You are cordially invited to
attend a special meeting of our shareholders (the
Special Meeting
) of Hastings Entertainment, Inc. (the
Company
) to be held at the Hastings Store Support Center on
, , 2014,
at , Central Time. The Store Support Center is located at 3601 Plains Boulevard in Amarillo, Texas 79102.
The attached Notice of Special Meeting and Proxy Statement describe the formal business to be transacted at the Special Meeting. During the
Special Meeting, shareholders will be asked to consider and vote on, among other matters, a proposal to approve the Agreement and Plan of Merger, dated as of March 17, 2014 (as it may be amended from time to time, the
Merger
Agreement
), by and among Draw Another Circle, LLC, a Delaware limited liability company (
Parent
), Hendrix Acquisition Corp., a Texas corporation and a wholly-owned subsidiary of Parent (
Merger
Sub
), and the Company. Pursuant to the Merger Agreement and as more fully described in the accompanying proxy statement, Merger Sub will be merged with and into the Company (the
Merger
), with the Company
surviving the Merger as a wholly-owned subsidiary of Parent, and each share of the Companys common stock (the
Common Stock
) outstanding immediately prior to the effective time of the Merger (other than certain
excluded shares and dissenting shares) will be canceled and converted into the right to receive $3.00 in cash, without interest (the
Merger Consideration
), less any applicable withholding taxes. The following shares of
Common Stock will not be entitled to the Merger Consideration: (i) shares held by National Entertainment Collectibles Association, Inc., an affiliate of Parent and Merger Sub, Parent, Merger Sub or any other wholly-owned subsidiary of Parent,
(ii) shares held by the Company or any wholly-owned subsidiary of the Company (including shares held in the Companys treasury), and (iii) shares held by any of the Companys shareholders who are entitled to and properly exercise
rights of dissent and appraisal under Texas law.
Our directors and officers will be present at the Special Meeting and will be available
to respond to any questions you may have. I hope you will be able to attend.
We urge you to review carefully the accompanying material
and to promptly return the enclosed proxy card or vote by telephone or via the Internet as instructed on your proxy card. Voting by proxy, telephone or Internet will not prevent you from voting in person at the Special Meeting.
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
, 2014
NOTICE
IS HEREBY GIVEN that a special meeting of shareholders (the
Special Meeting
) of Hastings Entertainment, Inc. (the
Company
or
Hastings
) will be held on
, 2014, at , Central Time, at the Hastings Store Support
Center, located at 3601 Plains Boulevard in Amarillo, Texas 79102. At the Special Meeting, holders of record on , 2014 of our
common stock will be asked to vote on the following matters:
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(1)
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To approve the Agreement and Plan of Merger, dated as of March 17, 2014 (as it may be amended from time to time, the
Merger Agreement
), by and among Draw Another Circle, LLC, a Delaware
limited liability company (
Parent
), Hendrix Acquisition Corp., a Texas corporation and a wholly-owned subsidiary of Parent, and the Company;
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(2)
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to approve an adjournment of the Special Meeting, if advisable or necessary, including to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the Merger Agreement
(the
Adjournment Proposal
);
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(3)
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to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to our named executive officers in connection with the transactions contemplated in the Merger Agreement (collectively,
the
Merger
); and
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(4)
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to transact such other business as may properly come before the Special Meeting or any adjournments or postponement thereof.
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After careful consideration, our board of directors unanimously determined that the Merger Agreement and the transactions contemplated
by the Merger Agreement are fair to, and in the best interests of, the Company and its shareholders and approved, adopted and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger.
Our board of directors unanimously recommends approval of the Merger Agreement by the shareholders of the Company and our board of directors unanimously recommends that you vote FOR the proposal to approve the Merger Agreement,
FOR the proposal to adjourn the Special Meeting and FOR the advisory (non-binding) proposal to approve the compensation for each of our named executive officers that is based on or otherwise relates to the Merger.
We cannot complete the Merger unless the holders of at least two-thirds of the outstanding shares of our common stock vote to approve the
Merger Agreement. Approval of the proposal to adjourn the Special Meeting requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Special Meeting if a quorum is present. The advisory
(non-binding) proposal to approve the compensation for our named executive officers that is based on or otherwise relates to the Merger will be approved if at least a majority of the shares represented in person or by proxy at the Special Meeting
and entitled to vote on the subject matter vote in favor of this proposal. The obligations of the Company and Parent to complete the Merger are also subject to the satisfaction or waiver of several other conditions. We encourage you to read the
accompanying proxy statement, including the annexes, in its entirety because it explains the proposed Merger, the documents related to the Merger and other related matters.
You are urged to submit your proxy as soon as possible by completing, dating, signing and
returning the enclosed proxy card in the accompanying envelope, which does not require postage if mailed in the United States, or by granting your proxy electronically by telephone or via the Internet as instructed on the proxy card.
YOUR
VOTE IS IMPORTANT.
If your shares are held in an account at a brokerage firm, bank or other nominee, you should instruct your broker, bank or nominee how to vote your shares using the enclosed voting instruction form furnished by your broker,
bank or nominee. If you do not vote or do not instruct your broker, bank or nominee how to vote, it will have the same effect as voting against the proposal to approve the Merger Agreement. Submitting your proxy will not prevent you from voting in
person at the Special Meeting.
Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
The proxy statement is dated
, 2014, and it and the proxy card are first being mailed to shareholders on or about
, 2014. The close of business on
, 2014 was fixed as the record date for determining the shareholders entitled to notice of, and to vote at, the Special Meeting
or any adjournments thereof.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON
, 2014
Our Proxy Statement,
2013 Annual Report, and Annual Report on Form 10-K for the fiscal year ended January 31, 2014 are available online at http://phx.corporate-ir.net/phoenix.zhtml?c=109628&p=proxy. In accordance with Securities and Exchange Commission rules,
this website provides complete anonymity with respect to any shareholder accessing it.
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By Order of the Board of Directors,
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ANGIE KNIGHT
Corporate Secretary
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Amarillo, Texas
, 2014
YOUR VOTE IS IMPORTANT
WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED REPLY ENVELOPE. IF YOU HOLD SHARES DIRECTLY IN YOUR NAME, YOU MAY ALSO SUBMIT YOUR PROXY OVER THE
INTERNET OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS PRINTED ON YOUR PROXY CARD. IF YOUR SHARES ARE HELD IN AN ACCOUNT AT A BROKERAGE FIRM, BANK OR OTHER NOMINEE, YOU SHOULD INSTRUCT YOUR BROKER, BANK OR NOMINEE HOW TO VOTE YOUR SHARES USING THE
ENCLOSED VOTING INSTRUCTION FORM FURNISHED BY YOUR BROKER, BANK OR NOMINEE. EVEN IF YOU SUBMIT A PROXY, YOU CAN STILL ATTEND THE SPECIAL MEETING AND VOTE IN PERSON IF YOU DESIRE TO DO SO.
