profits or such lower rate as may be specified by an applicable income tax treaty. A non-U.S. holder described in the second bullet point immediately above
will be subject to U.S. federal income tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on any gain realized as a result of the merger, which may be offset by certain U.S. source capital losses
recognized in the same year.
If the Company is or has been a USRPHC at any time within the shorter of the five-year period preceding the effective time
of the merger or a non-U.S. holders holding period with respect to the applicable shares of Company Common Stock, the exchange of Company Common Stock for cash in the merger by such non-U.S. holder will be subject to U.S. federal income tax at rates generally applicable to U.S. holders, except that the branch profits tax will not apply; provided, that, so long as Company Common Stock is
regularly traded on an established securities market, the Companys treatment as a USRPHC would cause only a non-U.S. holder who holds or held, directly or indirectly under certain ownership rules of the
Code, more than 5% of Company Common Stock (at any time during the shorter of the five-year period preceding the merger or the period that the non-U.S. holder held Company Common Stock), and is not eligible
for a treaty exemption. The Company believes that it is not, and has not been, a USRPHC at any time during the five-year period preceding the offer.
Information Reporting and Backup Withholding. Information reporting and backup withholding will generally apply to payments made pursuant to the merger
to a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder properly and
correctly on an appropriate version of IRS Form W-8 and satisfies certain other requirements, or otherwise establishes an exemption. Copies of applicable information returns reporting such payments and any
withholding may also be made available to the tax authorities in the non-U.S. holders country in which such holder resides under the provisions of an applicable treaty or agreement. Payments of
disposition proceeds to a non-U.S. holder where the transaction is effected through a non-U.S. office of a non-U.S. broker
generally will not be subject to backup withholding or information reporting. However, if such broker is for U.S. federal income tax purposes: a U.S. person; a controlled foreign corporation; a non-U.S. person
50% or more of whose gross income is effectively connected with a U.S. trade or business for a specified three-year period; or a non-U.S. partnership with certain connections to the United States, then
information reporting will be required unless the broker has in its records documentary evidence that the beneficial owner is not a U.S. person and certain other conditions are met or the beneficial owner otherwise establishes an exemption. Backup
withholding may apply to any payment that such broker is required to report if the broker has actual knowledge or reason to know that the beneficial owner is a U.S. person. Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holders U.S. federal income tax liability (if any)
provided, that an appropriate claim is timely filed with the IRS.
Regulatory Approvals
In connection with the merger, the Company is required to make certain filings with, and comply with certain laws of, various federal and state governmental
agencies, including:
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filing the articles of merger with the Department of State of the State of Florida in accordance with the FBCA at
the closing of the merger; and
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complying with U.S. federal securities laws.
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No filings or approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 are required in connection with the merger.
Litigation Relating to the Merger
During March and
April 2020, nine lawsuits were filed against the Company and each member of the Board in connection with the merger. These cases are entitled: (i) Robert Hutchenson v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins, MaryAnne Morin, Irwin Cohen, Thomas
L. Cole, Timothy Cost, Lisa Galanti, Richard Sisisky and Burton M. Tansky (S.D.N.Y. Case No. 1:20-cv-01984); (ii) Lloyd Levy, on behalf of himself and others similarly situated, v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins, MaryAnne Morin, Irwin
Cohen, Thomas L. Cole, Timothy Cost, Lisa Galanti, Richard Sisisky and Burton M. Tansky (S.D.N.Y. Case No. 1:20-cv-02126); (iii) Shiva Stein v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins, MaryAnne Morin, Irwin Cohen, Thomas L. Cole, Timothy Cost,
Lisa Galanti, Richard Sisisky and Burton M. Tansky (S.D.N.Y. Case No. 1:20-cv-02164); (iv) James Hone v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins, MaryAnn Morin, Irwin Cohen, Thomas L. Cole, Timothy Cost, Lisa Galanti, Richard L. Sisisky, and
Burton M. Tansky (D.N.J. Case No. 2:20-cv-02754); (v) Adam Franchi, on behalf of himself and others similarly situated, v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins, MaryAnne Morin, Irwin Cohen, Thomas L. Cole, Timothy Cost, Lisa Galanti, Richard
Sisisky and Burton M. Tansky and Kingswood Capital Management, L.P., Stratosphere Holdco LLC and Stratosphere Merger Sub, Inc. (Fourth Judicial Circuit Duval County, FL); (vi) John Coccio, Jr. v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins,
MaryAnne Morin, Irwin Cohen, Thomas L. Cole, Timothy Cost, Lisa Galanti, Richard Sisisky and Burton M. Tansky (U.S. District Court Delaware - Case No. 1:20-cv-00389); and (vii) Joel Rosenfeld v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins,
MaryAnne Morin, Irwin Cohen, Thomas L. Cole, Timothy Cost, Lisa Galanti, Richard Sisisky and Burton M. Tansky (S.D.N.Y. Case No. 1:20-cv-02521); and (viii) Andrea Sogno v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins, MaryAnne Morin, Irwin Cohen,
Thomas L. Cole, Timothy Cost, Lisa Galanti, Richard Sisisky and Burton M. Tansky (S.D.N.Y. Case No. 1:20-cv-02656); and (ix) Froilan Mariscal v. Stein Mart, Inc., Jay Stein, D. Hunt Hawkins, MaryAnne Morin, Irwin Cohen, Thomas L.
Cole, Timothy Cost, Lisa Galanti, Richard Sisisky and Burton M. Tansky (S.D.N.Y. Case No. 1:20-cv-02829). Each of the complaints generally allege that the proxy statement filed by the Company in connection with the proposed merger omitted
purportedly material information in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and, with respect to the complaints filed by Lloyd Levy and Adam Franchi, that the members of the Board of Directors breached their
fiduciary duties. The complaints seek to enjoin the defendants from completing the proposed merger (or recessionary damages if the proposed merger is completed), declaratory judgments and an award of the plaintiffs costs, including
attorneys fees and experts fees.
We believe the claims are frivolous and meritless, and that the Company and the members
of the Board have substantial legal and factual defenses to the claims. However, at this time it is not possible to predict the outcome of these matters or their effects on the Company or the merger. An adverse judgment for monetary damages could
have an adverse effect on the Company. A preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger.
Delisting and Deregistration of Company Common Stock
If the merger is completed, the shares of Company Common Stock will no longer be publicly traded. In addition, Company Common Stock will be delisted from the
Nasdaq Capital Market and deregistered under the Exchange Act, and the Company will no longer be required to file periodic reports with the SEC with respect to Company Common Stock.
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