(17) Subsequent Events
On August 21, 2013, the Company reached a proposed agreement, preliminary approval of which was granted on September 26, 2013, to settle the private securities class action that is pending against the Company and two of its former officers. A final approval hearing is currently scheduled for January 9, 2014. Under the terms of the preliminarily approved settlement, Diamond would pay a total of $11.0 million in cash and issue 4.45 million shares of common stock to a settlement fund to resolve all claims asserted on behalf of investors who purchased or otherwise acquired Diamond stock between October 5, 2010 and February 8, 2012. The shares will be included within the Company’s earnings per share calculation in the first fiscal quarter of 2014. A portion of the $11.0 million in cash would be funded by Diamond’s insurers. Pursuant to the preliminary approval motion, the estimated value of the 4.45 million shares of Diamond’s common stock was valued at $85.1 million based on the closing market price of Diamond’s common stock on the day before the preliminary approval motion, August 20, 2013. The value of the 4.45 million shares of common stock at July 31, 2013 was $90.7 million. With respect to the 4.45 million shares, Diamond would have the ability to privately place, or conduct a public offering of, the shares with the consent of the lead plaintiff and its counsel, prior to distribution of the settlement fund. In that event, the settlement fund would include the proceeds of the offering in lieu of the settlement shares. Until the settlement shares are distributed, the liability associated with the agreement to issue the settlement shares will be adjusted from period to period based on changes in the Company’s stock price, with the effect of the change included in the Company’s statement of operations.
The aggregate settlement liability of $96.1 million was recognized by the Company in the fourth fiscal quarter and included a cash settlement of $11.0 million and a stock settlement valued at $85.1 million at the close of the stock market on August 20, 2013 as set forth in the settlement preliminary approval motion. The total amount of director and officer liability coverage available under Diamond’s insurance policies is $30 million. As of July 31, 2013, insurers had paid approximately $12.9 million in insurable expenses. As of July 31, 2013, Diamond had recorded a $15.5 million receivable, $12.1 million which will be used for the settlement and other legal expenses and $3.4 million for the shareholder derivative settlement. In addition, Diamond expects to receive $1.6 million related to the shareholder derivative settlement in the first quarter of fiscal 2014 which will be recorded as a gain. The provision for settlement costs will be adjusted to reflect changes in the fair value of the securities until they are issued following final court approval of the Amended Stipulation of Settlement. A portion of the cash piece of the settlement will be paid by insurance. The additional shares of common stock would be antidilutive to the earnings per share calculation as of August 20, 2013.