TABLE OF
CONTENTS
SU
MMARY
The following summary, together with the section of this proxy statement entitled Questions and Answers about the
Special Meeting and the Merger, highlights selected information from this proxy statement and may not contain all of the information that is important to you as a shareholder of the Company or that you should consider before voting on the
proposal to approve the Merger Agreement and the other proposals to be voted on at the Special Meeting. Accordingly, to better understand the Merger and the matters to be voted on at the Special Meeting (as defined below) more fully and to obtain a
more complete description of the legal terms of the Merger Agreement (as defined below), we encourage you to read carefully this entire proxy statement, its annexes and the documents incorporated by reference in this proxy statement before voting.
Each item in this summary includes a page reference directing you to a more complete description of that item. You may obtain without charge copies of documents incorporated by reference into this proxy statement by following the instructions under
Where You Can Find More Information beginning on page 80. In this proxy statement, unless the context requires otherwise, the terms
Hastings
,
the Company
,
we
,
our
and
us
refer to Hastings Entertainment, Inc. The term
Parent
refers to Draw Another Circle, LLC, and the term
Merger Sub
refers to Hendrix Acquisition Corp. The term
Merger Agreement
refers to the Agreement and Plan of Merger, dated as of March 17, 2014, by and among Parent, Merger Sub
and Hastings, as it may be amended from time to time.
The Parties to the Merger
Hastings Entertainment, Inc.
3601 Plains Boulevard
Amarillo,
Texas 79102
Phone: (806) 351-2300
Hastings Entertainment, Inc. (NASDAQ: HAST) is a Texas corporation. Incorporated in 1972, Hastings is a leading multimedia entertainment
retailer. Hastings operates entertainment superstores that buy, sell, trade and rent various home entertainment products, including books, music, software, periodicals, movies on DVD and Blu-Ray, video games, video game consoles, hobby, sports and
recreation, lifestyle and consumer electronics. Hastings also offers consumables and trends products such as apparel, t-shirts, action figures, posters, greeting cards and seasonal merchandise. In addition, Hastings operates two concept stores that
sell a wide range of bicycles and related accessories, skateboards, and various other athletic equipment, apparel and shoes and one concept store that sells predominantly used and new books, CDs, DVDs, Blu-Rays, video games and video game systems
and other consumer merchandise. Hastings also operates a multimedia entertainment e-commerce web site offering a broad selection of books, software, video games, movies on DVD and Blu-Ray, music, trends, comics, sports and recreation and electronics
Additional information about Hastings is contained in its public filings, which are incorporated by reference herein. See Where
You Can Find Additional Information on page 80.
Draw Another Circle, LLC
c/o National Entertainment Collectibles Association, Inc.
603 Sweetland Avenue
Hillside,
NJ 07205
Parent, a Delaware limited liability company, is a holding company which, following the consummation of the Merger, will hold
all of the outstanding shares of the Company. Parent is an affiliate of National Entertainment Collectibles Association, Inc., a New Jersey corporation (
NECA
), which operates as a media and entertainment company in the
United States and internationally, with divisions dedicated to consumer products, filmed entertainment, and online retailing/digital distribution.
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Hendrix Acquisition Corp.
c/o National Entertainment Collectibles Association, Inc.
603 Sweetland Avenue
Hillside,
NJ 07205
Merger Sub, a Texas corporation, is a wholly-owned subsidiary of Parent. Merger Sub was formed on March 11, 2014 solely for
the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. Merger Sub has not conducted any business operations other than those incident to its formation and the transactions
contemplated by the Merger Agreement. If the Merger is completed, Merger Sub will cease to exist following the Merger with and into the Company.
The Special Meeting
Date, Time and Place of Special Meeting; Purpose of Special Meeting (page 19)
The Special Meeting will be held on
, 2014, at Central Time, at Hastings Store Support
Center located at 3601 Plains Boulevard, Amarillo, Texas 79102.
The purpose of the Special Meeting is:
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to vote on a proposal to approve the Merger Agreement that we have entered into with Parent and Merger Sub;
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to vote on a proposal to adjourn the Special Meeting, if advisable or necessary, including to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the Merger Agreement
(the
Adjournment Proposal
);
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to vote on a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers in connection with the transactions contemplated in the Merger
Agreement (the
Related Compensation Proposal
); and
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to transact any other business that may properly come before the Special Meeting or any adjournments or postponement thereof.
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Recommendation of Our Board of Directors; Our Reasons for the Merger (pages 20 and 32)
Our Board of Directors (the
Board
), acting upon the unanimous recommendation of a committee of the Board consisting
solely of the four independent directors of the Company (the
Special Committee
), unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are fair to, advisable and in the
best interests of, the Company and our shareholders and approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.
The Board unanimously recommends that the shareholders of the Company vote FOR the proposal to approve the Merger Agreement,
FOR the proposal to adjourn the Special Meeting and FOR the advisory (non-binding) proposal to approve the compensation of each of our named executive officers that is based on or otherwise relates to the Merger. For a
description of the reasons considered by the Special Committee and the Board in deciding to recommend approval of the proposal to approve the Merger Agreement, see The MergerReasons for the Merger and Recommendation of the Board of
Directors beginning on page 32.
Shareholders Entitled to Vote; Record Date (page 20)
If you owned shares of our common stock of record at the close of business on
, 2014, the record date for the Special Meeting, you are entitled to notice of and to vote at the Special Meeting, or any
adjournment or postponement thereof. You have one vote for each share of our common stock owned on the
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record date. As of the close of business on the record date, there were shares of our common stock entitled to vote at the
Special Meeting. NECA holds approximately 12.4% shares of our outstanding common stock as of the record date and, pursuant to a letter agreement with Parent, has agreed to vote its shares in favor of approving the Merger Agreement. Additionally,
under the terms of a support agreement, Mr. Marmaduke, his wife and The John H. Marmaduke Family Limited Partnership (the
Marmaduke Holders
), who collectively hold approximately 30.4% of our outstanding common stock as
of the record date, agreed, among other things, to vote their respective shares in favor of the approval of the Merger Agreement.
Quorum; Required Vote (page 20)
A quorum of shareholders is necessary to hold the Special Meeting. The presence, in person or by proxy, of the holders of a majority of the
shares of our common stock issued and outstanding on the record date will constitute a quorum for purposes of voting at the Special Meeting. Thus, shares of our common stock
must be represented at the Special Meeting for there to be a quorum. If a quorum is not present in person or by proxy at the Special Meeting, we expect that the Special Meeting will be adjourned or postponed to solicit additional votes at the
Companys expense. Abstentions count as present for establishing a quorum.
