Stein Mart, Inc.
STEIN MART INC (Form: 10-K, Received: 04/13/2017 17:23:52)
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     For the fiscal year ended January 28, 2017

or

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   For the transition period from              to             

Commission file number 0-20052

STEIN MART, INC.

(Exact name of registrant as specified in its charter)

 

Florida      64-0466198

(State or other jurisdiction of

    

(I.R.S. Employer

incorporation or organization)

    

Identification Number)

1200 Riverplace Blvd., Jacksonville, Florida    32207

(Address of principal executive offices)

  

(Zip Code)

Registrant’s telephone number, including area code: (904) 346-1500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

  

Name of each exchange on which registered:

Common Stock $.01 par value

  

The NASDAQ Global Select Market

 

Securities registered pursuant to Section 12(g) of the Act:

  

 

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ]

  

Accelerated filer [X]

Non-accelerated filer [ ]

  

Smaller reporting company [ ]

(Do not check if a smaller reporting company)

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of July 30, 2016 was $268,018,805. For purposes of this response, executive officers and directors are deemed to be affiliates of the registrant and the holdings by non-affiliates was computed as 31,164,977 shares. At April 11, 2017, the Registrant had issued and outstanding an aggregate of 47,114,862 shares of its common stock.

Documents Incorporated By Reference:

Portions of the Registrant’s Proxy Statement for its 2017 Annual Meeting of Shareholders are incorporated by reference in Part III.


Table of Contents

STEIN MART, INC.

TABLE OF CONTENTS

This Annual Report on Form 10-K contains forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks, uncertainties or assumptions and may be affected by certain factors, including but not limited to the specific factors discussed in Part I, Item 1A under “Risk Factors” and Item 3 under “Legal Proceedings,” in Part II, Item 5 under “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” and Part II, Item 7 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item under “Financial Statements and Supplementary Data.” Wherever used, the words “plan,” “expect,” “anticipate,” “believe,” “estimate” and similar expressions identify forward-looking statements. In addition, except for historical facts, all information provided in Part II, Item 7A, under “Quantitative and Qualitative Disclosures about Market Risk” should be considered forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements are based on beliefs and assumptions of our management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise our forward-looking statements in light of new information, future events or otherwise. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance.

 

ITEM NO.       PAGE     
  PART I   

1.

  Business      3  

1A.

  Risk Factors      5  

1B.

  Unresolved Staff Comments      9  

2.

  Properties      10  

3.

  Legal Proceedings      11  

4.

  Mine Safety Disclosures      11  
  PART II   

5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     11  

6.

  Selected Consolidated Financial Data      13  

7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      13  

7A. 

  Quantitative and Qualitative Disclosures about Market Risk      19  

8.

  Financial Statements and Supplementary Data      19  

9.

  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      19  

9A.

  Controls and Procedures      19  

9B.

  Other Information      20  
  PART III   

10.

  Directors, Executive Officers and Corporate Governance      20  

11.

  Executive Compensation      21  

12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      21  

13.

  Certain Relationships and Related Transactions, and Director Independence      21  

14.

  Principal Accounting Fees and Services      21  
  PART IV   

15.

  Exhibits, Financial Statement Schedules      21  

SIGNATURES

     23  

 

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PART I

ITEM 1. BUSINESS

OVERVIEW

Headquartered in Jacksonville, Florida, Stein Mart, Inc. is a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices comparable to off-price retail chains. Our focused assortment of merchandise features current season, moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions, all offered at prices competitive with off-price retail chains. Begun in the early 1900’s as a single store in Greenville, Mississippi, we operated 290 stores in 31 states and an E-commerce retail selling site as of January 28, 2017.

As used herein, the terms “we,” “our,” “us” and “Stein Mart” refer to Stein Mart, Inc., a Florida corporation, and its wholly-owned subsidiaries.

KEY STRATEGIC OBJECTIVES

Our mission is to provide current season, first-quality fashion apparel, shoes, accessories and home fashion merchandise at prices comparable to off-price retail chains in a convenient, attractive and easy-to-shop location. We believe our success and future growth will depend on the consistent execution of the following:

 

   

Having a desirable, current season assortment of designer, brand name, exclusive and proprietary fashion apparel, accessories and home fashion merchandise,

 

   

Sourcing a wide range of key brands and maintaining strong partnerships with the vendors representing those brands,

 

   

Offering everyday low prices on fashion merchandise through buying methodologies and low cost operations,

 

   

Attracting repeat and new customers through marketing and advertising programs,

 

   

Having an attractive store appearance, appealing merchandise presentation and on-demand customer service, similar to a department or specialty store,

 

   

Opening new and maintaining current locations in regional, community and neighborhood shopping centers serving a more affluent customer, and

 

   

Building and growing our E-commerce business.

TARGET CUSTOMER

Our target customer is a woman over 45 years old who is both style conscious and value seeking. She is typically married and college educated. She may be multi-cultural, works at least part-time in a professional position and has above-average household income.

MERCHANDISING, PURCHASING AND PRICING

Our fashion assortment is driven primarily by seasonal fashion trends and a focus on name brand and designer merchandise complemented by a select program of private label and proprietary/exclusive merchandise. During 2016, approximately 10% of our sales were from private label or proprietary/exclusive merchandise. We merchandise our stores based on individual store selling characteristics, seasonal buying fluctuations and regional preferences while maintaining mostly consistent assortments from store to store.

Our merchants purchase products from approximately 1,200 vendors. One of our vendors accounted for approximately 6% of our total purchases during 2016. We buy a majority of our merchandise at the same time and from many of the same manufacturers as traditional department/specialty stores, although we generally do not require the same level of front and back-end vendor concessions, such as advertising allowances, return privileges and markdown allowances, which are common and significant in the department store industry. As a result, we believe that our buyers are able to negotiate more favorable upfront pricing terms from our vendors. We also purchase merchandise opportunistically when we believe a combination of the product and the price makes it a compelling addition to our assortment. In both instances, we pass our savings on to our customers through everyday low pricing targeted to be competitive with off-price retail chains.

Our shoe department inventory is exclusively supplied and owned by DSW, Inc. (“DSW”). DSW’s buyers determine each season’s fashion footwear assortment. We operate the shoe department and receive a percentage of net revenue in accordance with a supply agreement (the “Supply Agreement”). Commissions from this leased department are included in Net sales reported in our Consolidated Statements of Income.

 

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The following table sets forth the percentage of our sales by major merchandise category, including shoe department sales, for the fiscal years indicated:

 

                                                              
     2016     2015     2014  

Ladies’ and Boutique apparel

     46     46     45

Ladies’ accessories

     10     11     11

Men’s

     19     19     19

Home

     13     13     13

Shoes

     8     7     7

Other

     4     4     5
     100     100     100

LOCATIONS, GROWTH STRATEGY AND STORE APPEARANCE

On January 28, 2017, we operated 290 stores in 31 states and an E-commerce retail selling site. Our stores are located in the Northeast, Midwest, Southeast, Texas and the Southwest. We are most fully concentrated in the Southeast and Texas where 189 of our stores are located. Most locations are in neighborhood, community and regional shopping centers frequented by a more affluent customer. Our optimal co-tenants within these shopping centers cater to a similar target customer and include highly-frequented retail formats such as other apparel retailers, higher-end grocers and restaurants. All Stein Mart locations, including the corporate headquarters and distribution centers, are leased.

We selectively seek additional store locations that strengthen our portfolio in current as well as new markets. We utilize regional tenant representative brokers to help us identify potential sites for new or relocated stores. New and relocated store decisions are supported by independent sales forecasts, and are approved by a real estate committee made up of senior level executives.

Our typical store is approximately 32,000 gross square feet. They have a racetrack design, convenient centralized check-out and individual dressing rooms. We display merchandise in lifestyle groupings of apparel and accessories, which we believe enables our customers to locate desired merchandise in a manner that encourages multiple purchases. We seek to create excitement in our stores through the continual flow of fashion merchandise, targeted sales promotions, store layout, merchandise presentation, and the quality, value and depth of our merchandise assortment.

E-COMMERCE

We sell merchandise offerings on our website at www.steinmart.com . The website allows customers to make online purchases of much of the same product offered in our stores along with some exclusive online products. The website also provides information for customers regarding store locations, brands, products and selected sales promotion activity. Visitors to our website may apply for our credit card, sign up to be Preferred Customers, sign up for email notifications and purchase gift cards. E-commerce sales amounted to approximately 2.1%, 1.7% and 1.0% of our total sales in 2016, 2015 and 2014, respectively. The warehousing and distribution for E-commerce is managed by two third-party providers and, in some cases, our vendors.

CUSTOMER SERVICE

Our stores offer many services typically found in better department or specialty stores, such as merchandise locator services, a Preferred Customer program, co-branded and private label credit card programs and electronic gift cards. Each store is staffed with a number of sales associates to provide on-demand customer service. Our stores have their own Boutique , generally staffed by specially-recruited consultants. We believe this staffing approach adds credibility and fashion integrity to our Boutique area.

MARKETING

Our marketing efforts are focused on deepening our relationship with our best customers in order to increase our share of her spending as well as seeking new customers. We engage in periodic market research, including accessing our proprietary customer panel, to identify how best to reach each of these audiences and, in consultation with our outside advertising and direct-marketing agencies, we adjust our marketing focus accordingly.

Our advertising stresses upscale fashion merchandise at discount prices. We utilize a combination of full-color circulars (both inserted in newspapers and mailed directly to homes), direct mail, newspaper run of press advertising and email to distribute our sales promotion messages. To reach a broader audience, increase brand awareness and drive promotional events, we use both television and radio advertising. We utilize digital media, primarily paid search, comparison shopping engines, affiliate marketing and display advertising to increase brand awareness and drive traffic to our E-commerce site. We also use social networking sites, including Facebook, Twitter and various blogs.

Our Preferred Customer Card Program is an important marketing tool. Preferred Customer Card Program customers receive preview copies of select circulars mailed to their homes, members only shopping days, birthday discounts and special email announcements. This program provides useful database information regarding customer preferences, habits and advertising receptivity. All Stein Mart Credit Card holders are members of our Preferred Customer Card Program.

 

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STEIN MART CREDIT CARDS

Stein Mart has both Co-Branded Mastercard and Private Label Credit Cards (together “Stein Mart Credit Card”) available for our customers based on credit approvals. These cards are issued by our business partner, Synchrony Financial, who bears all credit risk associated with the cards. Synchrony Financial provides us certain direct financial benefits based on sales on the cards and other factors.

As mentioned above, Stein Mart Credit Card holders receive advance notice of sales events and special promotional offers including Extra Savings Events which occur periodically throughout the year and provide incremental savings on purchases made with the Stein Mart Credit Card during these events. Stein Mart Co-Branded Mastercard holders also participate in the credit card rewards program, which provides for an incentive in the form of reward certificates based on their cumulative purchases made on the credit card.

COMPETITION

We operate in an intensely competitive retail industry. Our primary competitors for both our stores and E-commerce are department and specialty stores, as well as conventional off-price retail chains. From our customer’s perspective, we believe that we differentiate ourselves from department and specialty stores with our (i) lower initial pricing, (ii) convenient locations in shopping centers and (iii) assortments that are more selective than department stores and more varied than specialty stores. We also believe that we differentiate ourselves from typical off-price retail chains by offering (i) primarily current season first-quality merchandise carried by better department or specialty stores, (ii) a stronger merchandising “statement,” consistently offering more depth of color and size in individual stock-keeping units, (iii) merchandise presentation and customer service more comparable to upscale retailers and (iv) competitive price levels.

DISTRIBUTION

Our logistics network (“supply chain”) consists of consolidation centers (“CC’s”) located in the Atlanta, Los Angeles and New Jersey areas, and store distribution centers (“SDC’s”) located in the Atlanta, Dallas and Los Angeles areas. Approximately 55% of the vendor shipments are aggregated at the CC’s and then shipped to the SDC’s with the remaining 45% moving directly from vendors to SDC’s. The SDC’s receive, check and prepare the merchandise to ensure it is floor ready for our stores. The SDC’s are automated and virtually all of our vendors are electronic data interchange (“EDI”) capable so we are able to cross-dock a high percentage of our receipts. Store deliveries are made by contract carriers once or twice a week, depending on location and store volume. The New Jersey CC is the only facility managed by a third-party logistics provider.

EMPLOYEES

As of January 28, 2017, our work force consisted of approximately 11,000 employees (5,600 40-hour equivalent employees). Each of our stores employs an average of 36 persons. The number of employees fluctuates during the year based on the particular selling season. We have no employees subject to Collective Bargaining Agreements. We believe that our relations with our employees are generally good.

SEASONALITY

Our business is seasonal in nature. Sales and profitability are historically higher in the first and fourth quarters of the fiscal year, which include the spring and holiday seasons.

TRADEMARKS

We own the federally registered trademark Stein Mart®, together with a number of other marks used in conjunction with our private label merchandise program. We believe that our trademarks are important, but, with the exception of Stein Mart®, not critical to our merchandising strategy.

AVAILABLE INFORMATION

Copies of our Annual Reports on Form 10-K, Proxy Statements, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those filings are available, free of charge, on our investor relations website at http://ir.steinmart.com (click on “SEC Filings”). Also available free of charge on the investor relations website are the Charters for the Audit Committee, Compensation Committee and Corporate Governance Committee, as well as the Code of Conduct, Corporate Governance Guidelines, Bylaws and the Conflict Minerals Policy (click on “Charters & Documents”). Paper copies of these items are available free of charge upon written request to Stein Mart, Inc., 1200 Riverplace Boulevard, Jacksonville, FL 32207, Attention: Investor Relations.

ITEM 1A. RISK FACTORS

Our results of operations and financial condition can be adversely affected by numerous risks and uncertainties. In evaluating us, the risks and uncertainties described below and the matters described in “Forward-Looking Statements” should be considered carefully. Should any of these risks actually materialize, our business, financial condition and future prospects could be adversely affected.

 

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Our sales and operating results are affected by consumer sensitivity to economic conditions and world events . The retail apparel business is dependent upon consumer spending and, as a fashion retailer, we rely on the expenditure of discretionary income for most, if not all, of our sales. Economic factors impacting consumer confidence and levels of consumer spending include levels of employment, the housing market, the stock market, prevailing interest rates, tax policies, personal bankruptcies, energy costs and availability and cost of credit. Consumer confidence is also affected by both domestic and international events. Deterioration in the level of consumer spending could have a material adverse effect on our results of operations.

We face intense competition in the retail industry . We face intense competition for customers from department stores, specialty stores, regional and national off-price retail chains and internet and mail-order retailers. Many of these competitors are larger and have significantly greater financial and marketing resources than we do. In addition, many department stores and other competitors have become more promotional and have reduced their price points. Certain department stores and certain of our vendors have opened outlet stores which offer merchandise at prices that are competitive with ours. Many of our competitors have significant E-commerce sales. While we maintain an internet site, our E-commerce sales comprised approximately 2.1% of our total sales in 2016. If we fail to successfully compete, our profitability and results of operations could be adversely affected.

Unanticipated changes in fashion trends and changing consumer preferences may adversely affect our sales . Our success depends in part upon our ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner. Although we attempt to stay abreast of the fashion tastes of our customers and provide merchandise that satisfies customer demand, fashion trends can change rapidly and we may not accurately anticipate shifts in fashion trends and adjust our merchandise mix to appeal to changing consumer tastes in a timely manner. If we misjudge the market for our products or are unsuccessful in responding to changes in fashion trends or in market demand, we could experience insufficient inventory levels and missed opportunities, or excess inventory levels and higher markdowns, either of which could have a material adverse effect on our financial condition and results of operations. We may also lose customers and market share to those of our competitors who are able to better anticipate, identify and respond to such fashion trends and market demands. And because our success depends on our brand image, our business could be materially adversely affected if new product offerings are not accepted by our customers to the same extent as past product offerings.

Our ability to sustain profitable growth is subject to our successfully implementing strategic plans. The success of our strategic plans is also dependent on the skills, experience, and efforts of our management and other associates and our success with third parties. The loss of key management personnel could also negatively impact the execution of our business strategy. Additional charges may be required if we are unable to successfully implement our plans or if we adopt new strategies for the future. There is no assurance that we will be able to successfully implement these strategic initiatives or that the implementation of changes will result in the benefits or costs savings at the levels that we anticipate or at all, which may result in an adverse impact on our business and financial results.

Our advertising, marketing and promotional strategies may be ineffective . Our profitability and results of operations may be materially affected by the effectiveness and efficiency of our marketing expenditures and our ability to select the right markets and media in which to advertise. In particular, we may not be successful in our efforts to create greater awareness of our stores and promotions, identify the most effective and efficient level of spending in each market and specific media vehicle, or determine the appropriate creative message and media mix for our advertising, marketing and promotional expenditures. While we utilize different types of media, newspapers are an important delivery vehicle for run of press promotional advertising and circular insertions. The newspaper business is under increasing economic pressure, and the demise of certain newspapers would jeopardize an important distribution method for our advertising. As readers shift away from newspapers, our success will depend more on our effective use of other forms of media for our advertising, marketing and promotional strategies. Our planned marketing expenditures may not result in increased revenues.

We may be unable to raise additional capital, if needed, or to raise capital on favorable terms . If our existing cash, cash generated from operations and funds available under our revolving credit agreement were insufficient to fund our future operations, including capital expenditures, or repay debt when it becomes due, we may need to raise additional funds through public or private equity or debt financing. If unfavorable capital or credit market conditions exist if and when we were to seek additional financing, we may not be able to raise sufficient capital on favorable terms or on a timely basis, if at all. Failure to obtain capital on acceptable terms when required could have a material adverse effect on our business including an inability to fund new growth and other capital expenditures.

Dividend Impact on Stock Price. We believe our stock price, in part, reflects expectations that our cash dividend will continue at current levels. Future dividends are subject to declaration by our Board of Directors and could be reduced or eliminated if we fail to operate with desired levels of profitably or cash flows. If our dividend is reduced or eliminated, our stock price may decline, which could have a material adverse effect on investor confidence and employee retention.

We may be unable to negotiate acceptable lease terms with current and potential landlords . Our growth and success depends in part on our ability to renew and enter into new leases for successful stores. There is no assurance that we will be able to re-negotiate leases at similar or satisfactory terms at the end of the lease, and we could be forced to move or exit trade areas if another favorable arrangement cannot be made. There is also no assurance that we will be able to negotiate satisfactory terms on new or replacement stores.

 

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Under-performing stores can result in charges and expenses. If individual stores underperform to the point that their future estimated cash flows will not cover our undepreciated fixed asset investment, we take an impairment charge. We also close certain under-performing stores, generally based on the lack of store profitability. Such closures subject us to costs, including lease termination payments and the write-down of leasehold improvements, equipment, furniture, fixtures and inventory. For early terminations, we may incur charges for asset write-downs and remain liable for future lease obligations which could adversely affect our profitability and results of operations.

Because of our focus on keeping our inventory at the forefront of fashion trends, extreme and/or unseasonable weather conditions could force us to have higher inventory markdowns . Our business is susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the fall season or cool weather during the spring season could render a portion of our inventory incompatible with those unseasonable conditions. Prolonged unseasonable weather conditions could have a material adverse effect on our business, financial condition and results of operations. In addition, extreme weather conditions over a prolonged period might make it difficult for our customers to travel to our stores, which could have a material adverse effect on our business, financial condition and results of operations.

A lack of adequate sources of merchandise at acceptable prices may adversely affect our sales . Our business is dependent to a significant degree upon our ability to purchase fashion and brand name merchandise, and to do so at acceptable wholesale prices. We continuously seek out buying opportunities and compete for these opportunities with other retailers. In the event of a further decrease in retail sales and the resulting pressure on manufacturers, the opportunities to purchase merchandise could become limited by the consolidation or demise of merchandise vendors. Our ability to obtain merchandise may also depend on manufacturers’ ability to obtain vendor financing through banks and factoring companies. To the extent they are unable to secure sufficient credit, they may not be able to sell to us at acceptable terms. Although we do not depend on any single vendor or group of vendors and believe we can successfully compete in seeking out new vendors, the loss of key vendors could make it difficult for us to acquire sufficient quantities and an appropriate mix of merchandise, and to do so at acceptable prices which could have a material adverse effect on our results of operations.

Increases in the price of merchandise could increase our costs which could negatively impact our margins . The raw materials used to manufacture our goods are subject to availability constraints and price volatility caused by high demand for fabrics, supply conditions, government regulations, and other unpredictable factors. Our procurement of goods and services is subject to the effects of price increases which we may or may not be able to pass through to our customers. Additionally, procurement of our merchandise is subject to increases in demand for, or the price of, raw materials, services and labor. All of these factors may affect our ability to access suitable merchandise on acceptable terms, are beyond our control and could negatively impact our results of operations.

We are dependent on certain key personnel and our ability to attract and retain qualified employees and increases in the cost of employee compensation and benefits could impact our financial results and cash flows . Our business is dependent on attracting and retaining quality employees. Many of our employees are in entry level or part-time positions with historically high rates of turnover. We also face challenges in recruiting and retaining talent in other areas, including management, accounting and information technology for reasons such as talent availability in our geographic areas and otherwise. Our ability to meet our labor needs while controlling our labor costs, including hourly wages and costs of providing retirement, health and other employee benefits, and hiring and training new employees is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation, changing demographics, health and other insurance costs, including health care legislation. Departures of key personnel could be viewed in a negative light by investors or analysts, which could cause a decline in the price of our common stock.

The seasonality of our business and fluctuations in sales and operating results could cause volatility in the price of our common stock . Our business is seasonal with our highest sales occurring in the first and fourth quarters, which include the spring and holiday seasons. Our annual operating results depend significantly upon sales generated during these quarters, and any factor that negatively affects these selling seasons could have a material adverse effect on our results of operations for the entire year. Comparable store sales and quarterly operating results have fluctuated in the past and are expected to continue to fluctuate in the future. Our stock price is influenced by these financial fluctuations, as well as other factors, including economic conditions, timing of promotional events, actions of competitors, inventory management, changes in fashion trends and unseasonable weather conditions.

If we experience any business interruptions or disruptions in the distribution process, our profitability could be materially affected. We may not anticipate, respond adequately to or control all of the challenges of operating our distribution operations. In the event that the orderly receipt and distribution of merchandise is disrupted, including by labor disputes at ports of entry, impeding the timeliness or fulfillment quality of the products being distributed, or any of our distribution centers becomes inaccessible, or is otherwise not fully usable, it would have a material adverse effect on our ability to distribute our products, which in turn would have a material adverse effect on our sales, profitability, financial condition and operating performance.

 

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We are subject to risks associated with importing merchandise from other countries. Much of the fashion and brand name merchandise we acquire through vendors is sourced from various foreign countries. Political or financial instability, terrorism, trade restrictions, tariffs, currency exchange rates, raw material shortages, disruptions, strikes, work stoppages and other factors beyond our control could affect the availability of our merchandise inventory. Current discussion regarding increases in tariffs or reductions in deductibility for merchandise sourced from foreign vendors could materially affect our inventory costs, and if we are unable to pass those increases on to our customers, the increases could have a material adverse effect on our sales, profitability, financial condition and operating performance.

Additionally, we require our vendors and the third parties from whom they source merchandise to comply with all applicable laws and regulations, and our own sourcing policies such as the use of labor practices which are considered ethical in the United States and not using fur in our merchandise. We do not have the ability to control our vendors, their manufacturers or their employment and business practices. The failure of our vendors and their suppliers to comply with applicable laws and our policies could affect the availability and price of merchandise, damage our reputation or otherwise have a material adverse effect on our sales, profitability, financial condition and operating performance.

Failure of information technology could disrupt operations and harm our business . The operation of our business and the effective execution of our merchandising and distribution strategies as well as our financial reporting and online selling processes are dependent in large measure on the effectiveness of our information technology systems as well as those of external service providers. The reliability and capacity of these technology systems are critical and any disruptions may have a material adverse impact on our business.

We could be adversely affected by unfavorable results of legal proceedings. We are continually involved in various unresolved legal proceedings that arise in the ordinary course of business involving matters such as pricing and wage and hours matters. Often these claims are presented as potential class-action litigation. Regardless of the merit of particular claims, litigation may be expensive, time-consuming and disruptive to our operations and distracting to management. In recognition of these considerations, we may enter into arrangements to settle litigation.

We do not believe that the ultimate resolution of currently pending legal proceedings or claims, either individually or in the aggregate will have a material adverse effect on our overall financial condition. Litigation is inherently uncertain, however, and it is possible that an unfavorable outcome could result and that some of these matters could be material to our results of operations for any particular period.

