivative action. Pursuant to the MOU, the Defendants agreed to pay to the Company $2.75 million in cash, funded by directors and officers liability insurance, which payment was completed in April 2022 (with the Company’s insurer paying $1.65 million and the insurer of Steel Holdings, another party to the litigation, paying $1.1 million). Additionally, pursuant to the MOU, as well as separate letter agreements between the Company and such individuals, Messrs. Lichtenstein and Howard agreed to surrender to the Company an aggregate 3.2 million shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), and a third defendant agreed to surrender 100,000 shares of Common Stock, which are all part of the December 2017 awards in consideration for services to the Company.

The settlement payments are currently in an account jointly controlled by counsel for plaintiff and the Company, where the funds are to remain until final court approval of the settlement. The settlement also provides that the Company shall pay the legal fees and costs of plaintiff’s counsel that might be awarded by the Court, subject to a cap of $2.05 million. A hearing was held on August 12, 2022 on the motion to approve the settlement and the plaintiff’s application for an award of attorney fees. One stockholder of the Company objected to the settlement and award of attorneys’ fees. At the conclusion of the August 12 hearing, the Court took the matter under advisement. Thereafter, the Court conferred with the parties’ counsel on August 18, 2022, raised questions about various matters with respect to the proposed settlement and award of attorneys’ fees, and directed the parties to make supplemental submissions, which the plaintiff, the Defendants and the objector subsequently filed.

On September 21, 2022, the parties submitted an amendment to the stipulation and agreement of compromise, settlement and release (the “Amendment”). The Court is scheduled to consider the Amendment at a hearing on September 23, 2022. Pursuant to the Amendment:

- The Defendants will pay the Company an additional $250,000, funded by directors’ and officers’ liability insurance.

- If the previously announced proposed merger between the Company and Steel Partners Holdings, L.P. (the “Merger”) is approved and consummated, and the settlement is approved by the Court, the aggregate settlement payment of $3.0 million will be distributed to the Company’s stockholders (other than Steel Holdings and the other Defendants) after the settlement payment is reduced by the aggregate amount of fees and expenses awarded to the plaintiff’s counsel, the plaintiff and the objector or objector’s counsel, and by the costs and expenses incurred by the Company to make the distribution (which costs and expenses shall not exceed $125,000).

- The distribution shall be made to each holder of eligible shares of Common Stock (as defined in the merger agreement governing the Merger), other than the Defendants; provided, however, that no distribution is required to be made to any holder whose proportionate share of the distribution would be less than $1.00.

- The distribution will be made no later than the latest of (a) the date of payment of the cash consideration in the Merger, (b) five business days after the Court has rendered a final unappealable decision on all applications of an award of fees and expenses or (c) five business days after the settlement payment has been released from escrow to the Company.

- Counsel for the plaintiff also agreed to reduce its request for attorneys’ fees to $1.4 million.

The stipulation of settlement and the Amendment are available on the Company’s website at https://ir.steelconnectinc.com/investor-information. Information on our website is not incorporated by reference in this Current Report on Form 8-K.