The approval of the Merger Agreement requires the
affirmative vote of the holders of at least two-thirds of the outstanding shares of our common stock. Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of our common stock present or represented by proxy
at the Special Meeting. Approval of the related compensation proposal also requires the affirmative vote of the holders of a majority of our common stock present or represented by proxy at the Special Meeting. The vote on the related compensation
proposal is advisory in nature and will not be binding on Hastings or the Board.
If you abstain or fail to submit your proxy or vote in person at the Special Meeting, it will have the same effect as a vote AGAINST the proposal to
approve the Merger Agreement.
If you fail to submit your proxy and do not attend the Special Meeting, it will have no effect on the outcome of the adjournment proposal or the related compensation proposal, but if you abstain, it will have the
same effect as a vote against these proposals.
Voting; Submission of Proxy (page 21)
Our shareholders of record can submit their proxy three ways:
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by mail, using the enclosed proxy card and return envelope;
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by telephone, using the telephone number printed on their proxy card; or
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by the Internet, using the instructions printed on their proxy card.
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If you hold your shares
in street name through a broker or other nominee, you will receive separate instructions from your broker or nominee, and you must instruct the broker or other nominee on how to vote your shares by following the instructions that they
provide to you with those materials.
Revocability of Proxies (page 21)
If you are a shareholder of record, you may revoke your proxy at any time before it is voted at the Special Meeting by:
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sending a written notice of revocation to the Corporate Secretary of Hastings at Hastings Entertainment, Inc., Attn: Corporate Secretary, 3601 Plains Boulevard, Amarillo, Texas 79102, which must be received before your
shares are voted at the Special Meeting;
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properly submitting a new proxy card, which must be received before your shares are voted at the Special Meeting (in which case only the later-submitted proxy is counted and your earlier proxy is revoked);
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submitting another proxy via Internet or by telephone at a later date before your shares are voted at the Special Meeting (in which case only the later-submitted proxy is counted and your earlier proxy is revoked); or
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attending the Special Meeting and voting by ballot in person.
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Simply attending the Special
Meeting will not constitute revocation of your proxy. If your shares are held in street name by your broker or other nominee, you should follow the instructions of your broker or nominee regarding revocation of proxies.
The Me
rger (page
22
)
Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub, a wholly-owned subsidiary of Parent, will merge with and into
Hastings. Hastings will be the surviving corporation in the Merger and will become a wholly-owned subsidiary of Parent. As a result of the Merger, our common stock will cease to be publicly traded. The Merger Agreement is attached as Annex A to this
proxy statement. We encourage you to carefully read the Merger Agreement in its entirety.
Consideration to be Received in the
Merger (page 59)
If the Merger is completed, subject to the terms and conditions of the Merger Agreement, you will be
entitled to receive $3.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock held immediately prior to the time of completion of the Merger (the
Merger Consideration
),
unless you are a dissenting shareholder and you perfect your rights of dissent and appraisal under the Texas Business Organizations Code (as amended, the
TBOC
). In that case, your shares will not be converted into the right
to receive the Merger Consideration, but will represent the right to receive the fair value of such shares as determined by a court in accordance with the TBOC. Any shares of our common stock then held by us or any of our wholly owned subsidiaries
or held in our treasury and any shares of our common stock then held by NECA or any other member of Parent, Parent, Merger Sub or any of their respective affiliates shall be canceled and retired and shall cease to exist, and no consideration shall
be delivered in exchange.
Additionally, upon the completion of the Merger, each option to purchase our common stock that is outstanding
immediately prior to the completion of the Merger will be cancelled and terminated and, to the extent any such option is vested immediately prior to such time and held by a person other than Messrs. John Marmaduke, Dan Crow, Alan Van Ongevalle or
Philip McConnell (collectively, the
Insiders
), such option will be converted into the right to receive a cash amount equal to the Option Consideration for each share then subject to such option.
Option
Consideration
means, with respect to any share issuable under each such option, an amount equal to the excess, if any, of (i) the Merger Consideration over (ii) the exercise price payable in respect of such share issuable
under such option.
Opinion of SunTrust Robinson Humphrey, Inc. (page 35)
The Special Committee retained SunTrust Robinson Humphrey, Inc. (
STRH
) and George K. Baum Capital Advisors, Inc.
(
Baum
) to act as its financial advisors in connection with the proposed Merger. In connection with the Merger, at the meeting of the Special Committee and the Board on March 16, 2014, STRH delivered to the Special
Committee an oral opinion, which was confirmed by delivery of a written opinion, dated March 16, 2014, to the effect that, as of the date of the opinion and based upon and subject to the conditions, limitations, qualifications and assumptions
set forth in the opinion, the $3.00 per share of common stock to be received in the Merger by the holders of our common stock, other than NECA or any equity holder of Parent, Parent, Merger Sub and their respective affiliates and associates (the
Unaffiliated Shareholders
), in exchange for their common stock was fair, from a financial point of view, to such Unaffiliated Shareholders.
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The full text of the written opinion of STRH, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review undertaken in connection with the opinion of STRH, is attached as Annex B to this proxy statement and is incorporated herein by reference. Shareholders are urged to read STRHs written
opinion carefully and in its entirety. STRHs opinion was furnished solely for the use of the Special Committee (solely in its capacity as such) in connection with its evaluation of the Merger. STRHs opinion is limited solely to the
fairness to the Unaffiliated Shareholders, from a financial point of view, of the $3.00 per share of common stock to be paid to the Unaffiliated Shareholders in exchange for their common stock in connection with the Merger and does not address the
Companys underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available with respect to the Company. STRHs opinion does
not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote or act with respect to the Merger or any other matter. STRHs opinion was approved by an internal opinion committee of STRH authorized to
approve opinions of this nature.
Source of Funds (page 42)
Parent estimates that the total amount of funds necessary to complete the Merger and the related transactions and financings will be
approximately $22.1 million, which is inclusive of the fees and expenses incurred therewith. Parent expects this amount to be funded through a combination of the following: (i) a contribution by Mr. Joel Weinshanker, the president and sole
stockholder of NECA and president and indirect holder of all outstanding equity interests of Parent, of $7.1 million in cash to Parent in exchange for equity interests therein and (ii) $15 million in a debt financing provided by Pathlight
Capital LLC (
Pathlight
).