Unauthorized disclosure of sensitive or confidential customer or employee information could severely damage our reputation, expose us to risks of litigation and liability, disrupt our operations and harm our business . As part of our normal course of business, we collect, process and retain sensitive and confidential customer and employee information and we process customer credit card and check information. In addition, we accept and transmit credit card applications through our retail locations. We also rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential information. The systems we utilize for credit card transactions, as well as the technology utilized in such transactions, are determined and controlled by the credit card industry. Breaches of security measures at major retailers have resulted in the theft and dissemination of the confidential information of millions of customers throughout the United States. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information, whether by us or our service providers, could severely damage our reputation, expose us to risks of litigation and liability, disrupt our operations and harm our business and results of operations.

We rely on a single supplier for shoes sold by our shoe department and disruptions with that supplier could materially affect our reputation, operations or financial results. We have an agreement with DSW to be the exclusive supplier of shoes sold in our shoe departments. We rely on DSW to determine the quantity and mix of shoes to be sold, the prices at which such items are to be sold and the fulfillment and continuing supply of inventory. If DSW is unable to provide us with sufficient amounts of inventory or inventory that meets the fashion preferences of our customers or if DSW is unable to continue being our supplier of shoes, we may attract fewer customers and experience a loss in net sales, which could materially affect our reputation, operations or financial results.

We utilize the services of two third-party service providers to operate and maintain our E-Commerce website and to provide order management, customer service and fulfillment support. Disruptions with these providers or in the services they provide to us could adversely affect our reputation, operations or financial results. We have contracted with a third party service provider to create, operate and host our E-Commerce website. We have contracted with a second third party service provider to provide order management, customer service and fulfillment services. We rely on the operational, privacy and security procedures and controls of these two providers to host and operate our E-Commerce business. Failure of either of these providers to adequately service these aspects of our E-Commerce business could result in prolonged disruption which affects our customers’ ability to utilize our website or receive product in a timely manner. As a result, we may lose customer sales and/or experience increased costs which could affect our reputation, operations or financial results. In addition, the E-Commerce operations also involve other risks which could have an effect on our results of

 

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operations including but not limited to diversion of sales from our physical stores, liability for online content, credit card fraud and risks related to the failure of the computer systems which operate the website and related support systems, any of which could have a material adverse effect on our business.

Acts or threats of terrorism, violence or unfavorable political conditions could harm our business . Acts of terrorism or war may disrupt commerce and undermine consumer confidence, which could negatively impact our sales by causing consumer spending to decline. Also, an act of terrorism or war, or the threat thereof, could negatively impact our business by interfering with our ability to obtain merchandise from vendors. Inability to obtain merchandise from our vendors or substitute suppliers at similar costs in a timely manner could have a material adverse effect on our operating results and financial condition.

Failure to comply with legal and regulatory requirements may adversely impact our business and results of operations. Our business is subject to many legal and regulatory requirements, including, among others, employment, trade, healthcare, tax, securities and privacy laws and regulations. Our policies, procedures and internal controls are designed to help us comply with all applicable laws; however, the current high level of regulatory changes across many different areas and jurisdictions has led, and may continue to lead, to substantial new regulations and disclosure obligations. Additional legal or regulatory requirements or more stringent interpretations of applicable requirements could increase the complexity of the regulatory environment in which we operate and the cost of compliance. Failure to comply with the various laws and regulations, as well as changes in laws and regulations, could have an adverse impact on our reputation, operations or financial results.

We have identified a material weakness in our internal control over financial reporting which may, if not remediated, result in material misstatements in our financial statements . We are responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. As disclosed in Item 9A, “Controls and Procedures,” we identified a material weakness in our internal control over financial reporting related to inventory control. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weakness, we concluded that our internal control over financial reporting and related disclosure controls and procedures were not effective based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. We are actively engaged in developing a remediation plan designed to address this material weakness, however, we cannot guarantee that these steps have been sufficient or that we will not have a material weakness in the future. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses in our internal control are discovered or occur in the future, our financial statements may contain material misstatements and we could be required to restate our financial results.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

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ITEM 2. PROPERTIES

Stores

The following table sets forth our store count activity during the last three fiscal years:

 

     2016           2015           2014      

Stores at beginning of year

     278       270       264  

Stores opened during the year

     13       10       9  

Stores closed during the year

     (1     (2     (3

Stores at end of year

     290       278       270  

As of January 28, 2017, we operated stores in the following 31 states:

 

State    Number of Stores                                           State    Number of Stores

 

   

 

Alabama

   8     Missouri    3

Arizona

   11     Nevada    5

Arkansas

   3     New Jersey    5

California

   27     New Mexico    1

Colorado

   5     New York    4

Delaware

   1     North Carolina    20

Florida

   45     Ohio    9

Georgia

   14     Oklahoma    4

Illinois

   4     Pennsylvania    5

Indiana

   7     South Carolina    12

Kansas

   2     Tennessee    12

Kentucky

   2     Texas    44

Louisiana

   8     Utah    1

Massachusetts

   1     Virginia    15

Michigan

   4     Wisconsin    2

Mississippi

   6       

We lease all of our store locations, generally for 10 years with options to extend the lease term for two or more 5-year periods. We have the right to terminate some of these leases before the expiration date under specified circumstances and some with specified termination payments. Most of our leases provide for fixed minimum rents, as well as contingent amounts based on a percentage of sales in excess of specified levels.

As of January 28, 2017, we leased the following additional facilities:

 

Facility       Location        Square Feet  

 Distribution Center/Warehouse

    Lithia Springs, Georgia                    342,000   

 Distribution Centers:

    Ontario, California        91,000   
    Grand Prairie, Texas        99,000   

We also lease our 109,000 square foot corporate headquarters in Jacksonville, Florida.

As of January 28, 2017, the current terms of our 290 stores (assuming we exercise all lease renewal options) were as follows:

 

Years Lease Term Expire                              

Number of Leases

 

Expiring

 

 2017

       0  

 2018-2021

       12  

 2022-2026

       69  

 2027-2031

       64  

 2032 and later

       145  

 

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ITEM 3. LEGAL PROCEEDINGS

We are involved in various routine legal proceedings incidental to the conduct of our business. While some of these matters could be material to our results of operations or cash flows for any particular period if an unfavorable outcome results, we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our overall financial condition.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price and Related Matters

Our common stock trades on The NASDAQ Global Select Market (“NASDAQ”) under the trading symbol “SMRT.” On March 28, 2017, there were 808 shareholders of record. The following table sets forth the high and low sales prices per share of our common stock as reported on the NASDAQ and our quarterly cash dividends per common share for each quarter in the years ended January 28, 2017 and January 30, 2016:

 

     2016          2015  
           High                Low              Dividend                              High                Low              Dividend      

First Quarter

         $8.29           $6.42           $0.075                $16.65           $11.62           $5.075    

Second Quarter

     8.74           5.61           0.075            12.20           9.77           0.075    

Third Quarter

     9.23           5.91           0.075            11.48           8.45           0.075    

Fourth Quarter

     6.93           3.53           0.075            9.15           6.07           0.075    

Dividends

The declaration and payment of cash dividends is at the discretion of our Board of Directors and will be dependent upon our future earnings, cash flows, financial condition and capital requirements. There are no restrictions on our retained earnings regarding our ability to pay cash dividends to our shareholders.

In 2016, we paid a quarterly cash dividend of $0.075 per common share on April 15, 2016, July 15, 2016, October 14, 2016 and January 13, 2017. In 2015, we paid a special cash dividend of $5.00 per common share on February 27, 2015 and a quarterly cash dividend of $0.075 per common share on April 17, 2015, July 17, 2015, October 16, 2015 and January 15, 2016.

On March 14, 2017, we announced that our Board of Directors declared a quarterly cash dividend of $0.075 per common share which will be paid on April 14, 2017 to shareholders of record on March 31, 2017.

Issuer Purchases of Equity Securities

The following table sets forth information regarding repurchases of shares of our common stock during the quarter ended January 28, 2017:

 

ISSUER PURCHASES OF EQUITY SECURITIES  
 Period   

Total
number

of shares
purchased

     Average
price
paid per
share
     Total number of
shares purchased
as part of publicly
announced plans
or programs (1)
     Maximum number  
of shares that may  
yet be purchased  
under the plans or  
programs (1) (2)  
 

 October 30, 2016 - November 26, 2016

     1,972         6.16        1,972        552,245    

 November 27, 2016 - December 31, 2016

     272         4.96        272        551,973    

 January 1, 2017 - January 28, 2017

     55,443         3.65        55,443        496,530    

 Total

     57,687         $3.74        57,687        496,530    

 

(1)

Our Open Market Repurchase Program is conducted pursuant to authorizations made from time to time by our Board of Directors. For the quarter ended January 28, 2017, all shares purchased related to withholding taxes due on the vesting of employee stock awards.

(2)

On November 30, 2015 the Board of Directors authorized the repurchase of 500,000 shares of our common stock in addition to amounts previously authorized.

 

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Performance Graph

The following graph compares the cumulative five-year total shareholder return on our common stock with the cumulative total return to the NASDAQ Composite Index and the S&P 500 Apparel Retail Index. The comparison assumes $100 was invested at the beginning of the five year period in Stein Mart, Inc., common stock and in each of the indices shown, as well as, the reinvestment of any dividends.

 

LOGO

 

     1/28/2012         2/2/2013       2/1/2014       1/31/2015      1/30/2016      1/28/2017    

Stein Mart, Inc.

     $100.0        $133.9        $189.8        $215.1        $197.9        $102.6    

NASDAQ Composite

     100.0        114.4        149.6        171.1        172.2        213.9    

S&P 500 Apparel Retail

     100.0        134.8        156.1        197.0        211.9        211.2    

* * * * *

The stock performance graph should not be deemed filed or incorporated by reference into any other filings made by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the stock performance graph by reference in another filing.

 

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The information set forth below should be read in conjunction with the Consolidated Financial Statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report Form 10-K.

Consolidated Statement of Operations Data: (Dollars in thousands, except per share and per square foot data):

 

     2016     2015      2014      2013      2012 (1)  

Net sales

   $ 1,360,518     $ 1,359,901      $ 1,317,677      $ 1,263,571      $ 1,232,366   

Cost of merchandise sold

     1,001,539       974,614        930,941        896,218        889,736   

Gross profit

     358,979       385,287        386,736        367,353        342,630   

Selling, general and administrative expenses

     355,413       343,724        342,027        326,520        306,407   

Operating income

     3,566       41,563        44,709        40,833        36,223   

Interest expense, net

     3,884       3,283        266        265        225   

(Loss) Income before income taxes

     (318     38,280        44,443        40,568        35,998   

Income tax (benefit) expense

     (719     14,569        17,537        15,013        10,971   

Net income

   $ 401     $ 23,711      $ 26,906      $ 25,555      $ 25,027   

Basic income per share

   $ 0.01     $ 0.52      $ 0.60      $ 0.58      $ 0.57   

Diluted income per share

   $ 0.01     $ 0.51      $ 0.59      $ 0.57      $ 0.57   

Cash dividends paid per share

   $ 0.30     $ 5.30      $ 0.275      $ 0.15      $ 1.00   

 

Consolidated Operating Data:

             

Stores open at end of period

     290       278        270        264        263   

Sales per store including gross shoe department (2)(4)

   $ 4,996     $ 5,215      $ 5,217      $ 5,085      $ 4,949   

Sales per store including net shoe department (3)(4)

   $ 4,688     $ 4,900      $ 4,911      $ 4,783      $ 4,652   

Sales per square foot including gross shoe department (2)(4)

   $ 170     $ 177      $ 177      $ 173      $ 167   

Comparable store net sales (decrease) increase (4)

     (3.8%     1.0%        3.3%        3.7%        2.7%   

 

Consolidated Balance Sheet Data:

             

Working capital

   $ 134,772     $ 136,884      $ 171,140      $ 160,958      $ 136,352   

Total assets

     527,849       516,225        549,827        524,258        491,709   

Long-term debt

     171,792       180,150        -        -         

Total shareholders’ equity

     70,260       76,317        284,938        264,401        234,034   

 

(1)

2012 is a 53-week year; all others are 52-week years. Sales per store and sales per square foot for 2012 have been adjusted to exclude the 53 rd week.

(2)

These sales per store and sales per square foot amounts include gross shoe department sales, which are reported net in our net sales. Sales per store is calculated by dividing (a) total sales including shoe department gross sales for stores open at the end of the year, excluding stores open for less than 12 months by (b) the number of stores open at the end of such period, exclusive of stores open for less than 12 months. Sales per square foot includes shoe department gross sales and selling space and excludes administrative, receiving and storage areas. E-commerce sales are excluded from the calculation.

(3)

These sales per store amounts include shoe department commissions, which are included in our net sales. Sales per store is calculated by dividing (a) total sales including shoe department net sales for stores open at the end of the year, excluding stores open for less than 12 months by (b) the number of stores open at the end of such period, exclusive of stores open for less than 12 months. E-commerce sales are excluded from the calculation.

(4)

Comparable store sales information for a period reflects stores open throughout that period and for the same 52-week period in the prior year and E-commerce sales, except for the year 2012. Comparable store net sales increase for 2012 compares sales for the 52 weeks ended January 26, 2013 to the 52 weeks ended January 28, 2012. Comparable store sales does not include leased department commissions.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion and analysis contains forward-looking statements which involve risks and uncertainties, and our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth on page 2 and under Item 1A “Risk Factors” of this Annual Report on Form 10-K.

Overview

We are a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices comparable to off-price retail chains. Our focused assortment of merchandise features current season moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions. We are adding new merchandise to our stores to offer discriminating shoppers even more of the fashion and savings they want.

 

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2016 Highlights

Total sales for 2016 were flat compared to 2015 and comparable store sales for 2016 decreased 3.8% compared to 2015. Net income for 2016 was $0.4 million or $0.01 per diluted share compared to $23.7 million or $0.51 per diluted share for 2015.

Cash and cash equivalents at year-end 2016 was $10.6 million compared to $11.8 million at year-end 2015. Our 2016 balance sheet reflects capital expenditures of $42.4 million, four quarterly dividends at $0.075 per common share totaling $14.7 million and net debt payments of $8.4 million during 2016.

Inventories were $291.1 million at the end of 2016 compared to $293.6 million at the end of 2015. Average inventories per store were down 5.9 percent from the end of 2015.

Direct borrowings on our credit facilities were $181.8 million at year end 2016 compared to $190.2 million at year end 2015.

2017 Outlook

We expect the following factors to influence our business in 2017:

   

We currently plan to open 10 new stores with five opening in March and five in September and October.

  

 

We also plan to close five stores and relocate one.

  

 

Net new stores should increase sales at least 4 percent above our comparable store sales increases for the year.

   

We expect our gross profit rate to approach the fiscal 2015 rate of 28.3 percent.

   

SG&A expenses are expected to increase approximately $15 million, the majority of which relates to new stores.

   

Interest expense is estimated to be about the same as in 2016.

   

The effective tax rate for the year is estimated to be 38.0 percent.

   

Capital expenditures for 2017 are expected to be approximately $32 million, or $29 million net of tenant improvement allowances.

Results of Operations

The following table sets forth each line item of the Consolidated Statements of Income expressed as a percentage of net sales:

 

     2016     2015     2014  

Net sales

         100.0         100.0         100.0 %  

Cost of merchandise sold

     73.6     71.7     70.7 %  

Gross profit

     26.4     28.3     29.3 %  

Selling, general and administrative expenses

     26.1     25.3     26.0 %  

Operating income

     0.3     3.0     3.3 %  

Interest expense, net

     0.3     0.2     0.0 %  

Income before income taxes

     0.0     2.8     3.3 %  

Income tax expense

     0.0     1.1     1.3 %  

Net income

     0.0     1.7     2.0 %  

 

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Fiscal Year 2016 Compared to Fiscal Year 2015

Net Sales. The following table provides net sales for fiscal 2016 compared to fiscal 2015 (dollar amounts in thousands):

 

     2016      2015      Increase    

Net sales

   $   1,360,518      $   1,359,901      $ 617     

Sales percent increase:

        

Total net sales

           0.0%    

Comparable store sales

             (3.8)%    

The decrease in comparable store sales was primarily driven by decreases in the number of transactions due to lower traffic and average unit retail prices, partially offset by an increase in average units per transaction. Comparable store sales reflects stores open throughout the period and prior fiscal year and includes E-commerce sales. E-commerce sales were approximately 2.1% of total sales. E-commerce sales increased 29 percent and positively affected our total comparable store sales increases by 50 basis points. Comparable store sales does not include leased department commissions.

Gross Profit. The following table compares gross profit for fiscal 2016 to fiscal 2015 (dollar amounts in thousands):

 

     2016      2015      Decrease   

Gross profit

   $    358,979       $    385,287       $     (26,308)  

Percentage of net sales

     26.4%         28.3%         (1.9)%  

The gross profit rate decreased primarily due to higher markdowns incurred during the Fall selling season due to lower than planned sales. The gross profit rate decrease is also attributable to higher occupancy costs during the year. The higher costs were expected with additional stores, but failed to leverage with lower sales from existing stores.

Selling, General and Administrative Expenses. The following table compares SG&A for fiscal 2016 to fiscal 2015 (dollar amounts in thousands):

 

     2016      2015      Increase   

Selling, general and administrative expenses

   $   355,413       $   343,724       $       11,689   

Percentage of net sales

     26.1%         25.3%         0.8%  

SG&A increased $11.7 million primarily as the result of higher store selling expenses of $9.6 million due to new stores and planned payroll increases, $2.7 million higher depreciation, $1.8 million higher expense for legal settlements, $1.4 million higher share based compensation, and $1.4 million executive severance, partially offset by $7.0 million higher credit card program income. Excluding the effect of new stores in both fiscal year 2016 and fiscal 2015, fiscal 2016, SG&A expenses decreased as a result of higher credit card program income, partially offset by higher expense for legal settlements and executive severance.

Interest Expense. The following table compares interest expense for fiscal 2016 to fiscal 2015 (dollar amounts in thousands):

 

    

2016

 

    

2015

 

    

Increase 

 

 

Interest expense

   $       3,884       $       3,283       $           601   

Percentage of net sales

     0.3%         0.2%         0.1%  

Interest expense increased due to a full year of borrowings on our credit facilities entered into in fiscal 2015, as well as an increase in interest rates in fiscal 2016.

Income Taxes. The following table compares income tax expense for fiscal 2016 to fiscal 2015 (dollar amounts in thousands):

 

     2016      2015     

(Decrease)/ 

 

Increase 

 

Income tax expense

   $       (719)       $     14,569       $    (15,288)  

Effective tax rate (“ETR”)

     225.8%         38.1%         187.7%  

Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns, adjusted for the impact of permanent differences. The effective rate is impacted by changes in law, location of new stores, level of earnings, and the resolution of tax positions with various taxing authorities. Our tax benefit in 2016 was primarily in relation to our small pre-tax loss and to the impact of permanent benefit items. This caused us to have a large effective tax rate.

 

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Fiscal Year 2015 Compared to Fiscal Year 2014

Net Sales. The following table provides net sales for fiscal 2015 compared to fiscal 2014 (dollar amounts in thousands):

 

                                            
     2015      2014      Increase  

Net sales

   $ 1,359,901       $ 1,317,677       $    42,224    

Sales percent increase:

        

Total net sales

           3.2%   

Comparable store sales

           1.0%   

The increase in comparable store sales was driven by increases in average units per transaction and average unit retail prices, partially offset by a decrease in the number of transactions. Comparable store sales reflects stores open throughout the period and prior fiscal year and includes E-commerce sales. E-commerce sales were approximately 1.7% of total sales and contributed approximately 0.7% to the comparable store sales. Comparable store sales does not include leased department commissions.

Gross Profit. The following table compares gross profit for fiscal 2015 to fiscal 2014 (dollar amounts in thousands):

 

                                            
     2015      2014      Decrease  

Gross profit

   $    385,287       $   386,736       $     (1,449)  

Percentage of net sales

     28.3%         29.3%         (1.0)%  

The gross profit rate decreased primarily due to higher markdowns incurred during the fourth quarter of 2015, which included markdowns on remaining fall seasonal inventories which were at higher levels at the end of 2015 compared to 2014, due to lower than planned sales.

Selling, General and Administrative Expenses. The following table compares SG&A for fiscal 2015 to fiscal 2014 (dollar amounts in thousands):

 

                                            
     2015      2014     

Increase/  

 

(Decrease)  

 

Selling, general and administrative expenses

   $    343,724       $   342,027       $ 1,697    

Percentage of net sales

     25.3%         26.0%            (0.7)%   

SG&A increased $1.7 million primarily as the result of higher store selling expenses of $4.2 million due to new stores and planned payroll increases, $2.0 million of lower costs capitalized to inventory, $1.2 million of higher advertising expenses, and $1.1 million of higher E-commerce related expenses. These increases were offset by $4.4 million of lower corporate compensation and benefits, $4.0 million of lower expenses associated with the SEC investigation as well as higher credit card program income.

Interest Expense. The following table compares interest expense for fiscal 2015 to fiscal 2014 (dollar amounts in thousands):

 

                                            
     2015      2014      Increase   

Interest expense

   $        3,283       $ 266       $     3,017    

Percentage of net sales

     0.2%                0.0%         0.2%   

Interest expense increased due to borrowings in fiscal 2015 on our credit facilities. Borrowings under the credit facilities were initially used to fund part of the $5 per share special dividend.

Income Taxes. The following table compares income tax expense for fiscal 2015 to fiscal 2014 (dollar amounts in thousands):

 

                                            
     2015      2014      Decrease   

Income tax expense

   $     14,569       $     17,537       $     (2,968)  

Effective tax rate (“ETR”)

     38.1%         39.5%         (1.4)%  

Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns, adjusted for the impact of permanent differences. The effective rate is impacted by changes in law, location of new stores, level of earnings, and the resolution of tax positions with various taxing authorities.

 

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Liquidity and Capital Resources

Capital requirements and working capital needs are funded through a combination of internally generated funds, available cash, credit terms from vendors, and our credit facilities. See Note 4, Long-Term Debt, of the Notes to Consolidated Financial Statements for further discussion of these facilities. Working capital is used to support store inventories and capital investments for system improvements, new store openings and to maintain existing stores. Historically, our investments in working capital are lowest in August and September, after our heavy spring selling season and in February after the holiday selling season. Investments in working capital are highest in April, October and November as we begin procuring and paying for merchandise to support our heavy spring and holiday seasons. As of January 28, 2017, we had cash and cash equivalents of $10.6 million. Borrowings under our credit facilities were $181.8 million. As of January 30, 2016, we had cash and cash equivalents of $11.8 million. Borrowings under our credit facilities were $190.2 million. During 2015, our cash and cash equivalents decreased materially due to use of such cash to fund a portion of the $5.00 per share special dividend paid in February 2015 and as a result we were more reliant upon debt to fund our working capital needs.

The following table presents cash flows data for fiscal 2016, fiscal 2015 and fiscal 2014 (dollar amounts in thousands):

 

Cash provided by (used in):    2016      2015      2014  
        

Operating activities

   $     60,585      $     38,412      $     52,431  

Investing activities

   $ (39,200    $ (44,365    $ (40,342

Financing activities

   $ (22,611    $ (47,531    $ (13,629
        

Net decrease in cash and cash equivalents

   $ (1,226    $ (53,484    $ (1,540
        

Cash provided by operating activities

Net cash provided by operating activities was $60.6 million for fiscal 2016 compared to net cash provided by operating activities of $38.4 million for fiscal 2015. The increase in cash provided by operating activities for fiscal 2016 as compared to fiscal 2015 was primarily due to adjustments for other non-cash charges, changes in accounts payable and changes in inventory. These increases were partially offset by lower net income and changes in prepaid and accrued expenses, with the latter driven by higher accruals for income taxes.

Cash used in investing activities

Net cash used in investing activities was $39.2 million during fiscal 2016 compared to net cash used in investing activities of $44.4 million during fiscal 2015. Total capital expenditures were $42.4 million and included approximately $27.0 million for opening and remodeling stores, including upgrades to fitting rooms, lighting, flooring and fixtures. The remaining $15.4 million were primarily for systems improvements. This was partially offset by proceeds received from a $3.2 million sale-leaseback transaction completed during the fourth quarter of fiscal 2016. Capital expenditures during fiscal 2015 include approximately $22.0 million for opening and remodeling stores with the remaining amounts primarily for systems improvements.

We expect to invest approximately $31.7 million in capital expenditures in 2017 with $9.3 million for continuing information systems upgrades, $7.6 million for store remodels and $13.4 million for new and relocated stores. Each new store requires capital expenditures of approximately $0.5 million for fixtures and equipment, $0.7 million for leasehold improvements, $0.2 million for pre-opening expenses (excluding rent during the pre-opening term) and average $1 million for initial inventory investment (or $0.4 million net of accounts payable). Leasehold improvements generally are either paid for by the landlord or are reimbursed by the landlord through tenant improvement allowances and recognized as a reduction of rent on a straight-line basis over the lease term. Rent during the pre-opening term generally ranges from zero to $0.2 million with higher amounts attributable to situations where we have property access during the period we are managing construction.