Guaranty (page 42)
In connection with the Merger Agreement, Mr. Weinshanker entered into a Guaranty, dated as of March 17, 2014 (the
Guaranty
), with the Company whereby Mr. Weinshanker agreed to personally guaranty the obligations of Parent to pay the Merger Consideration following the closing of the Merger and to pay the holders of vested options
to acquire Hastings shares (other than the Insiders) the Option Consideration, in each case pursuant to the Merger Agreement and the Guaranty. Under the Guaranty, Mr. Weinshanker agreed to personally guaranty the obligation of Parent to
reimburse Hastings for certain expenses in the event Hastings terminates the Merger Agreement under certain circumstances. In addition, the Guaranty contains representations of Mr. Weinshanker regarding, among other things, his personal
financial statement furnished to the Special Committee and covenants of Mr. Weinshanker to maintain a minimum tangible net worth of at least four times the amount of the Merger Consideration and the Option Consideration and, under certain
circumstances, to use commercially reasonable efforts to provide Parent with financing sufficient to allow Parent to pay either the Merger Consideration and the Option Consideration or the reimbursement of certain expenses in the event of
termination of the Merger Agreement by the Company under certain circumstances, as applicable. The Guaranty will terminate upon the earlier to occur of (1) Parents irrevocable deposit of the Merger Consideration with Parents paying
agent and payment of the Option Consideration, in each case pursuant to the Merger Agreement, and (2) the termination of the Merger Agreement (provided that if such termination results in Parent becoming obligated to reimburse Hastings for
certain agreed-upon expenses, the Guaranty will survive such termination with respect to such reimbursement until such reimbursement is paid to Hastings in accordance with the Merger Agreement).
What We Need to Do to Complete the Merger (page 71)
We, Parent and Merger Sub are not required to complete the Merger unless a number of conditions are satisfied or waived. These conditions
include, among other conditions:
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approval of the Merger Agreement by holders of at least two-thirds of our outstanding shares of common stock;
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there being no law or injunction (subject to certain efforts by the parties to have such injunction lifted) prohibiting the consummation of the Merger;
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subject to specified materiality standards, the accuracy of the representations and warranties of the Company, Parent and Merger Sub;
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compliance by the Company, Parent and Merger Sub in all material respects with their respective covenants;
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absence of any changes or events that have had or would reasonably be expected to have a material adverse effect on the Company;
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there being no pending litigation instituted by a governmental authority (i) challenging or seeking to restrain or prohibit the Merger, (ii) seeking to restrain or prohibit the Parents ownership or
operation of the Companys business, or to compel Parent or any of its affiliates to dispose of or hold separate all or any portion of the business or assets of the Company or of Parent or its affiliates, or (iii) seeking to impose or
confirm material limitations on the ability of Parent or any of its affiliates effectively to exercise full rights of ownership of the shares of our common stock;
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receipt by Parent and Merger Sub of certificates executed on behalf of the Company certifying that certain conditions have been satisfied;
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receipt of a consent and waiver from Bank of America, N.A. with respect to the Companys loan facility;
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the Waiver Agreements by and between the Company and each of Messrs. Van Ongevalle and McConnell continuing to be effective;
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the Separation Agreements by and between the Company and each of Messrs. Marmaduke and Crow continuing to be effective; and
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Parent having received the resignations of Hastings and its Subsidiarys (as defined below) respective directors.
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See The Merger Agreement (Proposal 1)Conditions to Merger.
Non-Solicitation and Adverse Recommendation (page 68)
We have agreed, subject to certain exceptions with respect to unsolicited proposals, that the Company will not and will cause its subsidiaries
not to and will not permit our respective representatives to, directly or indirectly:
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Solicit, initiate or knowingly take any action to facilitate or encourage the submission of a competing acquisition proposal;
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engage in or participate in any discussions or negotiations with, furnish any information in connection therewith;
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approve or enter into any letter of intent, acquisition agreement, agreement in principle or similar agreement relating to a competing acquisition proposal;
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grant any waiver, amendment or release under any standstill or confidentiality agreement, any rights agreement or poison pill arrangement or takeover law; or
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make an adverse recommendation change, except the Board may change its recommendation in favor of the approval of the Merger Agreement if, in
connection with the receipt of an unsolicited alternative proposal, the Board determines in good faith, after consultation with its financial advisors and outside counsel, that the failure to effect such a change in recommendation would be
reasonably likely to be inconsistent with its fiduciary duties after providing notice thereof to Parent and allowing Parent the opportunity to modify the Merger
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Agreement in a manner such that the Board no longer concludes that the failure to effect such change in recommendation would be reasonably likely to be inconsistent with its fiduciary duties. See
The Merger Agreement (Proposal 1)No Solicitation of Other Offers.
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Termination of the Merger
Agreement (page 73)
The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether
before or after approval from our shareholders has been obtained:
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by mutual written consent of Hastings and Parent;
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by either Hastings or Parent, if (i) our shareholders do not approve the Merger Agreement at the Special Meeting, or any postponement or adjournment thereof, provided that Hastings may not terminate the Merger
Agreement under such circumstances if it has, directly or indirectly, solicited competing acquisition proposals or provided confidential information in connection therewith in breach of the Merger Agreement (see The Merger Agreement (Proposal
1)No Solicitation of Other Offers), (ii) a court or other governmental body issues a final and nonappealable order permanently restraining the Merger other than an action primarily attributable to the failure by the party seeking
termination to materially perform its obligations under the Merger Agreement, or (iii) the Merger has not been consummated by September 17, 2014 (the
End Date
), unless the failure to consummate the Merger prior to
the End Date is primarily due to the failure by the party seeking termination to perform any of its obligations under the Merger Agreement;
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by Hastings if (i) Hastings terminates the Merger Agreement in order to accept an alternative proposal constituting a superior offer and is concurrently entering into a definitive agreement related to such superior
offer, provided that Hastings has complied in all material respects with its obligations under the Merger Agreement regarding solicitation of alternative proposals and has paid the termination fee described under The Merger Agreement (Proposal
1)Termination Fees and Reimbursement of Expenses; or (ii) the representations and warranties of Parent or Merger Sub under the Merger Agreement are not true or correct or Parent or Merger Sub fail to perform any covenants under the
Merger Agreements, in each case subject to specified materiality thresholds, notice provisions and provisions providing Parent or Merger Sub the opportunity to cure such matters; or
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by Parent if (i) the Board changes its recommendation in favor of the Merger Agreement, (ii) the Board fails to publicly reaffirm its recommendation of the Merger Agreement as required thereunder,
(iii) the representations and warranties of Hastings under the Merger Agreement are not true or correct or Hastings fails to perform any covenants under the Merger Agreements, in each case subject to specified materiality thresholds, notice
provisions and provisions providing Hastings the opportunity to cure such matters.