Cash used in financing activities

Net cash used in financing activities was $22.6 million during fiscal 2016 compared to $47.5 million during fiscal 2015. During 2016, we had proceeds from borrowings of $453.8 million and repayments of debt for $462.2 million. We paid cash dividends of $14.7 million during fiscal 2016. See Note 8, Shareholders’ Equity, of the Notes to the Consolidated Financial Statements for further discussion. In addition, we repurchased shares of common stock for $1.3 million, received proceeds from the exercise of stock options of $1.7 million and received excess tax benefits from share-based compensation of $0.1 million. During 2015, we paid cash dividends of $239.1 million, repurchased shares of common stock for $3.6 million, received proceeds from the exercise of stock options of $1.3 million and received excess tax benefits from share-based compensation of $3.9 million. Borrowings under the credit facilities were initially used to pay a $5 per share special dividend.

We had no capital leases during fiscal 2016, 2015 or 2014.

 

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Impact of Inflation

Although we expect that our operations will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

Contractual Obligations

The following table sets forth our contractual obligations at January 28, 2017 (dollar amounts in thousands):

 

            Less than      1 – 2      3 – 5      After 5  
     Total      1 Year      Years      Years      Years  
        

Operating leases

   $   522,768      $ 98,335      $ 87,712      $ 198,263      $ 138,458  

Debt

     181,833        10,833        -            171,000        -      
        

Total

   $ 704,601      $   109,168      $     87,712      $   369,263      $   138,458  
        

Other long-term liabilities on the balance sheet include the liability for deferred compensation, deferred taxes, postretirement benefit liability and other long-term liabilities. These items do not have specific due dates, so they are excluded from the preceding table. Our merchandise purchase orders are cancelable, and are therefore not included in the preceding table.

Off-Balance Sheet Arrangements

We have outstanding standby letters of credit totaling $7.1 million securing certain insurance programs at January 28, 2017. If specified conditions were to occur under these arrangements, we would be required to satisfy the obligations in cash. Due to the nature of these arrangements and based on historical experience, we do not expect to make any payments; therefore, the letters of credit are excluded from the preceding table. There are no other off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. While we believe that the historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate, which could require adjustments of these estimates in future periods. A summary of the more significant accounting policies follows.

Retail Inventory Method and Inventory Valuation

Inventories are valued using the lower of cost or market value, determined by the retail inventory method. Under the retail inventory method (“RIM”), the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventories. RIM is an averaging method that is widely used in the retail industry. The use of the retail inventory method results in valuing inventories at lower of cost or market as permanent markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which significantly affect the ending inventory valuation at cost as well as the corresponding charge to cost of goods sold. In addition, failure to take appropriate permanent markdowns currently can result in an overstatement of inventory.

We perform physical inventory counts at all stores once per year, in either the summer or January. Included in the carrying value of merchandise inventories between physical counts is a reserve for estimated shrinkage. That estimate is based on historical physical inventory results. The difference between actual and estimated shrinkage may cause fluctuations in quarterly results, but was not significant in 2016 and 2015.

Vendor Allowances

We receive allowances from some of our vendors primarily related to markdown reimbursement, damaged/defective merchandise and vendor compliance issues. Vendor allowances are recorded when earned. Allowances received from vendors related to profitability of inventory recently sold are reflected as reductions to cost of merchandise sold in the later of the period that the merchandise markdown is incurred or the allowance is negotiated. Allowances received from vendors related to damaged/defective inventory are reflected as reductions to the cost of merchandise as it is received. Allowances received due to vendors’ failure to comply with our policies (primarily violations of shipping and merchandise preparation requirements) are reflected as a reduction of the cost of the merchandise when identified during the receiving process. Although it is unlikely that there will be a significant reduction in historical levels of vendor support, if a reduction were to occur, we could experience higher cost of merchandise sold.

 

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Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors used in the review include management’s plans for future operations, recent operating results and projected cash flows. For long-lived assets held for use, an impairment loss is recognized if the sum of the future undiscounted cash flows from the use of the assets is less than the carrying value of the assets (net of deferred rent credits). The amount of the impairment charge is the excess of the carrying value of the asset over its fair value. Impairment reviews are performed for individual stores during the fourth quarter, or more frequently should circumstances change. A significant decrease in cash flows could result in an increase in asset impairment charges. During fiscal 2016, 2015 and 2014, we recorded $1.4 million, $2.0 million and $1.5 million, respectively, in asset impairment charges.

Insurance Reserves

We use a combination of insurance and self-insurance for various risks including workers’ compensation, general liability and associate-related health care benefits. We are responsible for paying the claims that are less than the insured limits. The reserves recorded for these claims are actuarially estimated based on claims filed and claims incurred but not reported. These reserve estimates are adjusted based upon actual claims filed and settled. The estimated accruals for these reserves could be significantly affected if future claims differ from historical trends and other actuarial assumptions. As of January 28, 2017 and January 30, 2016, insurance reserves of $18.5 million and $18.2 million, respectively, were included in Accrued expenses and other current liabilities and Other liabilities in the accompanying Consolidated Balance Sheets. Historically, our actuarial estimates have not been materially different from actual results.

For a complete listing of our significant accounting policies, see Note 1, Summary of Significant Accounting Policies and Other Information, of the Notes to Consolidated Financial Statements.

Recent Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1, Summary of Significant Accounting Policies and Other Information, of the Notes to Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risk primarily through borrowings under our $250.0 million credit facilities, which are at variable rates. Outstanding balances under the credit facilities bear interest at a variable rate based on Wells Fargo’s base rate or LIBOR plus 1.00% (2.00% for the Equipment Term loan). We had weighted average borrowings of $159.6 million during fiscal 2016. Based on the average amount outstanding, a decrease of 100 basis points in the levels of interest rates, with all other variables held constant, would result in a decrease in the interest expense on our credit facilities of $0.9 million, as the current LIBOR rate is less than 1.0%. An increase of 100 basis points in the levels of interest rates, with all other variables held constant, would result in an increase in the interest expense on our credit facilities of $1.6 million during fiscal 2016. See Note 4, Long-Term Debt, of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this report for further details of our credit facilities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and the Report of Independent Registered Certified Public Accounting Firm thereon are filed pursuant to this Item 8 and are included in this report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. Controls and Procedures

(a)   Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by us in our reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In light of the material weakness in Management’s Report on Internal Control Over Financial Reporting, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of January 28, 2017.

In September 2015, we settled an administrative proceeding instituted by the SEC in which the SEC ordered us to cease and desist from committing or causing any violations and any future violations of the periodic reporting, books and records, and internal control provisions of the Exchange Act. By having this material weakness, and by not discovering and including disclosure of it in prior periods, we have not been in compliance with the cease and desist order.

(b)   Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management assessed the effectiveness of our internal control over financial reporting as of January 28, 2017 using the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management identified the material weakness noted below and concluded that our internal control over financial reporting was not effective as of January 28, 2017.

We did not conduct an effective risk assessment process over business operations to assess changes that impact our financial processes and internal control over financial reporting. Consequently, we did not design and implement effective process level controls to verify the completeness and accuracy of data in a report used by management to review the lower-of-cost-or-market adjustment for our aged inventory.

As a result of this deficiency, an immaterial misstatement to inventory and cost of sales was identified and corrected as an out-of-period adjustment in the consolidated financial statements included herein, as discussed in Note 1, Summary of Significant Accounting Policies and Other Information, of the Notes to Consolidated Financial Statements. The control deficiency creates a reasonable possibility that a material misstatement to the consolidated financial statements could occur and not be prevented or detected on a timely basis.

Our independent registered public accounting firm, KPMG LLP, has issued an adverse report on the effectiveness of our internal control over financial reporting, as stated in their report which is included on page F-1.

(c)   Changes in Internal Control Over Financial Reporting

Other than the changes in our internal control over financial reporting related to the material weakness discussed under (b) above (identified and evaluated in the current period but which occurred in earlier periods), there were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(d)   Management’s Plans for Remediation of our Material Weakness

Management is designing and implementing controls, with oversight from the Audit Committee, to remediate the material weakness. Management’s remediation plan includes enhancing our risk assessment process to effectively design and implement control activities that verify the completeness and accuracy of data in reports that support management review controls.

Management must test and evaluate the new risk assessment process in the first quarter of 2017 to ascertain whether it is designed and operating effectively to provide reasonable assurance that it will prevent or detect a material misstatement in our financial statements.

 

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(b)    Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management assessed the effectiveness of our internal control over financial reporting as of January 28, 2017 using the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management identified the material weakness noted below and concluded that our internal control over financial reporting was not effective as of January 28, 2017.

We did not conduct an effective risk assessment process over business operations to assess changes that impact our financial processes and internal control over financial reporting. Consequently, we did not design and implement effective process level controls to verify the completeness and accuracy of data in a report used by management to review the lower-of-cost-or-market adjustment for our aged inventory.

As a result of this deficiency, an immaterial misstatement to inventory and cost of sales was identified and corrected as an out-of-period adjustment in the consolidated financial statements included herein, as discussed in Note 1, Summary of Significant Accounting Policies and Other Information, of the Notes to Consolidated Financial Statements. The control deficiency creates a reasonable possibility that a material misstatement to the consolidated financial statements could occur and not be prevented or detected on a timely basis.

Our independent registered public accounting firm, KPMG LLP, has issued an adverse report on the effectiveness of our internal control over financial reporting, as stated in their report which is included on page F-1.

(c)    Changes in Internal Control Over Financial Reporting

Other than the changes in our internal control over financial reporting related to the material weakness discussed under (b) above (identified and evaluated in the current period but which occurred in earlier periods), there were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(d)    Management’s Plans for Remediation of our Material Weakness

Management is designing and implementing controls, with oversight from the Audit Committee, to remediate the material weakness. Management’s remediation plan includes enhancing our risk assessment process to effectively design and implement control activities that verify the completeness and accuracy of data in reports that support management review controls.

Management must test and evaluate the new risk assessment process in the first quarter of 2017 to ascertain whether it is designed and operating effectively to provide reasonable assurance that it will prevent or detect a material misstatement in our financial statements.

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 20, 2017 Annual Meeting of Shareholders.

We have adopted a code of conduct applicable to all of our officers, directors and employees, including the principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The text of this code of conduct may be found on our investor relations website at http://ir.steinmart.com (click on “Charters & Documents”). We intend to post notice of any waiver from, or amendment to, any provision of our code of conduct on our website.

 

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ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 20, 2017 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 20, 2017 Annual Meeting of Shareholders.

Equity Compensation Plan Information

The following table presents information about our common stock that may be issued under equity-based compensation plans as of January 28, 2017:

 

 Plan Category   

(a)

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and  rights
(in thousands)

    

(b)

Weighted-average
exercise price of
outstanding options,
warrants and rights
($)(1)

    

(c)

Number of securities
remaining available for
future issuance under
equity compensation  plans
(excluding securities in
column (a)) (in thousands)

 
          

 Equity compensation plans approved by shareholders

     3,839      $ 6.64        1,941  

 Equity compensation plans not approved by shareholders

     -        -        -  
          

 Total

     3,839      $ 6.64        1,941  
   

 

(1)

The weighted average exercise price does not take into account 1.3 million shares issuable related to restricted stock and performance share awards which have no exercise price.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 20, 2017 Annual Meeting of Shareholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the disclosure found in the Proxy Statement for our June 20, 2017 Annual Meeting of Shareholders.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following financial statements and exhibits are filed as part of this report or are incorporated herein as indicated.

1. List of Financial Statements

 

    

Page

Report of Independent Registered Public Accounting Firm

   F–1

Report of Independent Registered Public Accounting Firm

   F–3

Consolidated Balance Sheets

   F–4

Consolidated Statements of Income

   F–5

Consolidated Statements of Comprehensive Income

   F–6

Consolidated Statements of Shareholders’ Equity

   F–7

Consolidated Statements of Cash Flows

   F–8

Notes to Consolidated Financial Statements

   F–9

2. List of Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is presented in the financial statements or notes thereto.

 

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3. List of Exhibits

See “Exhibit Index”, which is incorporated herein by reference.

In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us, our subsidiaries or other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 

   

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

   

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

   

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

   

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about us may be found elsewhere in this Annual Report on Form 10-K and our other public files, which are available without charge through the SEC’s website at http://www.sec.gov .

Unless otherwise indicated below, the Commission file number to the exhibit is No. 0-20052.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

     

STEIN MART, INC.

Date: April 13, 2017

   

By:

 

/s/ D. Hunt Hawkins

     

D. Hunt Hawkins

     

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on the 30th day of March, 2017.

 

 

/s/ Jay Stein

     

/s/ Thomas L. Cole

Jay Stein

     

Thomas L. Cole

Chairman of the Board

     

Director

/s/ John H. Williams, Jr.

     

/s/ Timothy Cost

John H. Williams, Jr.

     

Timothy Cost

Vice Chairman of the Board

     

Director

/s/ D. Hunt Hawkins

     

/s/ Lisa Galanti

D. Hunt Hawkins

     

Lisa Galanti

Chief Executive Officer and Director

     

Director

/s/ Gregory W. Kleffner

     

/s/ Mitchell W. Legler

Gregory W. Kleffner

     

Mitchell W. Legler

Executive Vice President and Chief Financial Officer

     

Director

/s/ E. Chantelle Quick

     

/s/ Richard L. Sisisky

E. Chantelle Quick

     

Richard L. Sisisky

Senior Vice President and Controller

     

Director

/s/ Irwin Cohen

     

/s/ Burton M. Tansky

Irwin Cohen

     

Burton M. Tansky

Director

     

Director

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Stein Mart, Inc.:

We have audited Stein Mart, Inc.’s internal control over financial reporting as of January 28, 2017, based on criteria established in Internal Control – Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Stein Mart, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A(b), Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to an ineffective risk assessment process over business operations to assess changes that significantly impact the company’s financial processes and internal control over financial reporting, and an ineffective design and implementation of process level controls to verify the completeness and accuracy of data in a report used by management to review the lower-of-cost-or-market adjustment for the company’s aged inventory has been identified and included in management’s assessment in Item 9A(b). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Stein Mart, Inc. and subsidiaries as of January 28, 2017 and January 30, 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended January 28, 2017. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated balance sheet of Stein Mart, Inc. and subsidiaries as of January 28, 2017 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year ended January 28, 2017, and this report does not affect our report dated March 30, 2017, which expressed an unqualified opinion on those consolidated financial statements.

 

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Table of Contents

In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, Stein Mart, Inc. has not maintained effective internal control over financial reporting as of January 28, 2017, based on criteria established in Internal Control – Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

/s/ KPMG LLP

April 13, 2017

Jacksonville, Florida

Certified Public Accountants

 

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Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Stein Mart, Inc.:

We have audited the accompanying consolidated balance sheets of Stein Mart, Inc. and subsidiaries as of January 28, 2017 and January 30, 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended January 28, 2017. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stein Mart, Inc. and subsidiaries as of January 28, 2017 and January 30, 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended January 28, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Stein Mart, Inc.’s internal control over financial reporting as of January 28, 2017, based on criteria established in Internal Control – Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 13, 2017 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

 

/s/ KPMG LLP

April 13, 2017

Jacksonville, Florida

Certified Public Accountants

 

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Stein Mart, Inc.

Consolidated Balance Sheets

(In thousands, except for share and per share data)

 

      January 28, 2017       January 30, 2016    

ASSETS

   

Current assets:

   

Cash and cash equivalents

  $ 10,604     $ 11,830  

Inventories

    291,110       293,608  

Prepaid expenses and other current assets

    30,249       18,586  

Total current assets

    331,963       324,024  

Property and equipment, net

    165,542       162,954  

Other assets

    30,344       29,247  

Total assets

  $ 527,849     $ 516,225  

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current liabilities:

   

Accounts payable

  $ 114,419     $ 105,569  

Current portion of long-term debt

    10,000       10,000  

Accrued expenses and other current liabilities

    72,772       71,571  

Total current liabilities

    197,191       187,140  

Long-term debt, net of current portion

    171,792       180,150  

Deferred rent

    41,774       41,146  

Other liabilities

    46,832       31,472  

Total liabilities

    457,589       439,908  

COMMITMENTS AND CONTINGENCIES (Notes 5 and 9)

   

Shareholders’ equity:

   

Preferred stock - $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding

    -       -  

Common stock - $.01 par value; 100,000,000 shares authorized; 47,018,942 and 45,814,583 shares issued and outstanding, respectively

    470       458  

Additional paid-in capital

    50,241       42,801  

Retained earnings

    19,853       33,337  

Accumulated other comprehensive loss

    (304     (279

Total shareholders’ equity

    70,260       76,317  

Total liabilities and shareholders’ equity

  $ 527,849     $ 516,225  

The accompanying notes are an integral part of these consolidated financial statements.

 

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Stein Mart, Inc.

Consolidated Statements of Income

(In thousands, except for per share amounts)

 

     Year Ended     Year Ended       Year Ended    
       January 28, 2017         January 30, 2016         January 31, 2015    

Net sales

   $ 1,360,518     $ 1,359,901      $ 1,317,677  

Cost of merchandise sold

     1,001,539       974,614        930,941  

Gross profit

     358,979       385,287        386,736  

Selling, general and administrative expenses

     355,413       343,724        342,027  

Operating income

     3,566       41,563        44,709  

Interest expense, net

     3,884       3,283        266  

(Loss) Income before income taxes

     (318     38,280        44,443  

Income tax (benefit) expense

     (719     14,569        17,537  

Net income

   $ 401     $ 23,711      $ 26,906  

Net income per share:

       

Basic

   $ 0.01     $ 0.52      $ 0.60  

Diluted

   $ 0.01     $ 0.51      $ 0.59  

Weighted-average shares outstanding:

       

Basic

     45,785       44,754        43,850  

Diluted

     46,597       45,953        44,749  

The accompanying notes are an integral part of these consolidated financial statements.

 

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Stein Mart, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

 

    

Year Ended
  January 28, 2017  

 

   

Year Ended
 January 30, 2016 

 

    

Year Ended
 January 31, 2015 

 

 

Net income

   $ 401     $ 23,711      $ 26,906  

Other comprehensive income, net of tax:

       

Change in post-retirement benefit obligations (See Note 7):

       

Other comprehensive (loss) income before reclassifications

     (44     137        (181

Amounts reclassified from accumulated other comprehensive income

     19       16        10  

Comprehensive income

   $ 376     $ 23,864      $ 26,735  

The accompanying notes are an integral part of these consolidated financial statements.

 

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Stein Mart, Inc.

Consolidated Statements of Shareholders’ Equity

(In thousands)

     Common Stock        Additional  
Paid-in
    Retained     Accumulated
Other
Comprehensive
    Total
  Shareholders’  
 
         Shares          Amount        Capital     Earnings     (Loss) Income     Equity  

Balance at February 1, 2014

     44,552       $ 446       $ 28,745     $ 235,471     $ (261)     $ 264,401    

Net income

             26,906         26,906    

Other comprehensive loss, net of tax

               (171)       (171)   

Common shares issued under stock option plan

     27                116           116    

Tax withholding payment related to the net share settlement of equity awards

           (8         (8)   

Common shares issued under employee stock purchase plan

     65                760           760    

Reacquired shares

     (320)        (3)        (4,141         (4,144)   

Issuance of restricted stock, net

     595                (6         -    

Share-based compensation

           7,596           7,596    

Tax benefit from equity issuances

           1,813           1,813    

Cash dividends paid ($0.275 per share)

             (12,295       (12,295)   

Cash dividends payable

           $ (36     $ (36)   
           

Balance at January 31, 2015

     44,919       $ 449       $ 34,875     $ 250,046     $ (432)     $ 284,938    

Net income

             23,711         23,711    

Other comprehensive income, net of tax

               153       153    

Common shares issued under stock option plan

     164        2        569           571    

Common shares issued under employee stock purchase plan

     112                767           768    

Reacquired shares

     (262)        (3)        (3,563         (3,566)   

Issuance of restricted stock, net

     882                (9         -    

Share-based compensation

           6,516           6,516    

Tax benefit from equity issuances

           3,646           3,646    

Cash dividends paid ($5.30 per share)

             (239,089       (239,089)   

Cash dividends payable

             (1,331       (1,331)   
           

Balance at January 30, 2016

     45,815       $ 458       $ 42,801     $ 33,337     $ (279)     $ 76,317    

Net income

             401         401    

Other comprehensive loss, net of tax

               (25)       (25)   

Common shares issued under stock option plan

     276                1,346           1,349    

Common shares issued under employee stock purchase plan

     145                721           722    

Reacquired shares

     (224)        (2)        (1,666         (1,668)   

Issuance of restricted stock, net

     1,007         10         (10         -    

Share-based compensation

           7,923           7,923    

Tax shortfall from equity issuances

           (874         (874)   

Cash dividends paid ($0.30 per share)

             (14,700       (14,700)   

Cash dividends payable

             815         815    
           

Balance at January 28, 2017

     47,019       $ 470       $ 50,241     $ 19,853     $ (304   $ 70,260    

The accompanying notes are an integral part of these consolidated financial statements.

 

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Stein Mart, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 

     Year Ended
  January 28, 2017  
     Year Ended
January 30, 2016
     Year Ended
January 31, 2015
 

Cash flows from operating activities:

        

Net income

   $ 401       $ 23,711       $ 26,906    

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

     32,600         29,873         29,116    

Share-based compensation

     7,923         6,516         7,596    

Store closing charges

     145                25    

Impairment of property and other assets

     1,433         2,008         1,480    

Loss on disposal of property and equipment

     191         167         319    

Deferred income taxes

     1,835         (5,121)        1,201    

Tax (expense) benefit from equity issuances

     (874)        3,646         1,813    

Excess tax benefits from share-based compensation

     (86)        (3,932)        (1,942)   

Changes in assets and liabilities:

        

Inventories

     2,498        (7,985)        (24,106)   

Prepaid expenses and other current assets

     (12,469)        806         5,096    

Other assets

     (1,020)        2,045        (3,114)   

Accounts payable

     8,785         (24,438)        (1,237)   

Accrued expenses and other current liabilities

     4,249         (316)        4,307    

Other liabilities

     14,974         11,425         4,971    

Net cash provided by operating activities

     60,585         38,412         52,431    

Cash flows from investing activities:

        

Net acquisition of property and equipment

     (42,378)        (44,365)        (40,231)   

Proceeds from sale of assets

     3,178        -         

Change in cash surrender value of life insurance

     -        -        (111)   

Net cash used in investing activities

     (39,200)        (44,365)        (40,342)   

Cash flows from financing activities:

        

Proceeds from borrowings

     453,800        673,312        -    

Repayments of debt

     (462,200)        (483,079)        -    

Debt issuance costs

     -        (380)        -    

Cash dividends paid

     (14,700)        (239,089)        (12,295)   

Excess tax benefits from share-based compensation

     86         3,932         1,942    

Proceeds from exercise of stock options and other

     2,071         1,339         868    

Repurchase of common stock

     (1,668)        (3,566)        (4,144)   

Net cash used in financing activities

     (22,611)        (47,531)        (13,629)   

Net decrease in cash and cash equivalents

     (1,226)        (53,484)        (1,540)   

Cash and cash equivalents at beginning of year

     11,830         65,314         66,854    

Cash and cash equivalents at end of year

   $ 10,604       $ 11,830       $ 65,314    

Supplemental disclosures of cash flow information:

        

Income taxes paid

   $ 11,751       $ 13,116       $ 10,556    

Interest paid

     3,671         3,033         345    

Accruals and accounts payable for capital expenditures

     1,828         4,148         2,293    

The accompanying notes are an integral part of these consolidated financial statements.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

1. Summary of Significant Accounting Policies and Other Information

As of January 28, 2017 we operated a chain of 290 retail stores in 31 states and an E-commerce site that offers the fashion merchandise, service and presentation of a better department or specialty store at prices competitive with off-price retail chains.

As used herein, the terms “we,” “our,” “us” and “Stein Mart” refer to Stein Mart, Inc. and its wholly-owned subsidiaries, Stein Mart Buying Corporation and Stein Mart Holding Corporation.

Consolidation. The accompanying Consolidated Financial Statements include the accounts of Stein Mart and all its wholly-owned subsidiaries. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All inter-company accounts have been eliminated in consolidation.

Correction of an Immaterial Error. We have identified an immaterial prior period error in our lower-of-cost-or-market adjustment for aged inventory. The immaterial error was corrected with a one-time charge during the fourth quarter of fiscal 2016 resulting in an out-of-period increase to Cost of merchandise sold and a decrease to Gross profit of $2.4 million and $1.8 million for the quarter and fiscal year ended January 28, 2017, respectively, on the Consolidated Statements of Income. The after-tax effect was $1.5 million and $1.1 million for the quarter and fiscal year ended January 28, 2017, respectively, on the Consolidated Statements of Income. The effect of this error on the Consolidated Statements of Income for the fiscal years ended January 30, 2016 and January 31, 2015, was an increase to Cost of merchandise sold and a decrease to Gross profit of $0.7 million, and $1.3 million, respectively. The after-tax effect was $0.4 million and $0.8 million, respectively, on the Consolidated Statements of Income, and such amounts are immaterial to those fiscal years.

As disclosed in Part II Item 9A, Controls and Procedures of this Annual Report on Form 10-K, we have determined that the control deficiency that led to this error constitutes a material weakness. In September 2015, we settled an administrative proceeding instituted by the Securities and Exchange Commission (“SEC”) in which the SEC ordered us to cease and desist from committing or causing any violations and any future violations of the periodic reporting, books and records, and internal control provisions of the Securities Exchange Act of 1934, as amended. By having this material weakness, and by not discovering and including disclosure of it in prior periods, we have not been in compliance with the cease and desist order. We are unable to determine the effect, if any, of the non-compliance.

Fiscal Year End. Our fiscal year ends on the Saturday closest to January 31. Fiscal years 2016, 2015 and 2014 ended on January 28, 2017, January 30, 2016, and January 31, 2015, respectively. Fiscal 2016, 2015 and 2014 included 52 weeks. References to years in the Consolidated Financial Statements relate to fiscal years rather than calendar years.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents. Included in cash and cash equivalents are cash on hand in the stores, deposits with banks and amounts due from credit card transactions with settlement terms of five days or less. Credit and debit card receivables included within cash were $8.0 million at January 28, 2017 and $9.1 million at January 30, 2016. We have historically held money market fund investments classified as cash equivalents, which are Level 1 financial assets because the fair value is based on readily available market prices. We did not hold money market fund investments at January 30, 2016 or January 28, 2017.

Retail Inventory Method and Inventory Valuation. Inventories are valued using the lower of cost or market value, determined by the retail inventory method. Under the retail inventory method (“RIM”), the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventories. RIM is an averaging method that is widely used in the retail industry. The use of the retail inventory method results in valuing inventories at lower of cost or market as permanent markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which significantly affect the ending inventory valuation at cost as well as the corresponding charge to cost of goods sold. In addition, failure to take appropriate permanent markdowns currently can result in an overstatement of inventory.

We perform physical inventory counts at all stores once per year, in either the summer or January. Included in the carrying value of merchandise inventories between physical counts is a reserve for estimated shrinkage. That estimate is based on historical physical inventory results. The difference between actual and estimated shrinkage may cause fluctuations in quarterly results but was not significant in 2016 and 2015.

Vendor Allowances. We receive allowances from some of our vendors primarily related to markdown reimbursement, damaged/defective merchandise and vendor compliance issues. Vendor allowances are recorded when earned in accordance with Accounting Standards Codification (“ASC”) Topic 605-50, Revenue Recognition, Customer Payments and Incentives . Allowances received from vendors related to profitability of inventory recently sold are reflected as reductions to cost of merchandise sold in the later of the period that the merchandise markdown is incurred or the allowance is negotiated. Allowances received from vendors related to damaged/defective inventory are reflected as reductions to the cost of merchandise as it is received. Allowances received due to compliance issues (primarily violations of shipping and merchandise preparation requirements) are reflected as a reduction to the cost of the merchandise when identified during the receiving process.

Property and Equipment, Net. Property and equipment, net are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over estimated useful lives of 3-10 years for fixtures, equipment and software and 5-10 years for leasehold improvements. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the term of the lease. We capitalize costs associated with the acquisition or development of software for internal use. We only capitalize subsequent additions, modifications or upgrades to internal-use software to the extent that such changes increase functionality. We expense software maintenance and training costs as incurred.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

Impairment of Long-Lived Assets. We follow the guidance in ASC Topic 360, Property, Plant and Equipment , which requires impairment losses to be recorded on long-lived assets used in operations whenever events or changes in circumstances indicate that the net carrying amounts may not be recoverable. For long-lived assets held for use, an impairment loss is recognized if the sum of the future undiscounted cash flows from the use of the assets is less than the carrying value of the assets. The amount of the impairment is the excess of the carrying value of the asset over its fair value. Impairment reviews are performed for individual stores during the fourth quarter, or more frequently should circumstances change. Factors used in the review include management’s plans for future operations, recent operating results and projected cash flows. See Note 2, Property and Equipment, Net, for further discussion.

Fair Value Measurements. We follow the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance also establishes the following three-level hierarchy based upon the transparency of inputs to the valuation of an asset or liability on the measurement date:

 

  Level 1:  

Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

  Level 2:  

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

  Level 3:  

Unobservable inputs that reflect assumptions about what market participants would use in pricing assets or liabilities based on the best information available.

Assets and liabilities measured at fair value on a recurring basis include cash and cash equivalents. Assets and liabilities measured on a non-recurring basis include store related assets as used in our impairment calculations. See Note 2, Property and Equipment, Net, for further discussion.

As our primary debt obligations are variable rate, there are no significant differences between the estimated fair value (Level 2 measurements) and the carrying value of our debt obligations at January 28, 2017 and January 30, 2016.

Store Closing Costs. We follow the guidance in ASC Topic 420, Exit or Disposal Cost Obligations, to record store closing costs which are included in Selling, general and administrative expenses (“SG&A”) in the Consolidated Statements of Income. ASC Topic 420 requires the recognition of costs associated with exit or disposal activities when they are incurred, generally the cease-use date. Lease termination costs are recorded net of estimated sublease income that could reasonably be obtained for the properties.

Accounts Payable. Accounts payable represents amounts owed by us to third parties at the end of the period. Accounts payable includes book cash overdrafts in excess of cash balances in such accounts of approximately $14.1 million and $7.5 million at January 28, 2017 and January 30, 2016, respectively. We include the change in book cash overdrafts in Operating cash flows in the Consolidated Statements of Cash Flows.

Insurance Reserves. We use a combination of insurance and self-insurance to mitigate various risks including workers’ compensation, general liability and associate-related health care benefits, a portion of which is paid by the covered employees. We are responsible for paying the claims that are less than the insured limits. The reserves recorded for these claims are estimated actuarially, based on claims filed and claims incurred but not reported. These reserve estimates are adjusted based upon actual claims filed and settled which are included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Store Pre-Opening Costs. Costs incurred prior to the date that new stores open are expensed as incurred. These pre-opening costs are included in SG&A in the Consolidated Statements of Income. Pre-opening costs include payroll for store set-up, advertising and pre-opening rent.

Comprehensive Income. Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to gains and losses that, under GAAP, are recorded as an element of shareholders’ equity but are excluded from net income. Accumulated other comprehensive loss in 2016 and 2015 includes changes in postretirement benefits. See Note 7, Employee Benefit Plans, for further discussion.

Revenue Recognition. Revenue from sales of our merchandise is recognized at the time of sale, net of any returns, discounts and percentage-off coupons. The Company’s E-commerce operation records revenue at the estimated customer receipt date. Shipping and handling fees charged to customers are also included in total net sales with corresponding costs recorded as cost of goods sold. Future merchandise returns are estimated based on historical experience. Sales tax collected from customers is not recognized as revenue and is

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets until paid. Shoe department inventory is owned by a single supplier under a supply agreement. Our percentage of net revenue per the supply agreement is included in Net sales in the Consolidated Statements of Income.

We offer electronic gift cards and electronic merchandise return cards to our customers. These cards do not have expiration dates. No revenue is recognized at the time gift cards are sold; rather, the issuance is recorded as a liability to customers. At the time merchandise return cards are issued for returned merchandise, the sale is reversed and the issuance is recorded as a liability to customers. These card liabilities are reduced and sales revenue is recognized when cards are redeemed for merchandise. Card liabilities are included within Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

During 2016, 2015 and 2014, we recognized $1.3 million, $1.4 million and $1.1 million, respectively, of breakage income on unused gift and merchandise return cards. Breakage income is recognized when the likelihood of the card being redeemed by the customer is remote and we have determined that there is no legal obligation to remit card balances to relevant jurisdictions. We follow the Redemption Recognition Method to account for breakage of unused cards where breakage is recognized as cards are redeemed for the purchase of merchandise based upon a historical breakage rate over an estimated redemption period. Breakage income is recorded within SG&A in the Consolidated Statements of Income.

Co-Brand and Private Label Credit Card Programs. We offer a co-branded credit card and a private label credit card under the Stein Mart brand. These cards are issued by a third-party bank, Synchrony Bank (“Synchrony”), formerly GE Capital Retail Bank. Synchrony extends credit directly to cardholders and provides all servicing for the credit card accounts and bears all credit and fraud losses. Once a card is activated, the co-branded credit card customers are eligible to participate in the credit card rewards program, which provides for an incentive to cardholders in the form of reward certificates upon the cumulative purchase of an established amount. Stein Mart cardholders also receive special promotional offers and advance notice of in-store sales events. In 2016, 2015 and 2014, we recognized $12.6 million, $5.6 million and $4.8 million, respectively, of income from these programs which are recorded within SG&A in the Consolidated Statements of Income.

Operating Leases. We lease all of our retail stores under operating leases. Certain lease agreements contain rent holidays, and/or rent escalation clauses. Except for contingent rent, we recognize rent expense on a straight-line basis over the lease term and record the difference between the amount charged to expense and the rent paid as a deferred rent liability. Contingent rent, determined based on a percentage of sales in excess of specified levels, is recognized as rent expense when achievement of the specified sales that triggers the contingent rent is probable. Construction allowances and other such lease incentives are recorded as a deferred rent liability and are amortized on a straight-line basis as a reduction of rent expense.

Advertising Expense. Advertising costs are expensed as incurred. Advertising expenses of $59.6 million, $57.5 million and $56.3 million are reflected in SG&A in the Consolidated Statements of Income for 2016, 2015 and 2014, respectively.

Income Taxes. We follow the guidance in ASC Topic 740, Income Taxes , which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of events that have been included in the Consolidated Financial Statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized. See Note 6, Income Taxes, for further discussion.

Share-Based Compensation. We follow the guidance in ASC Topic 718, Stock Compensation , to record share-based compensation. Pursuant to the guidance, we recognize expense in the financial statements for the fair values of all share-based payments to employees over the employees’ requisite service periods.

Earnings Per Share (“EPS”). We follow the guidance of ASC Topic 260, Earnings Per Share , which clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of net income per share, or EPS, under the two-class method. Our restricted stock awards in 2013 and prior are considered “participating securities” because they contain non-forfeitable rights to dividends. Under the two-class method, EPS is computed by dividing earnings allocated to common shareholders by the weighted-average number of common shares outstanding for the period. In applying the two-class method, earnings are allocated to both common stock shares and participating securities based on their respective weighted-average shares outstanding for the period.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

The following table presents the calculation of basic and diluted EPS (shares in thousands):

 

    2016   2015   2014

Basic EPS:

     

Net income

   $               401     $           23,711     $           26,906 

Income allocated to participating securities

  22   368   511 

Net income available to common shareholders

   $               379     $           23,343     $           26,395 

Basic weighted-average shares outstanding

  45,785   44,754   43,850 

Basic EPS:

   $              0.01     $               0.52     $               0.60 

Diluted EPS:

     

Net income

   $               401     $           23,711     $           26,906 

Income allocated to participating securities

  23   414   506 

Net income available to common shareholders

   $               378     $           23,297     $           26,400 

Basic weighted-average shares outstanding

  45,785   44,754   43,850 

Incremental shares from share-based compensation plans

  812   1,199   899 

Diluted weighted-average shares outstanding

  46,597   45,953   44,749 

Diluted EPS:

   $              0.01     $               0.51     $               0.59 

Options to acquire shares and performance share awards totaling approximately 2.0 million, 0.3 million and 0.1 million shares of common stock that were outstanding during 2016, 2015 and 2014, respectively, were not included in the computation of diluted EPS as they had exercise prices greater than the average market price of the common shares. Inclusion of these shares would have been anti-dilutive.

Consolidated Statements of Income Classifications. Cost of merchandise sold includes merchandise costs, net of vendor discounts and allowances; freight; inventory shrinkage; store occupancy costs (including rent, common area maintenance, real estate taxes, utilities and maintenance); payroll, benefits and travel costs directly associated with buying inventory; and costs related to the consolidation centers and distribution warehouses.

SG&A includes store operating expenses, such as payroll and benefit costs, advertising, store supplies, depreciation and other direct selling costs and costs associated with our corporate functions.

Recent Accounting Pronouncements

In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,  Revenue from Contracts with Customers (Topic 606)  and subsequent clarifications. ASU No. 2014-09 will replace almost all existing revenue recognition guidance, including industry-specific guidance, upon its effective date. The standard’s core principle is for a company to recognize revenue when it transfers goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled. A company may also need to use more judgment and make more estimates when recognizing revenue, which could result in additional disclosures. ASU 2014-09 also provides guidance for transactions that were not addressed comprehensively in previous guidance, such as the recognition of breakage income from the sale of gift cards. The standard permits the use of either the retrospective or cumulative effect transition method. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (our fiscal year 2018). Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We plan to adopt this ASU in the fiscal year 2018 and utilize a cumulative effect of applying this ASU recognized at the date of initial application. While we are still in the process of evaluating the effect that this ASU may have on our financial statements, we do not currently expect a material effect on our financial condition, results of operations or cash flows.

In 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) . ASU No. 2014-15 requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required. ASU No. 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We will adopt ASU No. 2019-09 in the first quarter of 2017 and we believe that this adoption will not have a material effect on our financial condition, results of operations or cash flows.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

In 2016, the FASB issued ASU No. 2016-02,  Leases (Topic 842) . This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. This ASU is effective for annual reporting periods beginning on or after December 15, 2018, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual period. We plan to adopt ASU 2016-02 in fiscal year 2019 and are currently evaluating the overall effect the adoption of this ASU will have on our financial condition, results of operations and cash flows, but we currently believe the adoption of this ASU will have a significant effect on our Consolidated Balance Sheets.

In 2016, the FASB issued ASU No. 2016-04,  Liabilities-Extinguishments of Liabilities  ( Subtopic 405-20 ):  Recognition of Breakage for Certain Prepaid Stored-Value Products . The amendments in the ASU are designed to provide guidance and eliminate diversity in practice of accounting for derecognition of prepaid stored-value product liabilities. Typically, a prepaid stored-value product liability is to be derecognized when it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. This is when the likelihood of the product holder exercising its remaining rights becomes remote. This estimate shall be updated at the end of each period. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Earlier application is permitted. We plan to adopt this ASU in the fiscal year 2018, and do not expect the adoption to have a material effect on our financial condition, results of operations or cash flows as we believe we are in compliance with this ASU.

In 2016, the FASB issued ASU No. 2016-09  Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . This standard makes several modifications to ASC Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU No. 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. We will adopt ASU No. 2019-09 in the first quarter of 2017. We believe that this adoption will not have a material effect on our financial condition, results of operations or cash flows, the adoption will move future net, windfalls or shortfalls on share-based payments from the Consolidated Balance Sheets to the Income tax expense line item on the Consolidated Statements of Income.

In 2016, the FASB issued ASU No. 2016-15  Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . The amendments in this ASU introduce clarifications to the presentation of certain cash receipts and cash payments in the statement of cash flows. The primary updates include additions and clarifications of the classification of cash flows related to certain debt repayment activities, contingent consideration payments related to business combinations, proceeds from insurance policies, distributions from equity method investees and cash flows related to securitized receivables. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. The ASU requires retrospective application to all prior periods presented upon adoption. The adoption of ASU No. 2016-15 was completed in the third quarter of fiscal 2016 and did not affect our cash flows.

2. Property and Equipment, Net

Property and equipment, net consists of the following:

 

   

January 28,

 

2017

      

January 30,

 

2016

Fixtures, equipment and software

   $       251,351      $       233,124  

Leasehold improvements

  132,495        120,782  
  383,846      353,906  

Accumulated depreciation and amortization

  (218,304)       (190,952) 

Property and equipment, net

   $       165,542        $       162,954  

During 2016, 2015 and 2014, we recorded asset impairment charges in SG&A of $1.4 million, $2.0 million and $1.5 million, respectively, to reduce the carrying value of fixtures, equipment and leasehold improvements held for use and certain other assets in under-performing or closing stores to their respective estimated fair value.

Store assets are considered Level 3 assets in the fair value hierarchy as the inputs for calculating the fair value of these assets are based on the best information available, including prices for similar assets.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

3. Accrued Expenses and Other Current Liabilities

The major components of accrued expenses and other current liabilities are as follows:

 

   

January 28,

 

     

January 30,

 

    2017        2016

Compensation and employee benefits

   $        11,016     $        11,600  

Unredeemed gift and merchandise return cards

  11,954     11,310  

Property taxes

  14,274     12,286  

Accrued vacation

  7,715     7,306  

Other

  27,813       29,069  

Accrued expenses and other current liabilities

   $        72,772       $        71,571  

4. Long-Term Debt

On February 3, 2015, we entered into a $250 million senior secured revolving credit facility pursuant to a second amended and restated credit agreement with Wells Fargo Bank (the “Credit Agreement”) that will mature in February 2020 and a secured $25 million master loan agreement with Wells Fargo Equipment Finance, Inc. (the “Equipment Term Loan” and, together with the Credit Agreement, the “Credit Facilities”) that will mature in February 2018. The Credit Facilities replace the Company’s former $100 million senior secured revolving credit facility which was set to mature on February 28, 2017. Borrowings under the Credit Facilities were initially used for a special dividend, but subsequently are being used for working capital, capital expenditures and other general corporate purposes. During 2015, debt issuance costs associated with the Credit Facilities were capitalized in the amount of $0.4 million and will be amortized over their respective terms.

Long-term debt consisted of the following:

 

   

January 28,

 

     

January 30,  

 

    2017        2016

Revolving credit facility

   $     171,000      $  169,400  

Equipment term loan

  10,833        20,833  

Total debt

  181,833      190,233  

Current maturities

  (10,000)     (10,000) 

Debt issuance costs

  (41)       (83) 

Long-term debt

   $     171,792        $  180,150  

The aggregate maturities of long-term debt subsequent to January 28, 2017 for the following fiscal years:

 

   

January 28,  

 

    2017  

2017

   $       10,000  

2018

  833  

2019

  -  

2020

  171,000  

2021

  -  

Thereafter

  -  

Total

   $     181,833  

The total amount available for borrowings under the Credit Agreement is the lesser of $250 million or 100% of eligible credit card receivables and the Net Recovery Percentage of inventories less reserves. At January 28, 2017, in addition to outstanding borrowings under the Credit Agreement, the Company had $7.1 million of outstanding letters of credit. Our unused availability under the Credit Agreement was $71.9 million at January 28, 2017.

The Credit Facilities contain customary representations and warranties, affirmative and negative covenants (including, in the Credit Agreement, the requirement of a 1 to 1 consolidated fixed charge coverage ratio upon the occurrence and during the continuance of any Covenant Compliance Event, as defined in the Credit Agreement), and events of default for facilities of this type and are cross-collateralized and cross-defaulted. Collateral for the Credit Facilities consists of substantially all of our personal property. Wells Fargo Bank has a first lien on all collateral other than equipment and Wells Fargo Equipment Finance has a first lien on equipment. At January 28, 2017, we were in compliance with all debt covenants.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

Borrowings under the Credit Agreement shall be either Base Rate Loans or London Interbank Offered Rate (“LIBOR”) loans. LIBOR Loans bear interest equal to the adjusted LIBOR plus the applicable margin (125 to 175 basis points) depending on the quarterly average excess availability. Base Rate Loans bear interest equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Adjusted LIBOR plus 1.00%, or (c) the Wells Fargo “prime rate,” plus the Applicable Margin (25 to 75 basis points).

Borrowings under the equipment term loan bear interest at the LIBOR plus 2.0%.

The weighted average interest rate for amounts outstanding under the Credit Agreement and Equipment Term Loan were 2.3% and 2.8%, respectively, as of January 28, 2017.

5. Leases

We lease all of our retail stores, support facilities and certain equipment under operating leases. Our store leases are generally for 10 years with options to extend the lease term for two or more 5-year periods. Annual store rent is generally comprised of a fixed minimum amount plus a contingent amount based on a percentage of sales in excess of specified levels. Most store leases also require additional payments covering real estate taxes, common area costs and insurance.

Rent expense is as follows:

 

    2016        2015        2014

Minimum rentals

   $        92,859     $        86,572     $        79,054  

Contingent rentals

  300       373       877  

Rent expense

   $        93,159       $        86,945       $        79,931  

At January 28, 2017, future contractual minimum lease payments under operating leases are:

 

2017

   $      98,335  

2018

  87,712  

2019

  76,757  

2020

  65,737  

2021

  55,769  

Thereafter

  138,458  

Total

   $    522,768  

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

6. Income Taxes

Temporary differences, which give rise to deferred tax assets and liabilities, are as follows:

 

    January 28,       January 30,
    2017        2016

Deferred income tax assets:

     

Employee benefit expense

   $         13,983      $       13,427  

Inventory

  -          912  

Deferred rents

  15,874      15,636  

Net operating loss carryforwards in certain states

  206      163  

Other

  5,287        4,844  

Total deferred income tax assets

   $         35,350        $       34,982  

Deferred income tax liabilities:

     

Property and equipment

   $        (36,230)     $      (35,038) 

Inventory

  (744)     -  

Other

  (1,598)       (1,331) 

Total deferred income tax liabilities

  (38,572)       (36,369) 

Net deferred income tax liabilities

   $          (3,222)       $        (1,387) 

As of January 28, 2017, we had net operating losses (“NOL”) carryforwards for state income tax purposes of $2.9 million that will begin to expire in 2023.

Deferred tax assets (liabilities) are reflected on the Consolidated Balance Sheets as follows:

 

   

January 28,

 

     

January 30,

 

    2017        2016

Non-current deferred tax assets (included in other assets)

   $             443      $              408  

Non-current deferred tax liabilities (included in other liabilities)

  (3,665)       (1,795) 

Net deferred tax liability

   $        (3,222)       $          (1,387) 

The components of income tax (benefit) expense are as follows:

 

    2016        2015        2014

Current:

         

Federal

   $       (2,131)     $      18,298      $    15,475  

State

  (423)       1,392        861  

Total Current

  (2,554)       19,690        16,336  

Deferred:

         

Federal

  1,870      (4,820)     499  

State

  (35)       (301)       702  

Total Deferred

  1,835        (5,121)       1,201  

Income tax (benefit) expense

   $          (719)       $      14,569        $    17,537  

During 2016, we realized a tax shortfall of $0.9 million, and during 2015 and 2014, we realized excess tax benefits of $3.6 million and $1.8 million, respectively, related to share-based compensation plans that were recorded in additional paid-in-capital on the Consolidated Balance Sheets.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

Income tax expense differs from the amount of income tax determined by applying the statutory U.S. corporate tax rate to pre-tax amounts due to the following items:

 

        2016            2015        2014

Federal tax at the statutory rate

  35.0%     35.0%     35.0% 

State income taxes, net of federal benefit

  143.7%     3.7%     3.8% 

Permanent differences and other

  47.1%       (0.6)%       0.7% 

Effective tax rate

  225.8%       38.1%       39.5% 

The effective tax rate (“ETR”) represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns, adjusted for the impact of permanent differences.

The following is a reconciliation of the change in the amount of unrecognized tax benefits:

 

    2016        2015        2014

Beginning balance

   $          242       $          341       $          468  

Decreases due to:

         

Settlements

  -       (99)      -  

Lapse of statutes of limitations

  -         -         (127) 

Ending balance

   $          242         $          242         $          341  

As of January 28, 2017, there were no unrecognized tax benefits (“UTBs”) that, if recognized, would affect the ETR. We recognize interest and penalties related to UTBs in interest expense and penalties. During 2016, 2015, and 2014, the amount of interest and penalties related to UTBs was less than $0.1 million. The total amount of accrued interest and accrued penalties related to UTBs as of January 28, 2017, January 30, 2016 and January 31, 2015 was less than $0.1 million.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the tax years 2013 through 2015. Our state tax returns are open to audit under statutes of limitations for the tax years 2011 through 2015.