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Termination Fee and Expense
Reimbursement (page 74)
We will be required to pay Parent a termination fee equal to the greater of $850,000 and the amount
of Parents expenses to which it is entitled to reimbursement under the Merger Agreement (provided that we are only obligated to reimburse such expenses up to an aggregate amount of $1.5 million and that such $850,000 termination fee shall be
reduced by the amount of any such expense reimbursement paid by Hastings to Parent), under the following circumstances:
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if (i) a bona fide alternative proposal has been publicly made or communicated (and not withdrawn) and received by Hastings or its Board prior to
the Special Meeting, (ii) thereafter, the Merger Agreement is terminated by either Parent or Hastings based on the failure of our shareholders to approve the Merger Agreement or based on the failure to consummate the Merger by the End Date, or
if the Merger Agreement is terminated by Parent due to any breach by the Company of any of its representations, warranties or covenants set forth in the Merger Agreement, in each case subject to
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specified materiality thresholds, notice provisions and provisions providing Hastings the opportunity to cure such matters, and (iii) if (a) the Board changes its recommendation in
favor of the Merger Agreement, (b) the Board fails to publicly reaffirm its recommendation of the Merger Agreement as required thereunder, (c) within 12 months of the termination of the Merger Agreement, Hastings enters into a definitive
agreement with respect to any alternative proposal;
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if Hastings terminates the Merger Agreement prior to the Special Meeting in order to accept an alternative proposal;
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if Parent terminates the Merger Agreement because the Board (1) revokes its recommendation in favor of the Merger or (2) fails to publicly reaffirm its recommendation of the Merger in the manner prescribed by
the Merger Agreement; and
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if Parent or Hastings terminates the Merger Agreement because our shareholders do not approve the Merger Agreement at the Special Meeting and, prior to the Special Meeting, the Board has revoked its recommendation in
favor of the Merger Agreement.
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Generally, all fees and expenses incurred in connection with the transaction contemplated by
the Merger Agreement will be the obligation of the respective party incurring such fees and expenses. If the Merger Agreement is terminated in specified circumstances, Parent or Hastings may be required to pay to the other party such partys
documented, out-of-pocket expenses not to exceed $1.5 million, which in some circumstances may be credited against a termination fee payable by Hastings as described above.
See The Merger Agreement (Proposal 1)Effect of Termination: Fees and Reimbursement.
Shares Owned by Hastings Directors and Executive Officers (page 78)
As of , 2014, the
record date for the Special Meeting, our directors and executive officers beneficially owned and were entitled to vote an aggregate of shares of our common stock, representing
approximately % of the voting power of the outstanding shares entitled to vote. We currently expect that our directors and executive officers will vote their shares in favor of
the proposal to approve the Merger Agreement, although none of them, other than Mr. John Marmaduke, has entered into any agreement obligating them to do so. On March 17, 2014, as a condition to Parent and Merger Sub entering into the
Merger Agreement, the Marmaduke Holders entered into a support agreement with Parent and Merger Sub (the
Support Agreement
) whereby the Marmaduke Holders agreed, among other things, to vote their respective shares in favor
of approving the Merger Agreement. See The Special MeetingVoting by Hastings Directors and Executive Officers. In addition to the Support Agreement, the Insiders entered into an Insider Agreement, dated as of March 17,
2014 (the
Insider Agreement
), with the Parent, whereby the Insiders agreed not to exercise any options with respect to Hastings shares and acknowledged that, at the effective time of the Merger, any shares of our
common stock held by the Insiders would be converted into the Merger Consideration.
Interests of Directors and Executive
Officers of Hastings in the Merger (page 43)
In considering the recommendation of the Board to approve the Merger Agreement,
shareholders should be aware that our executive officers and directors may have certain interests in the Merger that may be different from, or in addition to, the interests of our shareholders generally. These interests are described in the section
entitled The MergerInterests of Directors and Executive Officers of Hastings in the Merger. The Board was aware of these interests and considered them, among other matters, in evaluating, negotiating and approving the Merger
Agreement and the Merger, and in recommending that our shareholders vote for the approval of the Merger Agreement. These interests include the following, among others:
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as a condition to Parent and Merger Sub entering into the Merger Agreement, Mr. Marmaduke and Mr. Dan Crow, our Chief Financial Officer,
each entered into Separation Agreements with the Company (the
Separation Agreements
) under which Messrs. Marmaduke and Crow each agreed,
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among other things, to retire from their positions as Chairman and Chief Executive Officer and Chief Financial Officer, respectively, of the Company effective upon the completion of the Merger,
to waive any rights to compensation from the Company to which Messrs. Marmaduke or Crow may otherwise have been entitled upon such retirement or otherwise in connection with the terms of their respective employment agreements (for a detailed
description of such other compensation, please see The MergerInterests of Directors and Executive Officers of Hastings in the Merger) and to accept, in lieu of such other compensation, severance payments in the amount of $1.5
million and $750,000, respectively. In addition, Mr. Crow has agreed to provide consulting services, without additional compensation, until February 15, 2015;
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as a condition to Parent and Merger Sub entering into the Merger Agreement, Mr. Van Ongevalle and Mr. McConnell each entered into a Waiver and Amendment to the Employment Agreement with the Company and Parent
(the
Waiver Agreements
) under which Messrs. Van Ongevalle and McConnell each agreed, among other things, to waive any rights to compensation from the Company to which Messrs. Van Ongevalle and McConnell may otherwise have
been entitled upon a change in control resulting from the Merger;
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the independent members of the Board will receive the Option Consideration for their vested options; and
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the Merger Agreement also provides that, from the effective time of the Merger until the sixth anniversary of such time, (i) all of such directors and officers respective rights to indemnification
existing as of March 17, 2014 under the organizational documents of Hastings or its Subsidiary or any other indemnification agreement between Hastings or its Subsidiary and any of Hastings directors or officers shall survive and remain in
effect and (ii) the surviving corporation will maintain in effect Hastings current insurance coverage with respect to Hastings directors and officers. Alternatively, Hastings may, at or prior to the effective time of the Merger,
purchase a tail policy to Hastings current policy of directors and officers liability insurance for a period of six years from the effective time of the Merger. Notwithstanding the foregoing, in no event shall the surviving
corporation be required to maintain such insurance policies if the cost of such insurance coverage in any one year exceeds 250% of the annual premium currently paid by Hastings for such insurance and, if the premium for such insurance coverage would
exceed such amount, Parent shall be obligated to cause the surviving corporation to obtain a policy or policies with the greatest coverage available for a cost equal to such amount.
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Rights of Dissent and Appraisal (page 53)
Under Texas law, you are entitled to rights of dissent and appraisal in connection with the Merger.