7. Employee Benefit Plans

We have a defined contribution retirement plan (a 401(k) plan) covering employees who are at least 21 years of age, have completed at least one year of service and who work at least 1,000 hours annually. Under the profit sharing portion of the plan, we can make discretionary contributions which vest at a rate of 20% per year after two years of service. During 2016, 2015 and 2014, we matched 50% of an employee’s voluntary pre-tax contributions up to a maximum of 4% of an employee’s compensation. Our matching portion vests in accordance with the plan’s vesting schedule. Our contributions to the retirement plan, net of forfeitures, were $1.8 million for 2016, 2015 and 2014, and are included in SG&A on the Consolidated Statements of Income.

We have an executive deferral plan providing officers, key executives and director-level employees with the opportunity to defer receipt of salary, bonus and other compensation. The plan allows for us to make discretionary contributions. During 2016, 2015, and 2014, we matched contributions up to 10% of salary and bonuses. During 2016, discretionary contributions were deferred at a rate of 50% for officers and key executives and a rate of 25% for directors. During 2015 and 2014, discretionary contributions were deferred at a rate of 75% for officers and key executives and a rate of 37.5% for directors.

Matching contributions and related investment earnings for the executive deferral plan vest at 20% per year in each of years four through eight, at which time a participant is fully vested. The executive deferral plan liability was $14.5 million and $13.4 million at January 28, 2017 and January 30, 2016, respectively, and is included in Other liabilities in the Consolidated Balance Sheets. The expense for this plan, net of forfeitures, was $0.2 million and $0.1 million in 2016 and 2014, respectively. In 2015, forfeitures exceeded expense for this plan, resulting in $0.1 million of income.

We provide an executive split-dollar life insurance benefit which provides officers, key executives and director-level employees with pre-retirement life insurance benefits based upon three to five times the current annual compensation. The discount rate used to determine the benefit obligation was 4.00% and 4.15% as of January 28, 2017 and January 30, 2016, respectively.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

The post-retirement benefit obligations included in Other liabilities in the Consolidated Balance Sheets were $1.8 million and $1.7 million for 2016 and 2015, respectively.

The net periodic post-retirement benefit costs for 2016, 2015 and 2014 were less than $0.1 million.

Amounts included in Accumulated other comprehensive income (loss) consisted of:

 

         January 28,        
2017    
  

  January 30,      

2016    

     January 31,  
2015  
 
      

Total net actuarial gain (loss)

   $                24        $             68          $         (118)  

In connection with the executive deferral and executive split-dollar life insurance plans, whole life insurance contracts were purchased on the related participants. At January 28, 2017 and January 30, 2016, the cash surrender value of these policies was $19.8 million and $18.5 million, respectively, and is included in Other assets in the Consolidated Balance Sheets.

We have a noncontributory executive retiree medical plan wherein eligible retired executives may continue their pre-retirement medical, dental and vision benefits through age 65. The postretirement benefit liability was $0.9 million at January 28, 2017 and $0.8 million at January 30, 2016. Accumulated other comprehensive loss on the Consolidated Balance Sheets includes no income for this plan at January 28, 2017 and income of $0.1 million for this plan at January 30, 2016. The expense recorded in net income for 2016, 2015 and 2014 was less than $0.1 million each year.

8. Shareholders’ Equity

Dividends

In 2016, we paid a quarterly dividend of $0.075 per common share on April 15, 2016, July 15, 2016, October 14, 2016, and January 13, 2017. In 2015, we paid a special cash dividend of $5.00 per common share on February 27, 2015 and four quarterly dividends of $0.075 per common share on April 17, 2015, July 17, 2015, October 16, 2015, and January 15, 2016. In 2014, we paid a quarterly dividend of $0.05 per common share on April 18, 2014 and a quarterly dividend of $0.075 per common share on July 18, 2014, October 17, 2014 and January 16, 2015.

Stock Repurchase Plan

During 2016, 2015 and 2014 we repurchased 224,344 shares, 262,219 shares and 320,081 shares, respectively, of our common stock in the open market at a total cost of $1.7 million, $3.6 million and $4.1 million, respectively. Stock repurchases on the open market, under a Board of Directors authorized plan, for taxes due on the vesting of employee stock awards during 2016, 2015 and 2014 included 224,344 shares, 262,219 shares and 216,729 shares, respectively. As of January 28, 2017, there are 496,530 shares which can be repurchased pursuant to the Board of Directors’ current authorization.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (the “Stock Purchase Plan”) whereby all employees who complete six months of employment and who work on a full-time basis or are regularly scheduled to work more than 20 hours per week are eligible to participate in the Stock Purchase Plan. Participants in the Stock Purchase Plan may purchase shares of the Company’s common stock at 85% of the lower of the fair market value of the Company’s stock determined at either the beginning or the end of each semi-annual option period. Shares eligible under the Stock Purchase Plan, which is effective for the years 1997 through 2020, are limited to 2.9 million shares in the aggregate, with no more than 200,000 shares being made available in each calendar year, excluding carryover from previous years. In 2016, 2015 and 2014, the participants acquired 145,136 shares, 111,806 shares and 64,839 shares of common stock at weighted-average per share prices of $5.13, $6.87 and $11.72, respectively. The fair value of Stock Purchase Plan shares was estimated using the Black-Scholes call option value method with the following weighted-average assumptions for 2016: expected volatility of 44.75%, expected dividend yield of 4.18%, a risk-free interest rate of 0.43%, a present-value discount factor of 1.0% and an expected term of six months. Share-based compensation expense for the Stock Purchase Plan was $0.3 million, $0.3 million and $0.2 million in 2016, 2015 and 2014, respectively. We had 244,014 shares authorized and available for grant under the Stock Purchase Plan at January 28, 2017.

Omnibus Plan

Our Omnibus Plan provides that shares of common stock may be granted to certain Key Employees, Non-Employee Directors and Advisor Participants, as defined, through non-qualified stock options, stock appreciation rights, performance awards, restricted stock, restricted stock units or any other award made under the terms of the plan. The Board of Directors, or a committee to which it delegates authority, determines the terms of all grants. The shares will be issued from authorized and unissued shares of our common stock. Expired and forfeited awards become available for re-issuance. Vesting and exercise are contingent on continued employment.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

The following table presents the number of awards authorized and available for grant under the Omnibus Plan at January 28, 2017 (shares in thousands):

 

             Shares            
    

Total awards authorized

   12,500  

Awards available for grant

   1,941  

Stock Options

In accordance with the Omnibus Plan, the exercise price of an option cannot be less than the fair value on the grant date. In general, for awards granted prior to 2014, one-third of the awards vest on each of the third, fourth and fifth anniversary dates of grant. Awards granted subsequent to 2013 generally vest monthly in equal amounts over a five-year period. The awards expire seven to ten years after the date of grant.

A summary of stock option information for the year ended January 28, 2017 is as follows (shares in thousands):

 

     Number of
Shares
     Weighted-
Average
Exercise Price
     Weighted-Average
Remaining
Contractual Term
       Aggregate
  Intrinsic
Value
 
        

Outstanding at January 30, 2016

     1,074        $       5.48          

Granted

                 2,012        7.35          

Exercised

     (276      4.88          

Cancelled or forfeited

     (918      7.37          
              

Outstanding at January 28, 2017

     1,892        $ 6.64          7.4 years      $ -      
        

Exercisable stock options at January 28, 2017

     714        $ 5.32          5.0 years      $         -      
        

The aggregate intrinsic value in the table above represents the excess of our closing stock price on January 27, 2017, the last business day of our 2016 fiscal year, ($3.65 per share) over the exercise price, multiplied by the applicable number of in-the-money options. This amount changes based on the fair market value of our common stock. Because there were no in-the-money options outstanding and exercisable at January 28, 2017, aggregate intrinsic value is zero.

As of January 28, 2017, there was $2.3 million of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted-average period of 1.7 years using the mid-point method. The weighted-average grant-date fair value of options granted was $2.36, $2.50 and $4.57 during 2016, 2015, and 2014, respectively. The total intrinsic value of stock options exercised was $0.6 million, $0.9 million and $0.3 million during 2016, 2015 and 2014, respectively. The total tax benefit realized from the exercise of stock options was $0.2 million, $0.2 million and $0.1 during 2016, 2015 and 2014, respectively.

The fair value of each stock option granted during 2016, 2015 and 2014 was estimated at the date of grant using the Black-Scholes options pricing model with the following weighted-average assumptions:

 

             2016                         2015                      2014        
        

Expected term

     5.6 years          4.9 years        4.4-5.3 years  

Risk-free interest rate

     1.6%                   1.3%        1.5% to 1.8%  

Volatility

     40.3%          38.5%        43.6%-52.9%  

Dividend yield

     4.0%          3.1%        2.2%-2.5%  

The expected volatility is based on the historical volatility of our stock price over assumed expected terms. The risk-free interest rate is estimated from yields of U.S. Treasury instruments of varying maturities with terms consistent with the expected terms of the options. The expected term of an option is calculated from a lattice model using historical employee exercise data.

In February 2015, as a result of paying a special cash dividend, all outstanding stock options were modified to decrease the exercise price and increase the number of options in order to maintain the original grant fair value. No incremental stock compensation expense resulted from the modification.

 

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STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

Restricted Stock and Performance Share Awards

We have issued restricted stock and performance share awards to eligible Key Employees, Non-Employee Directors and Advisor Participants, as defined in the Omnibus Plan. All restricted stock awards have restriction periods tied primarily to employment, and all performance share awards have vesting tied to market-based performance and service. Shares awarded under the Omnibus Plan entitle the shareholder to all rights of common stock ownership except that the shares may not be sold, transferred, pledged, exchanged or otherwise disposed of during the restriction period. Vesting for most restricted stock awards is based on the service period and vesting generally occurs between three and five years following the date of grant. Unvested shares are forfeited upon termination of employment, unless the award agreement provides otherwise. The total value of share-based compensation expense for restricted stock is based on the closing price of our common stock on the date of grant. The fair value of the market-based performance share awards was determined using a Monte-Carlo simulation model. Performance share awards provide the right to receive a share award at the end of a specified period in which a performance goal based on total shareholder return has been established.

The following table summarizes non-vested stock activity for the year ended January 28, 2017 (shares in thousands):

 

     Restricted Stock Awards                  Performance Share Awards        
        
     Shares      Weighted-
Average
Grant Date
Fair Value
     Shares      Weighted-
Average
Grant Date
Fair Value
 
        

Non-vested at January 30, 2016

     697      $             11.36        592      $ 12.58   

Granted

     633        6.85        568        8.28   

Vested

     (299      11.17        (146      11.09   

Cancelled or forfeited

     (129      9.56        (115      10.44   
        

Non-vested at January 28, 2017

     902      $ 8.51        899      $      10.39   
        

Total unrecognized compensation cost

   $ 4,676         $ 4,245     

Weighted-average expected life remaining

           1.1 years             0.9 years   

The total fair value of restricted stock vested was $3.3 million, $3.0 million and $2.9 million during 2016, 2015, and 2014, respectively. The total fair value of performance awards vested was $1.6 million, $4.8 million and $8.6 during 2016, 2015, and 2014, respectively.

In February 2015, as a result of paying a special cash dividend, all outstanding performance share awards were modified to increase the number of shares in order to maintain the original grant fair value. No incremental stock compensation expense resulted from the modification. The restricted stock awards were not modified because they participated in the special cash dividend.

Share-Based Compensation Expense

For the years ended January 28, 2017, January 30, 2016 and January 31, 2015, share-based compensation expense was recorded as follows:

 

     2016      2015      2014  
        

Cost of merchandise sold

   $ 2,551      $ 2,118      $ 2,765   

Selling, general and administrative expenses

     5,372        4,398        4,831   
        

Total share-based compensation expense

   $         7,923      $         6,516      $         7,596   
        

The total tax benefit recognized in the Consolidated Statements of Income related to share-based compensation expense was $3.0 million, $2.5 million and $2.9 million for 2016, 2015 and 2014, respectively.

9. Commitments and Contingencies

We are involved in various routine legal proceedings incidental to the conduct of our business. While some of these matters could be material to our results of operations or cash flows for any particular period if an unfavorable outcome results, we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our overall financial condition. During the years ended January 28, 2017 and January 30, 2016, we incurred expense of $2.0 million and $0.2 million, respectively, for legal settlements.

 

F-20


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

10. Store Closing Charges

We close under-performing stores in the normal course of business. We closed one store in 2016, two stores in 2015, and three stores in 2014, incurring lease termination and severance costs. Lease termination costs are net of estimated sublease income that could reasonably be obtained for the properties. During 2016, we recorded net store closing costs of $0.6 million. During 2015 and 2014, we recorded a nominal amount of store closing costs, net of impairments, and net store closing costs of $1.0 million, respectively, for store closing charges. Store closing charges are included in SG&A in the Consolidated Statements of Income.

The following tables show the activity in the store closing reserve:

 

     Lease-
Related
     Severance
and Other
     Total  
        

Balance at February 1, 2014

   $ 35       $ 69      $ 104  

Charges

     1,385         47        1,432  

Payments

             (1,365)        (64              (1,429
        

Balance at January 31, 2015

     55         52        107  

Charges

            6        7  

Payments

     (56)        (58      (114
        

Balance at January 30, 2016

     -              -            -      

Charges

     425         175        600  

Payments

     (425)        (30      (455
        

Balance at January 28, 2017

   $ -      $             145      $ 145  
        

The store closing reserve at January 28, 2017 and January 31, 2015 is included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. The was no store closing reserve at January 30, 2016.

 

F-21


Table of Contents

STEIN MART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in tables in thousands, except per share amounts)

 

11. Quarterly Results of Operations (Unaudited)

 

     Year Ended January 28, 2017  
        
     13 Weeks Ended
April 30, 2016
     13 Weeks Ended
July 30, 2016
     13 Weeks Ended
October 29, 2016
    13 Weeks Ended
January 28, 2017
 
        

Net sales

   $        355,712      $        319,761      $        299,527       $ 385,518  

Gross profit

     108,892        89,439        72,711       87,937  

Net income (loss)

     13,311        3,007        (11,010     (4,907

Basic net income (loss) per share

   $ 0.29      $ 0.07      $ (0.24     $ (0.11

Diluted net income (loss) per share

   $ 0.29      $ 0.06      $ (0.24     $ (0.11

Weighted-average shares outstanding:

          

Basic

     45,595        45,719        45,845       45,981  

Diluted

     46,275        46,555        45,845       45,981  
     Year Ended January 30, 2016  
        
     13 Weeks Ended
May 2, 2015
     13 Weeks Ended
August 1, 2015
     13 Weeks Ended
October 31, 2015
    13 Weeks Ended
January 30, 2016
 
        

Net sales

   $ 353,521      $ 311,583      $ 300,665       $ 394,132  

Gross profit

     108,380        88,935        82,168       105,804  

Net income (loss)

     13,564        4,094        (197     6,250  

Basic net income (loss) per share

   $ 0.30      $ 0.09      $ (0.01     $ 0.14  

Diluted net income (loss) per share

   $ 0.29      $ 0.09      $ (0.01     $ 0.13  

Weighted-average shares outstanding:

          

Basic

     44,612        44,710        44,791       44,905  

Diluted

     45,766        45,926        44,791       46,061  

The sum of the quarterly net income per share amounts may not equal the annual amount because income per share is calculated independently for each quarter.

12. Related Party Transactions

One of our directors is the majority shareholder of the legal firm that serves as our general counsel. Legal fees paid to this firm were $0.2 million in 2016, 2015 and 2014. In addition, the director also participated in our 2016, 2015 and 2014 Incentive Plans related to his role as general counsel.

We leased three locations in 2014 from a company for which one of our former directors is Chairman and Chief Executive Officer. This former director did not stand for reelection at the June 2014 annual meeting. We paid approximately $0.3 million in base rent through June 2014.

One of our directors, as a private investor, indirectly owned a minority interest through September 5, 2014 in the entity which operates a secure location for and maintains certain of our data processing equipment. On September 5, 2014 the entity was sold and the director and his family no longer own indirect interests. Expenses through September 5, 2014 associated with this service were $0.3 million. We entered this facility prior to our director’s investment.

Our Chairman had a personal interest in a NetJets aircraft. Effective June 2, 2014, a subsidiary of the Company purchased an undivided 3.125% interest in a NetJets aircraft, and our Chairman contributed his personal NetJets contract to our subsidiary, which the subsidiary utilized as trade-in credit with NetJets in the amount of $0.1 million. We reimbursed the Chairman for the value of his NetJets contract.

 

F-22


Table of Contents

EXHIBIT

NUMBER

   EXHIBIT INDEX

3.1

  

Articles of Incorporation of Stein Mart, Inc., incorporated by reference to the Registrant’s Form S-1 Registration Statement No. 33-46322

3.2

  

Bylaws of Stein Mart, Inc., amended January 21, 2014, incorporated by reference to the Registrant’s Current Report on Form 8-K filed January 23, 2014

4.1

  

Form of stock certificate for Common Stock, incorporated by reference to the Registrant’s Form S-1 Registration Statement No. 33-46322

4.2

  

Amended and Restated Stein Mart, Inc. Employee Stock Purchase Plan, incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A filed on April 24, 2015

10.1*

  

Form of Director’s and Officer’s Indemnification Agreement, incorporated by reference to the Registrant’s Form S-1 Registration Statement No. 33-46322

10.2*

  

Stein Mart, Inc. 2001 Omnibus Plan as Amended and Restated Effective June 21, 2016, as amended effective December 5, 2016

10.3*

  

Form of Option Award Agreement for Key Employees, pursuant to the Stein Mart, Inc. 2001 Omnibus Plan, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended February 1, 2014

10.4*

  

Form of Option Award Agreement for Non-Employee Directors, pursuant to the Stein Mart, Inc. 2001 Omnibus Plan, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended February 1, 2014

10.5*

  

Form of Restricted Share Award Agreement for Key Employees, pursuant to the Stein Mart, Inc. 2001 Omnibus Plan, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended February 1, 2014

10.6*

  

Form of Performance Share Award Agreement for Key Employees, pursuant to the Stein Mart, Inc. 2001 Omnibus Plan, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended February 1, 2014

10.7*

  

Form of Restricted Share Award for Non-Employee Directors, pursuant to the Stein Mart, Inc. 2001 Omnibus Plan, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended February 1, 2014

10.8*

  

Form of Option Award Agreement for Key Employees (2017), pursuant to the Stein Mart, Inc. 2001 Omnibus Plan

10.9*

  

Form of Option Award Agreement for Non-Employee Directors (2017), pursuant to the Stein Mart Inc. 2001 Omnibus Plan

10.10*

  

Form of Restricted Stock Award Agreement for Key Employees (Long-Term Incentive) (2017), pursuant to the Stein Mart Inc. 2001 Omnibus Plan

10.11*

  

Form of Restricted Stock Award Agreement for Key Employees (Incentive/Retention) (2017), pursuant to the Stein Mart Inc. 2001 Omnibus Plan

10.12*

  

Form of Performance Share Award Agreement for Key Employees (2017), pursuant to the Stein Mart Inc. 2001 Omnibus Plan

10.13*

  

Form of Restricted Stock Award Agreement for Non-Employee Directors (2017), pursuant to the Stein Mart Inc. 2001 Omnibus Plan

10.14*

  

Profit Sharing Plan, incorporated by reference to the Registrant’s Form S-1 Registration Statement No. 33-46322

10.15*

  

Preferred Provider Organization Executive Plan for Stein Mart, Inc., incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended May 1, 2010

 


Table of Contents

10.16*

  

Executive Split Dollar Agreement, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000

10.17*

  

Form of Letter Agreement Amendment to the executive Split Dollar Agreement, incorporated by reference to the Registrant’s Current Report on Form 8-K filed December 13, 2012

10.18*

  

Amended and Restated Executive Deferral Plan effective January 1, 2008, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended February 2, 2013

10.19*

  

Employment Agreement, dated May 1, 2016, between Stein Mart, Inc. and Gary L. Pierce, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 14, 2016

10.20*

  

Employment Agreement, dated July 31, 2015, between Stein Mart, Inc. and Gregory W. Kleffner, incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 31, 2015

10.21*

  

Employment Agreement, dated September 15, 2015, between Stein Mart, Inc. and David H. Hawkins, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 15, 2015

10.22*

  

Employment Agreement, dated October 1, 2015, between Stein Mart Inc. and Rosann McLean

10.23*

  

Employment Agreement, dated March 12, 2016, between Stein Mart Inc. and Dawn Robertson, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on March 16, 2016

10.24*

  

Agreement and General Release between Dawn H. Robertson and Stein Mart Inc. dated September 27, 2016, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 29, 2016

10.25

  

Second Amended and Restated Credit Agreement dated February 3, 2015, by and among Stein Mart, Inc., as lead borrower, the other borrowers and guarantors named therein, and Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, a Lender, Swing Line Lender, LC Issuer, Sole Lead Arranger and Sole Bookrunner, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 4, 2015

10.26

  

Master Loan Agreement No. 0220792 dated February 3, 2015, by and among Stein Mart, Inc. and Stein Mart Buying Corp., as Borrowers, Wells Fargo Equipment Finance, Inc., as Lender, and Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 4, 2015

10.27

  

Amended and Restated Supply Agreement, dated May 30, 2006, between DSW Inc. and Stein Mart, Inc., incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 5, 2006

10.28

  

First Amendment to Amended and Restated Supply Agreement, dated August 26, 2008, between DSW Inc. and Stein Mart, Inc., incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 1, 2008

10.29

  

Second Amendment to Amended and Restated Supply Agreement, dated February 23, 2012, between DSW Inc. and Stein Mart, Inc., incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 28, 2012

10.30

  

Third Amendment to Amended and Restated Supply Agreement, dated as of September 10, 2013, between DSW Leased Business Division aka Affiliated Business Group and Stein Mart, Inc., incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2014

10.31

  

Fourth Amendment to Amended and Restated Supply Agreement, dated as of July 31, 2014, between DSW Leased Business Division aka Affiliated Business Group and Stein Mart, Inc., incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 30, 2016

10.32

  

Law Firm Engagement Agreement with Stein Mart, Inc. dated June 8, 2011, incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2011

 


Table of Contents

10.33

  

Renewal of Law Firm Agreement between Stein Mart, Inc. and Kirschner & Legler, P.A., dated April 1, 2015, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 30, 2016

10.34

  

Amended and Restated Co-Brand and Private Label Credit Card Consumer Program Agreement dated as of February 24, 2016 by and between Stein Mart, Inc. and Synchrony Bank, incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q/A for the quarterly period ended April 30, 2016

21.1

  

Subsidiaries of the Company

23.1

  

Consent of KPMG LLP

31.1

  

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.2

  

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

32.1

  

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.2

  

Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

101.1

  

Interactive data files from Stein Mart, Inc.’s Annual Report on Form 10-K for the year ended January 28, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements

* Management contract or compensatory plan or arrangements.

+ Certain portions of the exhibit have been omitted pursuant to a confidential treatment order. An unredacted copy of the exhibit has been filed separately with the United States Securities Exchange Commission.

 

Exhibit 10.2

STEIN MART, INC.

2001 OMNIBUS PLAN

AS AMENDED AND RESTATED EFFECTIVE JUNE 21, 2016

(as amended effective December [5], 2016)


Table of Contents

 

ARTICLE I  
Purpose  

1.1

 

Purpose

     1  

1.2

 

Adoption and Approval

     1  
ARTICLE II  
Definitions  

2.1

 

Advisor

     1  

2.2

 

Affiliate

     1  

2.3

 

Award

     1  

2.4

 

Award Agreement

     1  

2.5

 

Board

     1  

2.6

 

Change of Control

     1  

2.7

 

Code

     2  

2.8

 

Committee

     2  

2.9

 

Dividend Equivalents

     2  

2.10

 

Exchange Act

     2  

2.11

 

Fair Market Value

     2  

2.12

 

Incentive Stock Option

     2  

2.13

 

Key Employee

     2  

2.14

 

Non-Employee Director

     2  

2.15

 

Non-Qualified Stock Option

     2  

2.16

 

Option

     2  

2.17

 

Outside Directors

     2  

2.18

 

Participant

     2  

2.19

 

Performance Award

     2  

2.20

 

Performance Goal

     2  

2.21

 

Plan

     3  

2.22

 

Plan Year

     3  

2.23

 

Released Securities

     3  

2.24

 

Restricted Stock

     3  

2.25

 

Restricted Stock Unit

     3  

2.26

 

Rule 16b-3

     3  

2.27

 

Shares

     3  

2.28

 

Stock Appreciation Rights

     3  

 

i


ARTICLE III  
Administration  

3.1

 

Committee

     3  

3.2

 

Delegation of Authority

     4  
ARTICLE IV  
Shares  

4.1

 

Number of Shares Available

     4  

4.2

 

Shares Subject to Terminated Awards

     4  

4.3

 

Adjustments

     4  
ARTICLE V  
Participation  

5.1

 

Eligible Participants

     5  
ARTICLE VI  
Stock Options and Stock Appreciation Rights  

6.1

 

Grant of Option

     5  

6.2

 

Stock Appreciation Rights

     6  

6.3

 

Compliance with Code Section 162(m)

     6  

6.4

 

Acceleration of Options on Change of Control

     6  
ARTICLE VII  
Restricted Stock AND RESTRICTED STOCK UNITS  

7.1

 

Restricted Stock and/or Restricted Stock Unit Awards

     6  

7.2

 

Compliance with Code Section 162(m)

     8  

7.3

 

Limitation on Restricted Stock and/or Restricted Stock Units Awards

     8  
ARTICLE VIII  
Performance Awards  

8.1

 

Performance Awards

     8  

8.2

 

Compliance with Code Section 162(m)

     9  

8.3

 

Limitation on Performance Awards

     9  
ARTICLE IX  
RESERVED  
ARTICLE X  
Non-Employee Director Awards  

10.1

 

Automatic Grant of Non-Employee Director Option Awards

     9  
ARTICLE XI  
Terms Applicable to All Awards Granted Under the Plan  

11.1

 

Award Agreement

     10  

11.2

 

No Consideration for Awards

     10  

11.3

 

Awards May Be Granted Separately or Together; No Limitations on Other Awards

     10  

 

ii


11.4

 

Limitations on Transfer of Awards

     10  

11.5

 

Term

     10  

11.6

 

Taxes

     10  

11.7

 

Rights and Status of Recipients

     10  

11.8

 

Awards Not Includable for Benefit Purposes

     11  

11.9

 

Share Certificates; Representation by Key Employee Participants; Registration Requirements

     11  

11.10

 

Amendments to Awards

     11  

11.11

 

Correction of Defects, Omissions, and Inconsistencies

     11  

11.12

 

Clawback

     11  
ARTICLE XII  
Amendment and Termination  

12.1

 

Amendment

     11  

12.2

 

Termination

     11  

12.3

 

Re-pricing and Backdating Prohibited

     11  
ARTICLE XIII  
General Provisions  

13.1

 

Effective Date of the Plan

     12  

13.2

 

Term of Plan

     12  

13.3

 

Governing Law

     12  

13.4

 

Unfunded Status of Plan

     12  

13.5

 

Headings

     12  

13.6

 

Severability

     12  

13.7

 

Code Section 409A

     12  

 

iii


STEIN MART, INC.

2001 OMNIBUS PLAN

ARTICLE I

PURPOSE

1.1     Purpose. The purpose of the Stein Mart, Inc. 2001 Omnibus Plan (the “Plan”) is to assist Stein Mart, Inc. (the “Company”), together with any successor thereto, and its Affiliates, to attract and retain highly competent individuals to serve as Key Employees, Non-Employee Directors and Advisors (as defined below) who will contribute to the Company’s success, and to motivate such persons to achieve long-term objectives that will inure to the benefit of all shareholders of the Company.

1.2     Adoption and Approval. The Plan has been approved by the Board of Directors of the Company and was originally approved by the Company’s shareholders at the annual meeting of shareholders in June of 2001. The shareholders subsequently re-approved the Plan for purposes of permitting Awards made under the Plan to comply with the provisions of Code Section 162(m) at the annual meeting of shareholders held in June of 2006, June of 2011 and June of 2016.

ARTICLE II

DEFINITIONS

For purposes of this Plan, capitalized terms shall have the following meanings:

2.1     Advisor means a person other than an employee who provides services to the Company or any Affiliate as a consultant or advisor and who is responsible for or contributes to the management, growth, or profitability of the business of the Company or any Affiliate, as determined by the Committee.

2.2     Affiliate means any entity of which shares (or other ownership interests) having 50 percent or more of the voting power are owned or controlled, directly or indirectly, by the Company.

2.3     Award means any Non-Qualified Stock Options or Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards, or any other award made under the terms of the Plan provided that Incentive Stock Options may not be awarded after March 28, 2011.

2.4     Award Agreement means a written agreement, contract or other document specifically setting forth the terms and conditions of any Award granted under the Plan.

2.5     Board means the Board of Directors of the Company.

2.6     Change of Control means the occurrence of any of the following: (a) the Board approves the sale of all or substantially all of the assets of the Company in a single transaction or series of related transactions; (b) the Company sells and/or one or more shareholders sells a sufficient amount of its capital stock (whether by tender offer, original issuance, or a single or series of related stock purchase and sale agreements and/or transactions) sufficient to confer on the purchaser or purchasers thereof (whether individually or a group acting in concert) beneficial ownership of at least 35% of the combined voting power of the voting securities of the Company; (c) the Company is party to a merger, consolidation or combination, other than any merger, consolidation or combination that would result in the holders of the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation or combination; or (d) a majority of the Board of Directors consists of individuals who are not Continuing Directors (for this purpose, a “Continuing Director” is an individual who (i) was a director of the Company on March 1, 2001 or (ii) whose election or nomination as a director of the Company is approved by a vote of at least a majority of the directors then comprising the Continuing Directors). Notwithstanding the foregoing, if an Award is considered deferred compensation subject to the provisions of Code Section 409A, and if a payment under such Award is triggered upon a “Change of Control,” or if an Award otherwise must contain a compliant definition of “Change of Control” in order to meet the requirements of Code Section 409A, then the Committee shall include a definition in the Award Agreement issued with respect to such Award as needed to comply with Code Section 409A.

 

1


2.7     Code means the Internal Revenue Code of 1986, as amended from time to time.

2.8     Committee means a committee of the Board designated by the Board to administer the Plan and composed of not less than two directors. At least two of the members of the Committee shall qualify as Outside Directors.

2.9     Dividend Equivalents means, with respect to an outstanding Restricted Stock Unit, an amount equal to a cash dividend paid or property distribution awarded upon one Share.

2.10     Exchange Act means the Securities Exchange Act of 1934, as amended.

2.11     Fair Market Value means, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. For the purposes of any Non-Qualified Stock Option or Stock Appreciation Right, the Committee shall base such determination on the methods provided for in Treasury Regulation Section 1.409A-1(b)(5)(iv)(A) or other applicable guidance.

2.12     Incentive Stock Option means an Option that meets the requirements of an incentive stock option under Code Section 422.

2.13     Key Employee means any officer or other key employee of the Company or of any Affiliate who is responsible for or contributes to the management, growth, or profitability of the business of the Company or any Affiliate, as determined by the Committee.

2.14     Non-Employee Director means each member of the Board who is not an employee of the Company or any Affiliate.

2.15     Non-Qualified Stock Option means an Option that is not an Incentive Stock Option.

2.16     Option means any option to purchase Shares granted pursuant to the Plan, including any reload feature that also may be awarded.

2.17     Outside Directors means a Non-Employee Director who qualifies as both an outside director for purposes of Section 162(m) of the Code and as a non-employee director for purposes of Rule 16b-3 under the Exchange Act.

2.18     Participant means any Key Employee (referred to as a Key Employee Participant), any Non-Employee Director (referred to as a “Non-Employee Director Participant”), or any Advisor (referred to as an “Advisor Participant”) receiving an Award under the Plan.

2.19     Performance Award means the right, granted pursuant to Article VIII, to receive an Award, payable in cash, Shares or a combination of both at the end of a specified period for which Performance Goals have been established.

2.20     Performance Goal means a target level of performance during an Award period specified by the Committee for the Company as a whole, one or more Affiliates, a division or other operating unit, and/or a Participant or a group of Participants, in each case as established by the Committee. The Performance Goals for an Award made to a Key Employee Participant that is intended to be “performance-based compensation” (within the meaning of Code Section 162(m)) shall be based on one or more of the following measures of performance as determined by the Committee: (a) net sales; (b) gross profit; (c) operating or other expenses (or any individual type of expense); (d) earnings before interest and taxes; (e) earnings before interest, taxes, depreciation and amortization; (f) net income; (g) earnings per share (basic or diluted); (h) cash flow; (i) average sales per store; (j) average sales per square foot; (k) comparable store sales increases; (l) average inventories (calculated by taking the average of inventories at the end of each month); (m) number of stores opened; (n) return on investment (determined with reference to one or more categories of income or cash flow and one or more categories of assets, capital or equity); (o) total shareholder returns (on a standalone basis or as compared with a designated peer group or index); and (p) stock price.

 

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2.21     Plan means the Stein Mart, Inc. 2001 Omnibus Plan as set forth herein and as the same may be amended from time to time.

2.22     Plan Year means the twelve month period ending on any December 31.

2.23     Released Securities mean Shares of Restricted Stock with respect to which all applicable restrictions have expired, lapsed or been waived.

2.24     Restricted Stock means Shares subject to restrictions imposed in connection with Awards granted under the Plan.

2.25     Restricted Stock Unit means the contractual right awarded pursuant to the Plan to receive one Share of common stock of the Company, par value $0.01 per share, upon the completion of a specific service period, upon the achievement of Performance Goals, or otherwise, as determined by or under the direction of the Committee.

2.26     Rule 16b-3 means Rule 16b-3 as promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act, as the same may be amended from time to time, and any successor rule.

2.27     Shares mean the shares of common stock of the Company, $.01 par value per share, and such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4.3 of the Plan.

2.28     Stock Appreciation Rights mean Awards granted in accordance with Article VI.

ARTICLE III

ADMINISTRATION

3.1     Committee. The Plan will be administered by the Committee; provided, however, that if at any time the Committee shall not be in existence, the functions of the Committee shall be exercised by the Board. Subject to the terms of the Plan and applicable law, the Committee shall have full power and authority to:

(i)    designate Key Employees and Advisors to be Participants;

(ii)    determine the type or types of Awards to be granted to Key Employee Participants and Advisor Participants under the Plan;

(iii)    determine the number of Shares to be covered by (or with respect to which payments, rights, or other matters are to be calculated in connection with) Awards granted to Key Employee Participants or Advisor Participants;

(iv)    determine the terms and conditions of any Award granted to a Key Employee Participant or Advisor Participant;

(v)    determine whether, to what extent, and under what circumstances Awards granted to Key Employee Participants or Advisor Participants may be settled or exercised in cash, Shares, other securities, other Awards, or other property, or canceled, forfeited, or suspended to the extent permitted in Sections 4.3, 11.10 and 11.11 of the Plan, and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended;

(vi)    determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award granted to Key Employee Participants or Advisor Participants under the Plan shall be deferred either automatically or at the election of the holder thereof, subject to the requirements of Code Section 409A;

(vii)    interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan (including, without limitation, any Award Agreement);

 

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(viii)    establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and

(ix)    make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.

Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the discretion of the Committee, may be made at any time, and shall be final, conclusive, and binding upon all persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, any shareholder, and any employee of the Company or of any Affiliate. Option Awards to Non-Employee Directors under Section 10.1 of the Plan shall be automatic and the amount and terms of such Awards shall be determined as provided in Article X of the Plan.

3.2     Delegation of Authority. To the extent permitted by applicable law, the Board may, in its discretion, delegate to another committee of the Board or to one or more officers of the Company any or all of the authority and responsibility of the Committee with respect to Awards to Key Employee Participants other than those who are subject to the provisions of Section 16 of the Exchange Act or Section 162(m) of the Code at the time any such delegated authority or responsibility is exercised. In the event that each member of the Committee is not an Outside Director, the Committee may delegate the authority and responsibility of the Committee with respect to Awards to Key Employee Participants who are subject to the provisions of Section 16 of the Exchange Act and who are or may be subject to Section 162(m) of the Code to a subcommittee consisting of at least two (2) Committee members each of whom qualify as an Outside Director. To the extent that the Board has delegated to such other committee or one (1) or more officers, or to the extent the Committee has delegated to such subcommittee, the authority and responsibility of the Committee, all references to the Committee herein shall include such other committee or one or more officers or subcommittee.

ARTICLE IV

SHARES

4.1     Number of Shares Available. The maximum number of Shares that may be issued under the Plan through Awards is 12,500,000 (twelve million, five hundred thousand), which includes 4,500,000 shares authorized upon approval of the Plan by the shareholders in 2001, plus 3,000,000 shares authorized in 2007, 3,000,000 shares authorized in 2011 and 2,000,000 shares authorized in 2016. Shares available under the Plan that are not awarded in one particular year may be awarded in subsequent years. Any and all Shares may be issued in respect of any of the types of Awards. The Shares to be offered under the Plan may be authorized and unissued Shares or treasury Shares. The number of Shares covered by an Award under the Plan, or to which such Award relates, shall be counted on the date of grant of such Award against the number of Shares available for granting Awards under the Plan.

4.2     Shares Subject to Terminated Awards The Shares covered by any unexercised portions of terminated Options, forfeited as provided under the Plan, and subject to any Awards that are otherwise surrendered by the Participant and as to which Shares no Participant has received any payment or other benefit of ownership with respect thereto may again be subject to new Awards under the Plan. In the event the purchase price of an Option is paid in whole or in part through the delivery of Shares, the gross number of Shares issuable in connection with the exercise of the Option shall not again be available for the grant of Awards under the Plan. Shares surrendered by the Participant or withheld by the Company to satisfy any withholding or tax required by law to be withheld or paid by the Company in respect of an Award shall not again be available for the grant of Awards under the Plan. Shares used to measure the amount payable to a Participant in respect of an earned Performance Award shall not again be available for the grant of Awards under the Plan. Shares issued in payment of Performance Awards that are denominated in cash amounts shall not again be available for the grant of Awards under the Plan.

4.3     Adjustments .

(a)     General. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it shall deem equitable, adjust any or all of (i) the number and type of

 

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Shares subject to the Plan and that thereafter may be issued under the Plan, (ii) the individual Key Employee Participant maximums for Awards granted during any calendar year, (iii) the number and type of Shares subject to outstanding Awards, and (iv) the grant, purchase, or exercise price with respect to any Award, or, if deemed appropriate, make provisions for the mandatory surrender of an Award and a cash payment to the holder of an outstanding Award upon such surrender. With respect to Awards of Incentive Stock Options, no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto; and provided further, the number of Shares subject to any Award payable or denominated in Shares shall always be a whole number. Nonqualified Stock Option Awards subject to grant or previously granted to Non-Employee Directors under the Plan at the time of any event described in the preceding sentence shall be subject to only such adjustment as shall be necessary to maintain the proportionate interest of the optionee and preserve, without exceeding, the value of such Option Awards.

(b)     Adjustment to Awards upon Certain Acquisitions. In the event the Company or any Affiliate shall assume outstanding employee Awards or the right or obligation to make future Awards in connection with the acquisition of another business or another corporation or business entity, the Committee shall make such adjustments, not inconsistent with the terms of the Plan, in the terms of Awards granted to Key Employee Participants or Advisor Participants (and the Board shall make such adjustments with respect to Non-Employee Directors) as it shall deem appropriate in order to achieve reasonable comparability or other equitable relationship between the assumed Awards and the Awards granted under the Plan to Participants as so adjusted.

ARTICLE V

PARTICIPATION

5.1     Eligible Participants. Any Key Employee, including any executive officer or employee-director of the Company or of any Affiliate, shall be eligible to be designated a Key Employee Participant. All Non-Employee Directors shall be Participants and receive Awards as provided in Article X of the Plan (the provisions of which are automatic and non-discretionary in operation) and shall have the right to receive Non-Qualified Stock Options under Article VI and Awards under Article VII. Any Advisor shall be eligible to be designated an Advisor Participant.

ARTICLE VI

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

6.1     Grant of Option. The Committee is hereby authorized to grant Options to Key Employee Participants and Advisor Participants as set forth below and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine. The Board is hereby authorized to grant Options to Non-Employee Directors as set forth below with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Board shall determine, and any reference to the Committee in this Section 6.1 shall mean the Board with reference to any Options granted to Non-Employee Directors under this Section 6.1.

(a)     Exercise Price. The exercise price per Share purchasable under an Option shall be determined by the Committee at the time of grant, but shall not be less than 100% of the Fair Market Value of the Share on the date of grant of such Option.

(b)     Option Term. The term of each Option shall be fixed by the Committee; provided, however, that no Option shall be exercisable more than seven (7) years after the date of grant.

(c)     Exercisability and Method of Exercise. An Option Award may contain such Performance Goals and waiting periods, and shall become exercisable in such manner and within such period or periods and in such installments or otherwise, as shall be determined by the Committee at the time of grant, subject to Section 11.12. The Committee shall also determine the method or methods by which, and the form or forms, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price, in which payment of the exercise price with respect to any Option may be made or deemed to have been made (including payment in accordance with a cashless exercise program under which, if so instructed by the Participant, Shares may be issued directly to the Participant’s broker or dealer upon receipt of the purchase price in cash from the broker or dealer). No cash payment will be made with respect to any Option Award for which the exercise price per Share is greater than the Fair Market Value of the Share on the date of exercise. No Shares shall be issued until payment therefore, as provided herein, has been made. Committee approval shall be required in order for Shares held by a Participant for fewer than six months to be used in payment of the exercise price of an Option, provided that such approval shall not be required for the payment of the exercise price using Shares that would otherwise be issued pursuant to such exercise.

 

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(d)     Incentive Stock Options. The terms of any Incentive Stock Option granted under the Plan prior to March 28, 2011 shall comply in all respects with the provisions of Code Section 422, or any successor provision thereto, and any regulations promulgated thereunder. To the extent an Incentive Stock Option fails to meet the requirements of Code Section 422, the Option shall be treated as a Non-Qualified Stock Option.

6.2     Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Key Employee Participants and Advisor Participants. Stock Appreciation Rights granted in tandem with Incentive Stock Options may only be granted simultaneously with the grant of the related Incentive Stock Option to such Participant. Subject to the terms of the Plan, the grant price, term, methods of exercise, methods of settlement (including whether Stock Appreciation Rights will be settled in cash, Shares, other securities, other Awards, or other property, or any combination thereof), and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee; provided, however, that in the event the grant price of a Stock Appreciation Right granted to a Participant subject to Code Section 409A is less than 100% of the Fair Market Value of a Share on the date of grant, such Stock Appreciation Right shall comply with Code Section 409A. No cash payment shall be made with respect to any Stock Appreciation Right for which the grant price is greater than the Fair Market Value of the Shares on the date of exercise. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.

6.3     Compliance with Code Section 162(m). Notwithstanding any other provision of the Plan, the maximum number of Shares with respect to which Options and Stock Appreciation Rights, in the aggregate, may be awarded to any Participant during any calendar year under the Plan is 1,000,000 (one million).

6.4     Acceleration of Options on Change of Control. In the event that a Change of Control occurs, immediately before such Change of Control (or in the case where the Change of Control results from sales of capital stock by shareholders, immediately after such Change of Control), all outstanding Options shall become exercisable in full without regard to whether the Options by their terms are at such time exercisable in full. The Committee (or the Board in the case of Options granted to Non-Employee Directors under Article V) may, at the time of grant of an Option, include different acceleration provisions in the Award Agreement, in which case the provisions of the Award Agreement shall control.

ARTICLE VII

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

7.1     Restricted Stock and/or Restricted Stock Unit Awards. The Committee is hereby authorized to grant Awards of Restricted Stock and/or Restricted Stock Units to Participants as set forth below and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine. The Board is hereby authorized to grant Restricted Stock and/or Restricted Stock Units to Non-Employee Directors as set forth below with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Board shall determine, and any reference to the Committee in this Section 7.1 shall mean the Board with reference to any Restricted Stock and/or Restricted Stock Units granted to Non-Employee Directors under this Section 7.1.

(a)     Restricted Stock

(i)     Restrictions. The Committee may grant to any Participant an Award of Restricted Stock in such number, and subject to such terms and conditions relating to forfeitability (whether based on Performance Goals, periods of service or otherwise) and relating to restrictions (including, without limitation, any limitation on the right to vote a share of Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate, subject to Section 11.12.

(ii)     Registration . Any Restricted Stock granted under the Plan to a Participant may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Shares of Restricted Stock granted under the Plan to Participant, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend (as determined by the Committee) referring to the terms, conditions, and restrictions applicable to such Restricted Stock.

 

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(iii)     Shareholder Rights. Unless otherwise provided by an Award Agreement, a Participant shall become a shareholder of the Company with respect to all Shares subject to the Award Agreement and shall have all of the rights of a shareholder, including, but not limited to, the right to vote such Shares and the right to receive dividends; provided, however, that any Shares distributed as a dividend or otherwise with respect to any Restricted Stock as to which the restrictions have not yet lapsed shall be subject to the same restrictions, and evidenced in the same manner, as such Restricted Stock.

(iv)     Payment of Restricted Stock. At the end of the applicable restriction period relating to Restricted Stock granted to a Participant, one or more stock certificates for the appropriate number of Shares, free of restrictions, shall be delivered to the Participant, or, if the Participant received stock certificates representing the Restricted Stock at the time of grant, the legends placed on such certificates shall be removed.

(v)     Forfeiture. Except as otherwise determined by the Committee, upon termination of employment of a Key Employee or the termination of an Advisor as a consultant or advisor (as determined under criteria established by the Committee) for any reason during the applicable restriction period, all Shares of Restricted Stock still subject to restriction shall be forfeited by the Participant and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the interests of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock held by a Participant.

(b)      Restricted Stock Units.

(i)     Restrictions. The Committee may grant to any Participant an Award of Restricted Stock Units and will in such case determine the terms of any such Award of Restricted Stock Units including, without limitation: (i) the number of Shares subject to the Restricted Stock Units; (ii) the time or times during which the Restricted Stock Units may be vested; and (iii) the consideration to be distributed upon vesting. Restricted Stock Units may be awarded upon satisfaction of such conditions (whether based on periods of service, Performance Goals (if any) or otherwise) as are set forth in the Participant’s Award Agreement.

(ii)     Shareholder Rights and Dividends. Participants shall not have the right to vote Shares represented by Restricted Stock Units prior to the vesting of such Restricted Stock Units. Participants shall not have the right to receive any dividends in respect of the Shares represented by the Restricted Stock Units prior to vesting. At the discretion of the Committee determined at the time of the Award, Participants may be credited with Dividend Equivalents on the Shares represented by the Restricted Stock Units prior to vesting. In such case, unless otherwise determined by the Committee, Dividend Equivalents shall be credited to such Participant’s account, and interest may be credited on the amount of cash Dividend Equivalents credited to the Participant’s account. Dividend Equivalents attributable to any particular Restricted Stock Units shall be distributable in cash or, at the direction of the Committee, in Shares having a Fair Market Value equal to the amount of such Dividend Equivalents and interest, if applicable, to the Participant upon vesting of such Restricted Stock Units and, if such Restricted Stock Unit is forfeited, the Participant shall have no right to such Dividend Equivalents.

(iii)     Settlement of Restricted Stock Units. Upon the expiration of any service period and/or satisfaction of any Performance Goals or other conditions to vesting set forth in the applicable Award Agreement with respect to any outstanding Restricted Stock Units, the Company shall deliver to such Participant one Share of common stock for each such outstanding vested Restricted Stock Unit and cash equal to any Dividend Equivalents credited with respect to each such vested Restricted Stock Unit in accordance with Section 7.1(b)(ii) hereof and the interest, if any, thereon or, at the discretion of the Committee, in Shares having a Fair Market Value equal to such Dividend Equivalents and the interest thereon, if any; provided, however, that, if explicitly provided in the applicable Award Agreement, the Committee may, in its sole discretion, elect to pay cash or part cash and part Shares of common stock in lieu of delivering only Shares for vested Restricted Stock Units. If a cash payment is made in lieu of delivering Shares, the amount of such payment shall be equal to the Fair Market Value of the Shares as of the date on which the conditions for vesting of the Restricted Stock Units were satisfied.

(iv)     Forfeiture . Except as otherwise determined by the Committee, upon termination of employment of a Key Employee or the termination of an Advisor as a consultant or advisor (as determined under criteria established by the Committee) for any reason during the applicable restriction period, all Restricted Stock Units still subjected to restriction shall be forfeited by the Participant and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the interests of the Company, waive in whole or in part any or all remaining restrictions with respect to Restricted Stock Units held by the Participant.

 

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7.2     Compliance with Code Section 162(m). Notwithstanding any other provision of the Plan, with respect to an Award of Restricted Stock and/or Restricted Stock Units made to any Key Employee Participant that is intended to be “performance-based compensation” (within the meaning of Code Section 162(m)), the following provisions shall apply:

(a)    each Award of Restricted Stock and/or Restricted Stock Units shall provide that the restrictions imposed on such Award shall not lapse until, at a minimum, one or more preestablished (as described in the regulations under Code Section 162(m)) Performance Goals has been achieved by the Company and/or any Affiliate during the performance period specified by the Committee; and

(b)    in all other respects, the Restricted Stock and/or Restricted Stock Units shall be administered in accordance with the requirements of Code Section 162(m) for performance-based compensation.