If you comply with the requirements of Subchapter H of Chapter 10 of the TBOC, you will have the right under Texas law to demand payment for
the fair value of your shares as determined by a court in accordance with the statutory requirements. Your rights of dissent and appraisal are subject to a number of restrictions and technical requirements. Generally, in order to exercise your
rights of dissent and appraisal, you must comply with the following procedures:
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prior to the Special Meeting, you must deliver to the Company a written notice of objection to the Merger that complies with the applicable statutory requirements;
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you must vote against the approval of the Merger Agreement, either by proxy or in person, at the Special Meeting;
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if the Merger is approved at the Special Meeting, then, not later than the 20th day after the surviving corporation has sent to you notice that the Merger has taken effect, you must deliver to the surviving corporation
a written demand for payment of fair value of your shares for which rights of dissent and appraisal are sought that complies with the applicable statutory requirements;
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Within 20 days after the date on which your demand for payment of the fair value of your shares is delivered to the surviving corporation, you must submit to the surviving corporation in the manner described on page 55
under Delivery of Share Certificates to the Surviving Corporation any certificates representing your shares for purposes of making a notation on such certificates that a demand for payment of fair value for your shares has been
made; and
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if you and the surviving corporation are unable to reach an agreement as to the fair value of your shares, then you or the surviving corporation must file a timely petition in accordance with applicable statutory
requirements in a court in Potter County, Texas, the county in which Hastings principal office in Texas is located, requesting a finding and determination of the fair value of your shares. The surviving corporation is under no obligation to
file any such petition and has no intention of doing so.
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Merely voting against the approval of the Merger Agreement will
not preserve your appraisal rights, which require you to take all the steps provided under Texas law. If you hold your shares in street name, you must instruct your broker or other nominee to take action in strict compliance with the
TBOC to exercise your rights of dissent and appraisal. Requirements under Texas law for exercising rights of dissent and appraisal rights are described in further detail under The MergerRights of Dissent and Appraisal. Subchapter H
of Chapter 10 of the TBOC regarding rights of dissent and appraisal available to shareholders is reproduced and attached as Annex C to this proxy statement. If you wish to avail yourself of your rights of dissent and appraisal, you should consult
your legal advisor.
Material U.S. Federal Income Tax Considerations (page 46)
The receipt of cash in exchange for shares of our common stock pursuant to the Merger will generally be a taxable transaction for U.S. federal
income tax purposes. In general, a U.S. holder will recognize a gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash you receive (determined before the deduction of any applicable withholding
taxes) and the adjusted tax basis of your shares of our stock. Any such gain or loss will be capital gain or loss if the holder holds the shares as capital assets, and will be long-term capital gain or loss if the holding period for the shares of
our common stock exceeds one year. This may also be a taxable transaction under applicable state, local and/or foreign income or other tax laws. Please see The MergerMaterial U.S. Federal Income Tax Consequences for a more detailed
explanation of the tax consequences of the Merger. Tax matters can be complicated, and the tax consequences of the Merger to you will depend on your particular tax situation. We urge you to consult your tax advisor on how specific tax consequences
of the Merger apply to you.
Market Price
Our common stock is listed on NASDAQ under the symbol HAST. On March 14, 2014, the last full trading day prior to the public
announcement of the proposed Merger, our common stock closed at $1.91 per share. On , 2014, the latest practicable trading day
before the printing of this proxy statement, our common stock closed at $ . Until the effective time of the Merger, the Merger Agreement does not permit us to declare, set aside
or pay any dividend or other distribution without the prior written consent of Parent. Following the Merger, there will be no further market for our common stock.
Delisting and Deregistration of Our Common Stock (page 42)
If the Merger is completed, our common stock will no longer be listed on NASDAQ and will be deregistered under the Securities Exchange Act of
1934, as amended (the
Exchange Act
), and we will no longer file periodic reports with the U.S. Securities and Exchange Commission (the
SEC
).
Legal Proceedings Relating to the Merger (page 52)
On March 28, 2014, a lawsuit challenging the Merger, captioned CV-00072-JAndreas Oberegger and David A. Capps, directly and
derivatively on behalf of Hastings Entertainment, Inc., v. Danny W. Gurr, Ann
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S. Lieff, Frank O. Marrs, John H. Marmaduke, Jeffrey G. Shrader, Draw Another Circle, LLC, Hendrix Acquisition Corp., Joel Weinshanker and National Entertainment Collectibles Association, Inc.,
as defendants, and Hastings Entertainment, Inc., as a nominal defendant, was filed in the United States District Court for the Northern District of Texas, Amarillo Division. The plaintiffs are purported shareholders of the Company and are alleging
several claims in connection with the Merger Agreement and the transactions contemplated therein. Plaintiffs allege, among other things, that the Merger contemplated in the Merger Agreement provides for insufficient consideration to be paid to the
Companys shareholders in exchange for their shares of the Companys common stock, that the officers and directors of the Company breached their respective fiduciary duties in the course of negotiating and approving the Merger Agreement
and that the other defendants aided and abetted such breach of fiduciary duties. The lawsuit seeks to enjoin the Merger or rescind the Merger if it is consummated and compensatory damages in an unspecified amount. The Company believes that the
lawsuit was improperly and prematurely filed under Texas law. On April 16, 2014, the Company filed a Motion to Dismiss the Action, and Parent, Merger Sub, NECA and Mr. Weinshanker filed a Joinder to this Motion to Dismiss the Action on
April 18, 2014. The plaintiffs have filed a response in opposition to the motion to dismiss, and the Company has filed a reply. The Court has not yet ruled on the motion. The Companys management believes that the lawsuits
allegations are without merit and intends to vigorously defend themselves.
On May 13 2014, the defendants filed a Notice of Stay under
the Texas Business Organizations Code seeking an automatic stay for 60 days of all proceedings in this litigation except for the Courts ruling on the defendants motion to dismiss. The plaintiffs have filed a response contesting the stay.
The Court has not yet entered a stay of the action.
On May 15, 2014, the plaintiffs filed a motion for leave to amend their complaint to
add claims for failure to disclose material information in this Proxy Statement. The defendants have filed responses opposing the motion. The Court has not yet acted on this motion.
Prior to filing the lawsuit, the plaintiffs counsel sent the Company a demand letter dated March 20, 2014 demanding that the Board
of Directors commence an action on behalf of the Company against the Directors. The Board of Directors appointed a Special Committee composed of independent directors to review the plaintiffs allegations. The Committee has not yet completed
its review or made any determination as to what action, if any, should be taken in response to those allegations.