7.3     Limitation on Restricted Stock and/or Restricted Stock Units Awards. The maximum number of Shares of Restricted Stock and/or Restricted Stock Units that may be awarded to any individual Participant during any calendar year under the Plan is 1,000,000 (one million) Shares.

ARTICLE VIII

PERFORMANCE AWARDS

8.1     Performance Awards. The Committee is hereby authorized to grant Performance Awards to Key Employee Participants and Advisor Participants as set forth below and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine. Unless approved by the Board in such director’s capacity as an Advisor Participant, Non-Employee Directors shall not be eligible to be granted Performance Awards under the Plan.

(a)     Issuance. A Performance Award shall consist of the right to receive a payment (measured by (i) the Fair Market Value of a specified number of Shares at the end of the Award period or (ii) the increase in the Fair Market Value of a specified number of Shares during the Award period or (iii) a fixed cash amount payable at the end of the Award period) contingent upon the extent to which certain predetermined Performance Goals have been met during an Award period.

(b)     Earning Performance Awards. The Committee at the date of grant shall prescribe a formula to determine the percentage of the Performance Award to be earned based upon the degree of attainment of Performance Goals. The degree of attainment of Performance Goals shall be determined as of the last day of the Award period. The Committee, in its sole discretion, but only under circumstances when events or transactions occur to cause the Performance Goals to be an inappropriate measure of achievement as determined by the Committee, may change the Performance Goals for any Award period at any time prior to the final determination of the Award, except with respect to Performance Awards that are intended to be “performance-based compensation” (within the meaning of Code Section 162(m)). In the event the minimum performance targets established by the Committee are not achieved, no payment shall be made to the Participant.

(c)     Payment of Earned Performance Awards. Payments of earned Performance Awards shall be made in cash or Shares (based on the Fair Market Value of a Share on the last day of the Award period), or a combination of cash and Shares at the sole discretion of the Committee; provided, however that the Committee shall make such determination no later than the last date permitted under Code Section 409A. Payment normally will be made as soon as is practicable following the end of an Award period but in no event later than the 15 th day of the third month of the calendar year immediately following the calendar year in which an Award period ends. The Committee, however, may permit deferral of the payment of all or a portion of a Performance Award payable in cash upon the request of the Participant timely made in accordance with rules prescribed by the Committee; provided, however that any such deferral election must be made no later than the last date permitted under, and otherwise must comply with, Code Section 409A. Deferred amounts may generate earnings for the Participant under the conditions of a separate agreement approved by the Committee and executed by the Participant. The Committee, in its sole discretion, may define in the Award Agreement such other conditions of payment of earned Performance Awards as it may deem desirable in carrying out the purposes of the Plan.

 

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8.2     Compliance with Code Section 162(m). Notwithstanding any other provision of the Plan, with respect to a Performance Award granted to any Key Employee Participant that is intended to be “performance-based compensation” (within the meaning of Code Section 162(m)), the following provisions shall apply:

(a)    the Committee will certify in writing prior to the payment of compensation for the Performance Awards that the Performance Goals and any other material terms were in fact satisfied;

(b)    the material terms under which the compensation is to be paid, including the Performance Goals, shall be disclosed to the shareholders and approved by a majority vote in a separate shareholder vote before payment of such compensation, provided that such disclosure and approval shall only be required no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders previously approved the Performance Goals;

(c)    payment under each Award shall not be made unless one or more pre-established (as described in the regulations under Code Section 162(m)) Performance Goals has been achieved by the Company and/or any Affiliate during the Award period specified by the Committee; and

(d)    in all other respects, the Performance Awards (and income resulting from any deferral thereof) shall be administered in accordance with the requirements of Code Section 162(m) for performance-based compensation.

8.3     Limitation on Performance Awards. The aggregate value of Performance Awards granted to any individual Participant during any calendar year under the Plan shall not be more than $1,000,000 (one million dollars).

ARTICLE IX

RESERVED

ARTICLE X

NON-EMPLOYEE DIRECTOR AWARDS

10.1     Automatic Grant of Non-Employee Director Option Awards .

(a)     Option Awards. Each person becoming a Non-Employee Director of the Company beginning on or after the effective date of the Plan shall, as of the date he or she becomes a Non-Employee Director, be granted a Nonqualified Stock Option Award consisting of an option to purchase 4,000 Shares. The exercise price for such Options shall be the Fair Market Value of the Shares on the date of such grant.

(b)     Restrictions. Subject to the provisions of subsection (c), Awards granted under this Article X become exercisable as to 1,344 Shares on the third anniversary of the date of grant, and an additional 1,333 Shares each on the four and fifth anniversaries of the date of grant. Each Award granted under this Article X shall expire seven (7) years from the date of grant.

(c)     Termination. If a Non-Employee Director’s service with the Company terminates by reason of death or disability (within the meaning of Code Section 22(e)(3)) any Option Award granted under this Article X to such Non-Employee Director may be exercised for a period of 1 (one) year from the date of such termination or until the expiration of the Award, whichever is shorter, to the extent to which the individual would on the date of exercise have been entitled to exercise the Award if such individual had continued to serve as a Non-Employee Director. If a Non-Employee Director’s service with the Company terminates other than by reason of death or disability or removal for cause, any such Award held by such Non-Employee Director may be exercised for a period of 3 (three) months from the date of such termination, or until the expiration of the stated term of the Award, whichever is shorter, to the extent to which the individual would on the date of exercise have been entitled to exercise the Award if such individual had continued to serve as a Non-Employee Director. If a Non-Employee Director’s service with the Company terminates as a result of removal for cause, any such Award held by such Non-Employee Director will be cancelled immediately and without notice as of the date of such termination.

 

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(d)     Other Provisions. All applicable provisions of the Plan not inconsistent with this Section 10.1 shall apply to Option Awards granted to Non-Employee Directors.

ARTICLE XI

TERMS APPLICABLE TO ALL AWARDS GRANTED UNDER THE PLAN

11.1     Award Agreement. No person shall have any rights under any Award granted under the Plan unless and until the Company and the Participant to whom such Award shall have been granted shall have executed and delivered an Award Agreement or received any other Award acknowledgment authorized by the Committee expressly granting the Award to such person and containing provisions setting forth the terms of the Award. If there is any conflict between the provisions of an Award Agreement and the terms of the Plan, the terms of the Plan shall control.

11.2     No Consideration for Awards. Awards shall be granted to Key Employee Participants or Advisor Participants for no cash consideration unless otherwise determined by the Committee. Non-Employee Director Awards under Article X shall be granted for no cash consideration unless otherwise required by law.

11.3     Awards May Be Granted Separately or Together; No Limitations on Other Awards. Awards to Participants under the Plan may be granted either alone or in addition to, in tandem with, or in substitution for any other Award or any award granted under any other plan of the Company or any Affiliate and the terms and conditions of an Award need not be the same with respect to each such Participant. Awards granted in addition to or in tandem with other Awards, or in addition to or in tandem with awards granted under any other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.

11.4     Limitations on Transfer of Awards. Awards granted under the Plan shall not be transferable other than by will or the laws of descent and distribution, except that a Participant may, to the extent allowed by the Committee and in a manner specified by the Committee (or the Board with respect to Options granted pursuant to Article X), (a) designate in writing a beneficiary to exercise the Award after the Participant’s death, as the case may be, and (b) transfer any Award. No Award (other than Released Securities), and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge, alienation, attachment, or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.

11.5     Term. Except as otherwise provided in the Plan, the term of each Award shall be for such period as may be determined by the Committee.

11.6     Taxes. The Company shall be entitled, if the Committee deems it necessary or desirable, to withhold (or secure payment from the Participant in lieu of withholding) the amount of any withholding or other tax required or permitted by law to be withheld or paid on behalf of the Participant by the Company with respect to any amount payable and/or Shares issuable to such Participant under the Plan, or with respect to any income recognized upon the lapse of restrictions applicable to an Award or upon a disqualifying disposition of Shares received pursuant to the exercise of an Incentive Stock Option, and the Company may defer payment or issuance of the cash or Shares upon the grant, exercise or vesting of an Award unless indemnified to its satisfaction against any liability for any such tax. The amount of such withholding or tax payment shall be determined by the Committee and shall be payable by the Participant at such time as the Committee determines. The Committee may prescribe in each Award Agreement one or more methods by which the Participant will be permitted to satisfy his or her tax withholding obligation, which methods may include, without limitation, the payment of cash by the Participant to the Company and the withholding from the Award, at the appropriate time, of a number of Shares sufficient, based upon the Fair Market Value of such Shares, to satisfy such withholding requirements at an amount not to exceed the maximum individual statutory rate in the Participant’s jurisdiction. The Committee shall be authorized, in its sole discretion, to establish such rules and procedures relating to any such withholding methods as it deems necessary or appropriate.

11.7     Rights and Status of Recipients. No Employee, Participant (other than a Non-Employee Director Participant as provided in Article X), or other person shall have any claim or right to be granted an Award under this Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company or any Affiliate. The grant of an Award to a Non-Employee Director pursuant to Article X of the Plan shall confer no right on such Non-Employee Director to continue as a director of the Company, and the grant of an Award to an Advisor shall confer no right on such Advisor to continue as a consultant or advisor to the Company or any Affiliate.

 

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11.8     Awards Not Includable for Benefit Purposes. Income recognized by a Participant pursuant to the provisions of the Plan shall not be included in the determination of benefits under any employee pension benefit plan (as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended) or group insurance or other benefit plans applicable to the Participant that are maintained by the Company, except as may be provided under the terms of such plans or determined by resolution of the Board.

11.9     Share Certificates; Representation by Key Employee Participants; Registration Requirements. In addition to the restrictions imposed pursuant to Article VII hereof, all certificates for Shares delivered under the Plan, whether pursuant to any Award or the exercise thereof or otherwise, shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities Exchange Commission, any stock exchange or other market upon which such Shares are then listed or traded, and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Committee may require each Participant or other person who acquires Shares under the Plan to represent to the Company in writing that such person is acquiring the Shares without a view to the distribution thereof.

11.10     Amendments to Awards. The Committee may, in whole or in part, waive any conditions or other restrictions with respect to, and may amend, alter, suspend, discontinue, or terminate any Award granted under the Plan to a Key Employee Participant or Advisor Participant (and the Board may so do with respect to any Non-Employee Director), prospectively or retroactively, but no such action shall impair the rights of any Participant without his or her consent except as provided in Sections 4.3 and 8.1(b). Notwithstanding the foregoing, unless determined otherwise by the Committee, any such amendment shall be made in a manner that will enable an Award intended to be exempt from Code Section 409A to continue to be so exempt, or to enable an Award intended to comply with Code Section 409A to continue to comply.

11.11     Correction of Defects, Omissions, and Inconsistencies. The Committee may correct any defect, supply any omission, or reconcile any inconsistency in any Award or Award Agreement in the manner and to the extent it shall deem desirable to carry the Plan into effect, as permitted by law.

11.12     Clawback. Notwithstanding any other provision in this Plan, any Award which is subject to recovery under any law, government regulation, stock exchange listing requirement or Company policy will be subject to such deductions and clawback as may be required to be made pursuant to any such law, government regulation, stock exchange listing requirement or Company policy.

ARTICLE XII

AMENDMENT AND TERMINATION

12.1     Amendment. The Board may amend, alter, suspend or discontinue the Plan or any part thereof at any time it is deemed necessary or appropriate; provided, however, that no amendment, alteration, suspension or discontinuation of the Plan shall in any manner (except as otherwise provided in this Article XII) adversely affect any Award granted and then outstanding under the Plan, without the consent of the Participant; and provided, further, that shareholder approval of any amendment of the Plan shall also be obtained if otherwise required by (i) the Code or any rules promulgated thereunder (in order to enable the Company to comply with the provisions of Section 162(m) of the Code so that the Company can deduct compensation in excess of the limitation set forth therein), or (ii) the listing requirements of the principal securities exchange or market on which the Shares are then traded (in order to maintain the listing or quotation of the Shares thereon). Notwithstanding the foregoing, unless determined otherwise by the Committee, any such amendment shall be made in a manner that will enable an Award intended to be exempt from Code Section 409A to continue to be so exempt, or to enable an Award intended to comply with Code Section 409A to continue to comply.

12.2     Termination. The Board shall have the right and the power to terminate the Plan at any time. No Award shall be granted under the Plan after the termination of the Plan, but the termination of the Plan shall not have any other effect and any Award outstanding at the time of the termination of the Plan may be exercised after termination of the Plan at any time prior to the expiration date of such Award to the same extent such Award would have been exercisable had the Plan not terminated.

12.3     Re-pricing and Backdating Prohibited. Notwithstanding anything in the Plan to the contrary, and except for adjustments provided in Section 4.3, neither the Committee nor any other person may decrease the exercise price for any outstanding Option, or the grant price for any Stock Appreciation Right, in each case that are intended to be exempt from Code

 

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Section 409A, after the date of grant nor allow a Participant to surrender an outstanding Option or Stock Appreciation Right to the Company as consideration for the grant of a new Option or Stock Appreciation Right with a lower exercise price or grant price, respectively, unless such action is considered the grant of a new Award under Code Section 409A and the exercise or grant price of such new Award is at least 100% of the Fair Market Value of a Share on the new grant date. In addition, the Committee may not make a grant of an Option or Stock Appreciation Right with a grant date that is effective prior to the date the Committee takes action to approve such Award.

ARTICLE XIII

GENERAL PROVISIONS

13.1     Effective Date of the Plan. The Plan was effective on May 7, 2001, the date that the Company’s shareholders originally approved the Plan.

13.2     Term of Plan. The term of the Plan shall be indefinite except that no Incentive Stock Option Award shall be granted under the Plan after March 28, 2011. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Incentive Stock Option Award theretofore granted may extend beyond such date, and, to the extent set forth in the Plan, the authority of the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award, or to waive any conditions or restrictions with respect to any such Award, and the authority of the Board to amend the Plan, shall extend beyond such date.

13.3     Governing Law. The Plan and all determinations made and actions taken pursuant to the Plan shall be governed by the laws of the state of Florida and applicable federal laws.

13.4     Unfunded Status of Plan. Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any Key Employee Participant, Non-Employee Director Participant, Advisor or other person. To the extent any person holds any right by virtue of a grant under the Plan, such right (unless otherwise determined by the Committee) shall be no greater than the right of an unsecured general creditor of the Company.

13.5     Headings. Section headings are used in the Plan for convenience only, do not constitute a part of the Plan, and shall not be deemed in any way to be material or relevant to the construction or interpretation of the Plan or any provision thereof.

13.6     Severability. Whenever possible, each provision in the Plan and every Award and right at any time granted under the Plan shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Plan or any Award at any time granted under the Plan shall be held to be prohibited by or invalid under applicable law, then (a) such provision shall be deemed amended to accomplish the objectives of the provision as originally written to the fullest extent permitted by law and (b) all other provisions of the Plan and every other Award or right at any time granted under the Plan shall remain in full force and effect.

13.7     Code Section 409A. This Plan is designed and intended to comply with, or otherwise be exempt or excepted from, the applicable requirements under Code Section 409A including the related regulations and guidance issued by the Department of the Treasury, as modified from time to time, including exemptions and exceptions provided for therein. Accordingly, to the extent required, this Plan shall be administered, construed, and interpreted in a manner to comply with Code Section 409A; without limiting the foregoing, if any terms set forth in this Plan are considered to be ambiguous, such terms shall be administered, construed, and interpreted to the extent necessary in a manner to comply with Code Section 409A.

 

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Exhibit 10.8

STEIN MART, INC.

2001 OMNIBUS PLAN

OPTION AWARD AGREEMENT FOR KEY EMPLOYEES

THIS OPTION AWARD AGREEMENT FOR KEY EMPLOYEES (the “ Award Agreement ”) is made and entered into as of the date set forth on the signature page hereof (the “ Grant Date ”) by and between STEIN MART, INC. , a Florida corporation (the “ Company ”), and the Key Employee of the Company whose signature is set forth on the signature page hereof (the “ Key Employee ”).

W I T N E S S E T H

WHEREAS, the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan, as amended and restated effective June 21, 2016 (the “Plan” ), the terms of which, to the extent not stated herein, are specifically incorporated by reference in this Award Agreement;

WHEREAS, the purpose of the Plan is to permit Awards under the Plan to be granted to certain Key Employees of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS, the Key Employee is now employed by the Company or an Affiliate in a key employee capacity, and the Company desires him or her to remain in such capacity and to secure or increase his or her ownership of Shares in order to increase his or her incentive and personal interest in the success and growth of the Company; and

WHEREAS, defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

1.     Option Grant .

(a)    Subject to the terms and conditions set forth herein, the Company hereby grants to the Key Employee an option (the “ Option ”) to purchase from the Company all or any part of the aggregate number of Shares (hereinafter referred to as the “ Option Stock ”) set forth on the signature page hereof, at the exercise price per Share set forth on the signature page hereof. The Option may not be exercised prior to the Initial Exercise Date set forth on the signature page hereof or after the Expiration Date set forth thereon, except that other than as provided in Section 3 herein, the Option shall not be exercisable after the termination of the Key Employee’s employment with the Company and all Affiliates. Absence of the Key Employee on leave approved by a duly elected officer of the Company, other than the Key Employee, shall not be considered a termination of employment during the period of such leave. The Option may be exercised in whole or in part (but any exercise shall be for whole Shares) by notice in writing to

 

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the Company. The aggregate exercise price for the Shares for which the Option is exercised shall be paid to the Company at the time of exercise in cash, Shares registered in the name of the Key Employee, by reduction in the number of Shares otherwise deliverable upon exercise of such Option with a Fair Market Value equal to the aggregate exercise price or by any combination of the foregoing methods. The approval of the Board of the Company is required in order for Shares held by the Key Employee for fewer than six months to be used in payment of the exercise price of the Option. The Option shall not be an Incentive Stock Option for purposes of Section 422 of the Code.

(b)    If the exercise price is paid wholly or partly in Shares registered in the name of the Key Employee or by reduction in the number of Shares otherwise deliverable upon exercise of the Option, any Shares tendered in payment thereof shall be free of all adverse claims and duly endorsed in blank by the Key Employee or accompanied by stock powers duly endorsed in blank. Shares tendered or withheld shall be valued at Fair Market Value on the date on which the Option is exercised. As used herein, “Fair Market Value” means the per Share closing price on the date in question in the principal market in which the Shares are then traded or, if no sales of Shares have taken place on such date, the closing price on the most recent date on which selling prices were quoted; provided, however, that the Committee, in its sole discretion, may elect to determine Fair Market Value with respect to such Shares, based on the average of the closing prices, as of the date of determination and a period of up to 20 trading days immediately preceding such date. If such proviso is to be applicable, the signature page hereof sets forth the number of trading days in such period.

2.     Nontransferability of Option . The Option is not transferable other than by will or by the laws of descent and distribution. The Option may be exercised during the life of the Key Employee only by the Key Employee (or his/her legal representative).

3.     Exercise of Option .

(a)    Except as provided herein, the Option shall be exercisable only prior to the Expiration Date and then only as set forth in the following table:

 

Years From Grant Date   

Cumulative Fraction of Shares Optioned

Which Vest & Are Exercisable

1 st Anniversary

   20%

2 nd Anniversary

   20%

3 rd Anniversary

   20%

4 th Anniversary

   20%

5 th Anniversary

   20%

 

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(b)    Termination for Reasons Other than Cause, Death, Disability or Retirement. If the Key Employee’s employment with the Company or any Affiliate is terminated for any reason other than Cause (as defined below), death, Disability (as defined below) or retirement on or after age 62, the Key Employee may exercise the vested portion of the Option, but only within such period of time ending on the earlier of (i) the date 12 months following the Key Employee’s termination date or (ii) the Expiration Date.

(c)    Termination for Cause. If the Key Employee’s employment is terminated for Cause, the Option (whether vested or unvested) shall immediately terminate and cease to be exercisable. For purposes of this Award Agreement, “ Cause ” shall mean the occurrence of any one or more of the following: (i) Key Employee has been convicted of, or pleads guilty or nolo contendere to, a felony involving dishonesty, theft, misappropriation, embezzlement, fraud crimes against property or person, or any act of moral turpitude which negatively impacts the Company; (ii) Key Employee intentionally furnishes materially false or misleading information, or intentionally omits information, concerning a substantial matter to the Company or persons to whom the Key Employee reports; (iii) Key Employee intentionally fails to fulfill any assigned responsibilities for compliance with the Sarbanes-Oxley Act of 2002 or violates same; (iv) Key Employee intentionally or wrongfully damages material assets of the Company; (v) Key Employee intentionally discloses confidential information of the Company; (vi) Key Employee intentionally engages in any activity which would constitute a breach of the duty of loyalty; (vii) Key Employee intentionally breaches any stated employment policy or provision of the Company’s ethics policy which could reasonably be expected to expose the Company to liability or negatively impact the Company or its business reputation; (viii) Key Employee intentionally engages in acts or omissions which constitute a failure to follow reasonable and lawful directives of the Company; or (ix) if applicable, the Key Employee commits a material breach of an employment agreement between the Key Employee and the Company.

(d)     Termination due to Death, Disability or Retirement. If the Key Employee’s employment is terminated as a result of the Key Employee’s death, Disability (as defined below), or retirement on or after the Key Employee s 62 nd birthday, then the Option shall, notwithstanding any provisions of the Plan or this Award Agreement to the contrary, become immediately vested and exercisable with respect to 100% of the Shares subject to the Option. The Key Employee may exercise the Option, but only within such period of time ending on the earlier of (i) the date 12 months following the Key Employee’s termination date or (ii) the Expiration Date.

(e)    For purposes of this Award Agreement, “ Disability ” shall mean that the Key Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. The determination of whether a Key Employee has a Disability shall be determined under procedures established by the Committee. The Committee may rely on any determination that a Key Employee is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Key Employee participates; provided, however, that, if any Award is subject to Code Section 409A, Disability shall only be given effect to the extent consistent with a “disability” as defined under Code Section 409A.

 

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(f)    Change of Control. In the event of a Change of Control, the Option shall become immediately vested and exercisable with respect to 100% of the Shares subject to the Option in accordance with the terms of the Plan.

4.     Beneficiary .

(a)    The person whose name appears on the signature page hereof after the caption “Beneficiary” or any successor designated by the Key Employee in accordance herewith (the person who is the Key Employee’s Beneficiary at the time of his death herein referred to as the “Beneficiary”) shall be entitled to exercise the Option, to the extent it is exercisable, after the death of the Key Employee. The Key Employee may from time to time revoke or change his Beneficiary without the consent of any prior Beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Key Employee’s death, and in no event shall any designation be effective as of a date prior to such receipt.

(b)    If no such Beneficiary designation is in effect at the time of a Key Employee’s death, or if no designated Beneficiary survives the Key Employee or if such designation conflicts with law, the Key Employee’s estate shall be entitled to exercise the Option, to the extent it is exercisable after the death of the Key Employee. If the Committee is in doubt as to the right of any person to exercise the Option, the Company may refuse to recognize such exercise, without liability for any interest or dividends on the Option Stock, until the Committee determines the person entitled to exercise the Option, or the Company may apply to any court of appropriate jurisdiction and such application shall be a complete discharge of the liability of the Company therefore.

5.     No Rights As Shareholder; No Right to Continued Employment . The Key Employee shall not have any rights as a shareholder of the Company with respect to any Shares subject to the Options issued pursuant to this Award Agreement unless and to the extent the Options are exercised pursuant to Section  3 hereof. Neither the Plan nor this Award Agreement shall confer upon the Key Employee any right to be retained in any position, including as Key Employee or Advisor of the Company. Further, nothing in the Plan or in this Award Agreement shall be construed to limit the authority of the Company to terminate the Key Employee at any time, with or without cause.

6.     Tax Withholding .

(a)    It shall be a condition of the obligation of the Company to issue Option Stock to the Key Employee or the Beneficiary, and the Key Employee hereby acknowledges and agrees, that the Key Employee shall pay to the Company upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state, or local income, employment or other taxes incurred by reason of the exercise of the Option. The Company has the right to withhold from any compensation paid to the Key Employee. The amount due from the Key Employee, if any, will be determined as of the date of exercise of the Option.

 

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(b)    The Key Employee may elect to have the Company withhold that number of Shares of Option Stock otherwise issuable to the Key Employee upon exercise of the Option or to deliver to the Company a number of Shares, in each case, having a Fair Market Value on the Tax Date (as defined below) equal to the maximum individual statutory rate in the Key Employee’s jurisdiction for taxes required to be withheld as a result of such exercise. The election must be made in writing and must be delivered to the Company prior to the Tax Date. If the number of shares so determined shall include a fractional share, the Key Employee shall deliver cash in lieu of such fractional share. All elections shall be made in a form approved by the Committee and shall be subject to disapproval, in whole or in part by the Committee. As used herein, Tax Date means the date on which the Key Employee must include in his gross income for federal income tax purposes the Fair Market Value of the Option Stock over the exercise price therefore.

(c)    The Key Employee has reviewed with the Key Employee’s own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Award Agreement. The Key Employee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Key Employee understands that the Key Employee (and not the Company) shall be responsible for the Key Employee’s tax liability that may arise as a result of the transactions contemplated by this Award Agreement under the Code.

7.     Adjustments in Event of Change in Shares . In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of securities of the Company, or other similar corporate transaction or event affects the Shares issuable on exercise of the Option, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust the number and type of Shares awarded pursuant to this Agreement, or the terms, conditions, or restrictions of this Agreement; provided however, that the number of Shares subject to any Award payable or denominated in Shares shall always be a whole number.

8.     Powers of Company Not Affected . The existence of the Option shall not affect in any way the right or power of the Company or its shareholders to make or authorize any combinations, subdivision or reclassification of the Shares or any reorganization, merger, consolidation, business combination, exchange of Shares, or other change in the Company’s capital structure or its business, or any issue of bonds, debentures or stock having rights or preferences equal, superior or affecting the Option Stock or the rights thereof or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

9.     Interpretation by Committee . The Key Employee agrees that any dispute or disagreement which may arise in connection with this Award Agreement shall be resolved by the

 

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Committee, in its sole discretion, and that any interpretation by the Committee of the terms of this Award Agreement or the Plan and any determination made by the Committee under this Award Agreement or the Plan may be made in the sole discretion of the Committee and shall be final, binding, and conclusive. Any such determination need not be uniform and may be made differently among Key Employees awarded Options. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan shall govern and prevail.

10.     Compliance with Law . The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and the Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Shares may be listed. No Shares shall be issued pursuant to this Option unless and until any then applicable requirements of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel. The Participant understands that the Company is under no obligation to register the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance.

11.     Miscellaneous .

(a)    This Award Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(b)    This Award Agreement may not be amended or modified except by the written consent of the parties hereto.

(c)    The captions of this Award Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Award Agreement.

(d)    Any notice, filing or delivery hereunder or with respect to this Award Agreement shall be given to the Key Employee at either his usual work location or his home address as indicated in the records of the Company and shall be given to the Committee or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32207, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

(e)    This Award Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Key Employee, the Beneficiary and the personal representative(s) and heirs of the Key Employee.

(f)    This Award Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Award Agreement transmitted by facsimile transmission, by electronic mail or by any other electronic means will have the same effect as physical delivery of the paper document bearing an original signature.

 

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(g)    The Key Employee hereby acknowledges receipt of a copy of the Plan and this Award Agreement. The Key Employee has read and understands the terms and provisions thereof, and accepts the Options subject to all of the terms and conditions of the Plan and this Award Agreement.

 

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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed by its duly authorized officer, and the Key Employee has hereunto affixed his hand, all on the day and year set forth below.

 

STEIN MART, INC.
By:  

LOGO

 

D. Hunt Hawkins – Chief Executive Officer
KEY EMPLOYEE

Signed Electronically

This Option is a Non-Qualified Stock Option

No. of Shares of Subject to Options:                 

Exercise Price Per Share: $             

Grant Date:                     

Expiration Date:                     

[NOT LATER THAN 7 YEARS FOLLOWING GRANT DATE]

 

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Exhibit 10.9

STEIN MART, INC.

2001 OMNIBUS PLAN

OPTION AWARD AGREEMENT FOR NON-EMPLOYEE DIRECTORS

THIS AGREEMENT is made and entered into as of the date set forth on the signature page hereof by and between STEIN MART, INC. , a Florida corporation (“Company”), and the non-employee director of the Company whose signature is set forth on the signature page hereof (the “Non-Employee Director”).

W I T N E S S E T H

WHEREAS, the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan (“Plan”), the terms of which, to the extent not stated herein, are specifically incorporated by reference in this Agreement;

WHEREAS, the purpose of the Plan is to permit Awards under the Plan to be granted to certain Non-Employee Directors of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS, the Non-Employee Director is now acting for the Company in a non-employee director capacity and the Company desires him or her to remain in such capacity, and to secure or increase his or her ownership of Shares in order to increase his or her incentive and personal interest in the success and growth of the Company; and

WHEREAS, defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

1.     Option Grant . The Company hereby grants to the Non-Employee Director an initial Option to purchase from the Company all or any part of Shares Granted Shares in accordance with Section 10.1(a) of the Company’s 2001 Omnibus Plan at the purchase price set forth on the signature page of this Agreement.

2.     Nontransferability of Option . Options granted the Non-Employee Director under the Plan are not transferable other than by will or by the laws of descent and distribution. The Option may be exercised during the life of the Non-Employee Director only by the Non-Employee Director (or his/her legal representative).

3.     Exercise of Option . The exercise of Options granted to Non-Employee Directors is governed in all respects by the terms of the Plan, Particularly Section 10.1(b) and Section 10.1(c).


Except as provided herein, the Option shall be exercisable only prior to the Expiration Date, and then only as set forth in the following table:

 

Years From Grant Date

   Cumulative Fraction
of Shares Optioned
Which Is Exercisable

After 3 Years

   33%

After 4 Years

   66%

After 5 Years

   100%

4.     Beneficiary .

(b)    (a) The person whose name appears on the signature page hereof after the caption “Beneficiary” or any successor designated by the Non-Employee Director in accordance herewith (the person who is the Non-Employee Director’s Beneficiary at the time of his death herein referred to as the “Beneficiary”) shall be entitled to exercise any Option which has been granted, to the extent it is exercisable, after the death of the Non-Employee Director. The Non-Employee Director may from time to time revoke or change his Beneficiary without the consent of any prior Beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Non-Employee Director’s death, and in no event shall any designation be effective as of a date prior to such receipt.

(c)    If no such Beneficiary designation is in effect at the time of a Non-Employee Director’s death, or if no designated Beneficiary survives the Non-Employee Director or if such designation conflicts with law, the Non-Employee Director’s estate shall be entitled to exercise any Option granted prior to death of the Non-Employee Director, to the extent it is exercisable, after the death of the Non-Employee Director. If the Committee is in doubt as to the right of any person to exercise the Option, the Company may refuse to recognize such exercise, without liability for any interest or dividends on the Option Stock, until the Committee determines the person entitled to exercise the Option, or the Company may apply to any court of appropriate jurisdiction and such application shall be a complete discharge of the liability of the Company therefor.

5.     No Rights As Stockholder . The Non-Employee Director shall have no rights as a holder of the Option Stock until the issuance of a certificate for the Option Stock.

6.     Adjustments in Event of Change in Shares . Section 4.3 of the Plan shall govern adjustments in the event of a change in Shares.

 

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7.     Miscellaneous . (a) This Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(b)    This Agreement may not be amended or modified except by the written consent of the parties hereto.

(c)    The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.

(d)    Any notice, filing or delivery hereunder or with respect to Option Stock shall be given to the Non-Employee Director at either his usual work location or his home address as indicated in the records of the Company, and shall be given to the Committee or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32202, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Non-Employee Director, the Beneficiary and the personal representative(s) and heirs of the Non-Employee Director.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer, and the Non-Employee Director has hereunto affixed his hand, all on the day and year set forth below.

 

  STEIN MART, INC.
  By:  

LOGO

 

   
Its:   D. Hunt Hawkins - Chief Operating Officer
 

Signed Electronically

  Participant Name
    No. of Shares of Option Stock:  Shares Granted
    Purchase Price Per Share:      $Grant Price
    Date of Agreement: Acceptance Date
    Grant Date: Grant Date
    Expiration Date: Expiration Date

 

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Exhibit 10.10

STEIN MART, INC.

2001 OMNIBUS PLAN

RESTRICTED SHARE AWARD AGREEMENT

THIS AGREEMENT is made and entered into as of the date set forth on the signature page hereof (the “ Grant Date ) by and between STEIN MART, INC., a Florida corporation (“Company ), and the Participant whose signature is set forth on the signature page hereof (the “ Participant ).

W I T N E S S E T H

WHEREAS, the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan ( Omnibus Plan ) and the Stein Mart 2016-2018 Long Term incentive Compensation Plans (the Incentive Plans and together with the Omnibus, the Plans ), the terms of both of which, to the extent not stated herein, are specifically incorporated by reference in this Agreement;

WHEREAS, the purpose of the Plans is to permit Awards under the Incentive Plans to be granted to certain Participants of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS, the Participant is now employed in an officer, management or advisory capacity and the Company desires him or her to remain in such capacity, to secure or increase his or her ownership of shares of the Company s common stock in order to increase his or her incentive and personal interest in the success and growth of the Company; and

WHEREAS, defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plans.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

1.     Restricted Share Grant. Subject to the terms and conditions set forth herein, the Company hereby grants to the Participant the number of restricted shares (the Restricted Shares ) of the Company’s common stock set forth on the signature page hereof, at the value per Share set forth on the signature page hereof.

2.     Nontransferability of Shares. The Restricted Shares are not transferable other than by will or by the laws of descent and distribution.

3.     Grant and Vesting.

The Restricted Shares subject to this Grant shall Vest as follows (the Service Condition ): One hundred percent (100%) of such Restricted Shares shall vest upon on February 2, 2019 (the “ Award Date ”) if the Participant receiving such award remains employed by the Company on the Award Date. Notwithstanding the foregoing, if a Participant s employment with the Company is terminated because of a Termination Event (as defined in the Incentive Plan relating to death, disability, retirement at or after the Participant s 62 nd birthday, or termination within a certain time following a Change of Control), then the Service Condition shall be deemed to have been met as

 

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to a portion of the unvested Restricted Shares as equals the percent of the Service Condition which has been met as of the Termination Event. By way of example, if a Participant dies 12 months following the Award Date of the Participation Award, then the Participant (or the Participant s estate) will receive 1/3 rd of the Restricted Shares which would otherwise have Vested upon satisfaction of the Service Condition (12 months as a percent of 36 months).

4.     Certificate Issued. The certificate(s) evidencing the Restricted Shares that are the subject of this Grant are being currently issued, but are subject to forfeiture until they Vest as provided above and will be treated as outstanding unless and until a forfeiture occurs.

5.     Rights As Stockholder. The Participant shall have the rights as a holder of the Restricted Shares until and unless and to the extent the Restricted Shares are forfeited and cancelled as provided above; provided, however, that dividends otherwise payable as to such Restricted Shares shall accrue and not be paid unless and until the vesting of the Restricted Shares with respect to which such dividends have accrued.

6.     Tax Withholding.

(a)    It shall be a condition of the Grant of the Restricted Shares provided herein that the Participant, and the Participant agrees, that the Participant shall pay to the Company upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state, or local income, employment or other taxes incurred by reason of the Grant provided herein or the Vesting thereof. The amount that will be due from the Participant, if any, will be determined at the time the risk of forfeiture is removed and Vesting occurs, or if a Section 83(b) election (defined below) is made, as of the date of this Grant.

(b)    In the event that a Section 83(b) election is not made, the Participant may elect to have the Company withhold that number of Restricted Shares otherwise deliverable to the Participant upon the Vesting of the Restricted Shares or to deliver to the Company a number of Shares, in each case, having a Fair Market Value on the date of Vesting equal to the minimum amount required to be withheld as a result of such exercise. The election must be made in writing and must be delivered to the Company prior to the date of Vesting. If the number of shares so determined shall include a fractional share, the Participant shall deliver cash in lieu of such fractional share. All elections shall be made in a form approved by the committee and shall be subject to disapproval, in whole or in part by the Committee.

(c)    The Participant has reviewed with the Participant’s own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant understands that the

 

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Participant (and not the Company) shall be responsible for the Participant’s own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Participant understands that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the fair market value of the Restricted Shares as of the date any restrictions on the Shares lapse. In this context, “restriction” includes the Vesting conditions set forth in Section 3 hereof. The Participant understands that the Participant may elect to be taxed at the time the Restricted Shares are granted under this Agreement rather than when they become Vested and no longer subject to a substantial risk of forfeiture by filing an election under Section 83(b) of the Code with the I.R.S. within 30 days from the date of Grant.

THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PARTICIPANT’S BEHALF.

7.     Powers of Company Not Affected. The existence of the Restricted Shares shall not affect in any way the right or power of the Company or its stockholders to make or authorize any combinations, subdivision or reclassification of the Shares or any reorganization, merger, consolidation, business combination, exchange of Shares, or other change in the Company s capital structure or its business, or any issue of bonds, debentures or stock having rights or preferences equal, superior or affecting the Option Stock or the rights thereof or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Nothing in this Agreement shall confer upon the Participant any right to continue in the employment of the Company or any Affiliate, or interfere with or limit in any way the right of the Company or any Affiliate to terminate the Participant’s employment at any time.

8.     Interpretation by Committee. The Participant agrees that any dispute or disagreement which may arise in connection with this Agreement shall be resolved by the Committee, in its sole discretion, and that any interpretation by the Committee of the terms of this Agreement or the Plan and any determination made by the Committee under this Agreement or the Plan may be made in the sole discretion of the Committee and shall be final, binding, and conclusive. Any such determination need not be uniform and may be made differently among Participants awarded Option Stock.

9.     Miscellaneous. (a) This Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(a)    This Agreement may not be amended or modified except by the written consent of the parties hereto.

(b)    The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.

(c)    Any notice, filing or delivery hereunder or with respect to Restricted Shares shall be given to the Participant at either his usual work location or his home address as indicated in the records of the Company, and shall be given to the Committee or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32202, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

 

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(d) This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Participant, the Beneficiary and the personal representative(s) and heirs of the Participant.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer, and the Participant has hereunto affixed his hand, all on the day and year set forth below.

 

  STEIN MART, INC.
By:  

LOGO

 

D. Hunt Hawkins – President and Chief Operating Officer

Signed Electronically

Name

 

No. of Restricted Shares :    # of Shares Granted

Grant Date :        Grant Date                                

 

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Exhibit 10.11

STEIN MART, INC.

2001 OMNIBUS PLAN

RESTRICTED STOCK AWARD AGREEMENT

(KEY EMPLOYEES AND ADVISORS)

THIS RESTRICTED STOCK AWARD AGREEMENT (KEY EMPLOYEES AND ADVISORS) (the “ Award Agreement ”) is made and entered into as of the date set forth on the signature page hereof (the “ Grant Date ”) by and between STEIN MART, INC., a Florida corporation (“ Company ”) , and the Participant whose signature is set forth on the signature page hereof (the “ Participant ”).

W I T N E S S E T H

WHEREAS, the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan, as amended and restated effective June 21, 2016 (the “ Plan ”), the terms of which, to the extent not stated herein, are specifically incorporated by reference in this Award Agreement;

WHEREAS, the purpose of the Plan is to permit Awards under the Plan to be granted to certain Participants of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS, the Participant is now employed or otherwise engaged in an officer, management or advisory capacity, and the Company desires him or her to remain in such capacity to secure or increase his or her ownership of shares of the Company s common stock in order to increase his or her incentive and personal interest in the success and growth of the Company; and

WHEREAS, defined terms used herein and not otherwise defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereto hereby mutually covenant and agree as follows:

1.     Restricted Stock Grant. Subject to the terms and conditions set forth herein, the Company hereby grants to the Participant the number of Shares of Restricted Stock set forth on the signature page hereof.

2.     Nontransferability of Shares. The Shares of Restricted Stock are not transferable other than by will or by the laws of descent and distribution.

3.     Grant and Vesting.

(a) Except as otherwise provided herein, provided that the Participant remains employed by the Company on such date (each, a “ Vesting Date ”), the Shares of Restricted Stock subject to this Award Agreement shall vest in accordance with the following schedule (the “ Service Condition ”):

 

Grant Date Anniversary    Percentage of Restricted Stock Vesting

3 rd Anniversary

   33%

4 th Anniversary

   33%

5 th Anniversary

   34%

 

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(b) The foregoing vesting schedule notwithstanding, the Committee (or the Board, with respect to Awards to Advisor Participants who are also Non-Employee Directors) has determined that if a Participant s employment with the Company is terminated due to death, Disability (as defined below), retirement on or after the Participant s 62 nd birthday, or termination within twenty-four (24) months following a Change of Control (each, a “ Termination Event ”)), then the Service Condition shall be deemed to have been met as to the number of Shares of Restricted Stock equal to the percentage of the total Service Condition which has been met as of the Termination Event. By way of example, if a Participant dies 18 months following the Grant Date of the Award, then the Participant (or the Participant s estate) will receive 30% of the Shares of Restricted Stock that would otherwise have vested upon satisfaction of the Service Condition (18 months being equal to 30% of 60 months).

(c) For purposes of this Award Agreement, “ Disability ” shall mean that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. The determination of whether a Participant has a Disability shall be determined under procedures established by the Committee. The Committee may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates; provided, however, that, if any Award is subject to Code Section 409A, Disability shall only be given effect to the extent consistent with a “disability” as defined under Code Section 409A.

4.     Certificate Issued. The certificate(s) evidencing the Shares of Restricted Stock that are the subject of this Award Agreement are being currently issued, but are subject to forfeiture until they vest as provided in Section 3 above and will be treated as outstanding unless and until a forfeiture occurs.

5.     Rights As Shareholder; No Right to Continued Employment. The Participant shall have the rights as a holder of the Shares of Restricted Stock until and unless and to the extent the Shares of Restricted Stock are forfeited and cancelled as provided in Section 3 above; provided, however, that dividends otherwise payable with respect to such Shares of Restricted Stock shall accrue and not be paid unless and until the vesting of the Shares of Restricted Stock with respect to which such dividends have accrued. Neither the Plan nor this Award Agreement shall confer upon the Participant any right to be retained in any position, including as a Key Employee or Advisor of the Company. Further, nothing in the Plan or in this Award Agreement shall be construed to limit the authority of the Company to terminate the Participant at any time, with or without cause.

 

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6.     Tax Withholding.

(a)    It shall be a condition of the Award of the Shares of Restricted Stock provided herein that the Participant, and the Participant hereby acknowledges and agrees, shall pay to the Company upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state, or local income, employment or other taxes incurred by reason of the Award provided herein or upon the vesting of the Shares of Restricted Stock. The Company has the right to withhold any such taxes from any compensation paid to a Key Employee Participant to the extent permitted by Section 409A of the Code. The amount that will be due from the Participant, if any, will be determined at the time the risk of forfeiture is removed and vesting occurs, or if a Section 83(b) election (discussed below) is made, as of the Grant Date.

(b)    In the event that a Section 83(b) election is not made, the Participant may elect to have the Company withhold that number of Shares of Restricted Stock otherwise deliverable to the Participant upon the vesting of the Shares of Restricted Stock or to deliver to the Company a number of Shares registered in the name of the Participant, in each case having a Fair Market Value on the Vesting Date equal to the maximum individual statutory rate in the Participant’s jurisdiction for taxes required to be withheld as a result of the vesting of the Shares of Restricted Stock. The election must be made in writing and must be delivered to the Company prior to the Vesting Date of the Shares of Restricted Stock. If the number of Shares so determined shall include a fractional Share, the Participant shall deliver cash in lieu of such fractional Share. All elections shall be made in a form approved by the Committee (or the Board, with respect to Awards to Advisor Participants who are also Non-Employee Directors) and shall be subject to disapproval, in whole or in part, by the Committee (or the Board) in its sole discretion.

(c)    The Participant has reviewed with the Participant’s own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Award Agreement. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant understands that the Participant (and not the Company) shall be responsible for the Participant’s own tax liability that may arise as a result of the transactions contemplated by this Award Agreement. The Participant understands that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the fair market value of the Shares of Restricted Stock as of the date the restrictions on the Shares lapse. In this context, “restriction” includes the Service Condition set forth in Section 3 hereof. The Participant understands that the Participant may elect to be taxed at the time the Shares of Restricted Stock are granted under this Award Agreement rather than when they become vested and no longer subject to a substantial risk of forfeiture by filing an election under Section 83(b) of the Code with the I.R.S. within 30 days of the Grant Date.

THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b) WITHIN 30 DAYS OF THE GRANT DATE, EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PARTICIPANT’S BEHALF. THE PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT IT IS THE PARTICIPANT’S SOLE RESPONSIBILITY TO NOTIFY THE COMPANY OF THE PARTICIPANT’S DECISION SO THE COMPANY CAN ACCOUNT FOR THE SHARES APPROPRIATELY.

7.     Powers of Company Not Affected. The existence of the Shares of Restricted Stock shall not affect in any way the right or power of the Company or its shareholders to make or

 

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authorize any combinations, subdivision or reclassification of the Shares or any reorganization, merger, consolidation, business combination, exchange of Shares, or other change in the Company s capital structure or its business, or any issue of bonds, debentures or stock having rights or preferences equal, superior or affecting the Restricted Stock or the rights thereof or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

8.     Interpretation by Committee. The Participant agrees that any dispute or disagreement which may arise in connection with this Award Agreement shall be resolved by the Committee (or the Board, with respect to Awards to Advisor Participants who are also Non-Employee Directors), in its sole discretion, and that any interpretation by the Committee of the terms of this Award Agreement or the Plan and any determination made by the Committee under this Award Agreement or the Plan may be made in the sole discretion of the Committee and shall be final, binding, and conclusive. Any such determination need not be uniform and may be made differently among Participants awarded Shares of Restricted Stock. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan shall govern and prevail.

9.      Compliance with Law . The issuance and/or transfer of the Shares of Restricted Stock shall be subject to compliance by the Company and the Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Shares may be listed. No Shares shall be issued pursuant to this Award Agreement unless and until any then applicable requirements of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel. The Participant understands that the Company is under no obligation to register the Shares of Restricted Stock with the Securities and Exchange Commission or any state securities commission or to list the Shares of Restricted Stock on any stock exchange to effect such compliance.

10.     Miscellaneous.

(a)    This Award Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed therein between residents thereof.

(b)    This Award Agreement may not be amended or modified except by the written consent of the parties hereto.

(c)    The captions of this Award Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Award Agreement.

(d)    Any notice, filing or delivery hereunder or with respect to the Award of Shares of Restricted Stock shall be given to the Participant at either his usual work location or his home address as indicated in the records of the Company and shall be given to the Committee (or the Board, with respect to Awards to Advisor Participants who are also Non-Employee Directors) or the Company at 1200 Riverplace Boulevard, Jacksonville, Florida 32202, Attention Corporate Secretary. All such notices shall be given by first class mail, postage prepaid, or by personal delivery.

 

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(e)    This Award Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the personal benefit of the Participant, any beneficiary and the personal representative(s) and heirs of the Participant.

(f)    This Award Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Award Agreement transmitted by facsimile transmission, by electronic mail or by any other electronic means will have the same effect as physical delivery of the paper document bearing an original signature.

(g)    The Participant hereby acknowledges receipt of a copy of the Plan and this Award Agreement. The Participant has read and understands the terms and provisions thereof, and accepts the Option subject to all of the terms and conditions of the Plan and this Award Agreement.

IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed by its duly authorized officer, and the Participant has hereunto affixed his hand, all on the day and year set forth below.

 

  STEIN MART, INC.
By:  

LOGO

 

D. Hunt Hawkins – Chief Executive Officer
  PARTICIPANT

Signed Electronically

Name  

No. of Shares of Restricted Stock :        # of Shares Granted

Grant Date :        Grant Date                                                   

 

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Exhibit 10.12

STEIN MART, INC.

2001 OMNIBUS PLAN

PERFORMANCE SHARE AWARD AGREEMENT

THIS AGREEMENT is made and entered into as of the date set forth on the signature page hereof (the “ Grant Date ) by and between STEIN MART, INC., a Florida corporation (“Company ), and the Participant whose signature is set forth on the signature page hereof (the “ Participant ).

W I T N E S S E T H

WHEREAS, the Company has adopted the Stein Mart, Inc. 2001 Omnibus Plan ( Omnibus Plan”) and the Stein Mart 2016-2018 Long Term Incentive Compensation Plans (the Incentive Plans and together with the Omnibus, the Plans ), the terms of both of which, to the extent not stated herein, are specifically incorporated by reference in this Agreement;

WHEREAS, the purpose of the Plans is to permit Awards under the Incentive Plans to be granted to certain Participants of the Company and its Affiliates and to further specify the terms and conditions under which such individuals may receive such Awards;

WHEREAS, the Participant is now employed in an officer, management or advisory capacity and the Company desires him or her to remain in such capacity, to secure or increase his or her ownership of shares of the Company s common stock