On May 9, 2014, a
second lawsuit was filed, alleging material omissions and misstatements in this Proxy Statement in violation of Sections 14 and 20 of the Exchange Act. The action, captioned CV-00114-JSarabjeet Singh, individually and on behalf of others
similarly situated v. Hastings Entertainment, Inc., John H. Marmaduke, Jeffrey G. Shrader, Ann S. Lieff, Frank O. Marrs, Danny W. Gurr, Draw Another Circle, LLC, Hendrix Acquisition Corp., Joel Weinshanker and National Entertainment Collectibles
Association, Inc., was filed in the United States District Court for the Northern District of Texas, Amarillo Division. The lawsuit, which purports to be a class action, seeks an injunction preventing consummation of the Merger, rescinding the
Merger, if consummated, or granting rescissionary damages in an unspecified amount, compensatory damages in an unspecified amount and an award of costs and expenses. The Companys answer has not yet been filed, but it believes the allegations
contained in the complaint are without merit and intends to vigorously defend the lawsuit.
11
QUESTIONS AN
D ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are provided for your convenience and briefly address some commonly asked questions about the
Merger and the Special Meeting. They highlight only selected information from this proxy statement. You should carefully read this entire proxy statement, its annexes and the documents incorporated by reference in this proxy statement.
The Special Me
eting
Q.
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Why am I receiving these materials?
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A.
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You are receiving this proxy statement and proxy card because, as of , 2014, the record date for
the determination of shareholders entitled to notice of and to vote at the Special Meeting, you owned shares of our common stock. In order to complete the Merger, shareholders representing at least two-thirds of our outstanding shares of common
stock must vote to approve the Merger Agreement. We will hold the Special Meeting to obtain this approval. The Board is providing these proxy materials to give you information about the Merger so you may determine how to vote your shares in
connection with the Special Meeting.
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Q.
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When and where is the Special Meeting?
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A.
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The Special Meeting will be held at the Hastings Store Support Center located at 3601 Plains Boulevard, Amarillo, Texas 79102 on
, 2014, at , Central Time.
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Q.
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Who is soliciting my proxy?
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A.
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Your proxy is being solicited by the Board.
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Q.
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What matters will be voted on at the Special Meeting?
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A.
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You will be asked to vote on:
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the proposal to approve the Merger Agreement;
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the proposal to adjourn the Special Meeting, if advisable or necessary, including to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the Merger Agreement;
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the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers in connection with the transactions contemplated in the Merger Agreement;
and
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the transaction of any other business that may properly come before the Special Meeting or any adjournments or postponement thereof.
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Q.
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How does the Board recommend that I vote on the proposals?
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A.
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The Board recommends that you vote:
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FOR the proposal to approve the Merger Agreement;
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FOR the proposal to adjourn the Special Meeting, if advisable or necessary, including to solicit additional proxies; and
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FOR the proposal to approve, on a non-binding and advisory basis, the related compensation proposal.
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Q.
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Why is the Board recommending that I vote FOR the proposal to approve the Merger Agreement?
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A.
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After careful consideration, the Board unanimously determined that the Merger is fair to, and in the best interests of, us and our shareholders,
approved, adopted and declared advisable the Merger Agreement and the Merger and the other transactions contemplated by the Merger Agreement and unanimously recommended approval of the Merger Agreement by the shareholders of the Company. In reaching
its
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decision to approve and adopt the Merger Agreement and the Merger and to recommend the approval of the Merger Agreement by our shareholders, the Board consulted with our management, as well as
our legal and financial advisors, and considered the terms of the proposed Merger Agreement and the transactions set forth in the Merger Agreement. The Board also considered each of the items set forth under Reasons for the Merger and
Recommendation of the Board of Directors.
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Q.
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How do Hastings directors and executive officers intend to vote?
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A.
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We believe our directors and executive officers intend to vote all of their shares of our common stock:
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FOR the proposal to approve the Merger Agreement;
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FOR the proposal to adjourn the Special Meeting, if advisable or necessary, including to solicit additional proxies; and
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FOR the proposal to approve, on a non-binding and advisory basis, the related compensation proposal.
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As of the record date, our directors and executive officers beneficially owned
of our outstanding shares, representing approximately % of our total outstanding shares. As described
below under The Special MeetingVoting by Hastings Directors and Executive Officers, the Marmaduke Holders have agreed in the Support Agreement to, among other things, vote all of their shares of our common stock
For these proposals.
Q.
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Have any other shareholders of the Company agreed to support the Merger?
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A.
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Yes. Pursuant to a letter agreement in favor of Parent, NECA has agreed to vote its shares of our common stock in favor of the approval of the Merger, the Merger Agreement and each of the other transactions contemplated
thereby. NECA holds approximately 12.4% of the outstanding shares of our common stock.
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Q.
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What vote is required for Hastings shareholders to approve the Merger Agreement?
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A.
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The approval of the Merger Agreement requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of our common stock.
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Q.
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What vote is required for Hastings shareholders to adjourn the Special Meeting to solicit additional proxies?
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A.
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The proposal to adjourn the Special Meeting, if advisable or necessary, including to solicit additional proxies requires the affirmative vote of the holders of a majority of our common stock present or represented by
proxy at the meeting.
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Q.
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What vote is required for Hastings shareholders to approve the related compensation proposal?
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A.
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The proposal to approve the compensation that may be paid or become payable to our named executive officers in connection with the Merger requires the affirmative vote of the holders of a majority of our common stock
present or represented by proxy at the Special Meeting. This vote is advisory in nature and will not be binding on Hastings or the Board.
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Q.
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Why am I being asked to cast an advisory, non-binding vote on the related compensation proposal?
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A.
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In July 2010, the SEC adopted rules that require public companies like Hastings to seek a non-binding, advisory vote with respect to certain compensation that may be paid or become payable to their named executive
officers that is based on or otherwise relates to a proposed merger. See Advisory Vote Regarding Merger-Related Compensation (Proposal 3).
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What will happen if shareholders do not approve the advisory vote on the compensation proposal?
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A.
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The advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the
Merger is a vote separate and apart from the vote to approve the Merger Agreement. You may vote for this proposal and against the approval of the Merger Agreement, or
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vice versa. Because the vote on this proposal is advisory only, it will not be binding on us or Parent. Accordingly, because we are contractually obligated to pay the compensation, if our
shareholders approve the Merger Agreement and the Merger is completed, the compensation will be payable, subject only to the conditions under the applicable contractual arrangements and any future amendments thereto, regardless of the outcome of the
advisory vote.
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Q.
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Who is entitled to vote at the Special Meeting?
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A.
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If you owned shares of our common stock of record at the close of business on , the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting, you are entitled to vote at the Special Meeting, and any adjournment or postponement thereof. You have one vote for each share of our common stock that you owned on the record date.
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After carefully reading and considering the information contained in this proxy statement, please submit your proxy as promptly as practicable by:
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completing, signing, dating and returning the enclosed proxy card;
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using the telephone number printed on your proxy card; or
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using the Internet instructions printed on your proxy card.
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You can also attend the Special
Meeting and vote in person. Do NOT enclose or return any stock certificates with your proxy. If the Merger is completed you will receive instructions with respect to delivering your certificates and receiving the Merger Consideration.
Q.
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If my shares are held in street name by my broker or other nominee, will my broker or other nominee vote my shares for me?
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A.
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If you are a beneficial owner holding your shares in street name, you should direct your broker, bank, trustee or other nominee on how to vote the shares. You should complete a voting instruction card
provided to you by your broker, bank, trustee or other nominee or provide your voting instructions via Internet or by telephone, if Internet or telephone voting is made available by your broker, bank, trustee or other nominee. If you wish to vote in
person at the Special Meeting the shares you hold in street name, you must first obtain from the broker, bank, trustee or other nominee that is the holder of record of your shares a proxy issued in your name and show proper identification. Your
broker, bank, trustee or other nominee does not have discretionary voting authority on the proposal to approve the Merger Agreement, the adjournment proposal or the related compensation proposal, which means that such broker, bank, trustee or other
nominee will not be able to vote your shares on these proposals without instructions from you. See The Special MeetingVoting; Submission of Proxy.
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Q.
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How are votes counted?
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A.
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For the proposal to approve the Merger Agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not be counted as votes cast or shares voting on the proposal to approve the Merger Agreement, but will count for
the purpose of determining whether a quorum is present. If you abstain, it will have the same effect as a vote against the proposal to approve the Merger Agreement. In addition, if your shares are held in the name of a broker or other nominee, your
broker or other nominee will not be entitled to vote your shares on the proposal to approve the Merger Agreement in the absence of specific instructions from you. These non-voted shares, or broker non-votes, will be counted for purposes
of determining a quorum and will have the effect of a vote against the approval of the Merger Agreement.
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For the adjournment
proposal and the related compensation proposal, you may vote FOR, AGAINST or ABSTAIN. If you abstain, it will have the same effect as a vote against these proposals. Failure to submit your proxy and to attend the Special Meeting will have no effect
on the approval of the adjournment proposal and the related compensation proposal. In addition, if your shares are held in the name of a broker
14
or other nominee, your broker or other nominee also will not be entitled to vote your shares on the these proposals in the absence of specific instructions from you. These non-voted shares, or
broker non-votes, will be counted for purposes of determining a quorum, but will have no effect on the outcome of these proposals.
If you sign your proxy card without indicating how you wish to vote, your shares will be voted FOR the approval of the Merger
Agreement, FOR the adjournment proposal and FOR the approval of the related compensation proposal, and in accordance with the recommendations of the Board on any other matters properly brought before the Special Meeting for a
vote.
Q.
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When should I send in my proxy card?
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A.
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You should send in your proxy card via mail, or submit your proxy over the telephone or the Internet as promptly as practicable so that your shares will be voted at the Special Meeting.
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Q.
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May I change my vote after I deliver my proxy?
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A.
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Yes. You can change your vote at any time before your shares are voted at the Special Meeting. If you are a holder of record, you can do so in any of the following ways:
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sending a written notice of revocation to the Companys Corporate Secretary in writing at Hastings Entertainment, Inc., Attn: Corporate Secretary, 3601 Plains Boulevard, Amarillo, Texas 79102;
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properly submitting a new proxy card, which must be received before your shares are voted at the Special Meeting (in which case only the later-submitted proxy is counted and your earlier proxy is revoked);
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submitting a proxy via Internet or by telephone at a later date before your shares are voted at the Special Meeting (in which case only the later-submitted proxy is counted and your earlier proxy is revoked); or
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attending the Special Meeting and voting by ballot in person.
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If you are a beneficial owner
holding your shares in street name, you may change your vote only by submitting new voting instructions to your broker, bank, trustee or other nominee. See The Special Meeting.
A.
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You may attend the Special Meeting and vote your shares in person if you are a shareholder of record. If you hold shares in street name through a broker or other nominee, you must provide a legal proxy
executed by your broker or other nominee and proof of identification in order to vote your shares at the Special Meeting.
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Q.
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What happens if I do not return a proxy card via mail, submit a proxy via telephone or the Internet, or vote in person?
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A.
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If you do not return a proxy card via mail, submit a proxy via telephone or the Internet, or attend the Special Meeting to vote in person, it will have the same effect as a vote against the approval of the Merger
Agreement, but will have no effect on the outcome of the adjournment proposal or the related compensation proposal.
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Q.
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What does it mean if I receive more than one set of materials?
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A.
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This means you own shares of our common stock that are registered under different names. For example, you may own some shares directly as a shareholder of record and other shares through a broker or other nominee or
through more than one broker or other nominee. In these situations, you will receive multiple sets of proxy materials. To vote all of the shares, you must sign and return all of the proxy cards or follow the instructions for the submission of
proxies by telephone or Internet on each of the proxy cards that you receive. Each proxy card you receive comes with its own prepaid return envelope. When returning multiple proxy cards by mail, each proxy card should be returned in the return
envelope that accompanies that proxy card. You must also follow each set of directions for instructing your broker or other nominee how to vote.
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15
The M
erger
Q.
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What is the proposed transaction?
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A.
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The proposed transaction is the acquisition of Hastings by Parent pursuant to a Merger Agreement entered into between Hastings, Parent and Merger Sub, which is a wholly-owned subsidiary of Parent. Pursuant to the Merger
Agreement, Merger Sub will merge with and into Hastings, with Hastings surviving the Merger. In connection with the Merger, the outstanding shares of our common stock will be converted into the right to receive the cash Merger Consideration of $3.00
per share. If the Merger is completed, we will be a wholly-owned subsidiary of Parent and our common stock will cease to be publicly traded.
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Q.
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If the Merger is completed, what will I be entitled to receive for my shares and when will I receive it?
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A.
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Upon completion of the Merger, each share of our common stock outstanding immediately prior to the completion of the Merger, other than shares owned by us as treasury stock, by NECA, Parent or Merger Sub or by holders
who properly demand appraisal rights, will be automatically converted into the right to receive the Merger Consideration, consisting of $3.00 in cash, without interest and less any applicable withholding taxes. For example, if you own 1,000 shares
of our common stock, you will be entitled to receive $3,000 in cash, without interest, less any applicable withholding taxes, in exchange for your shares.
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After the Merger is completed, Parent will arrange for a letter of transmittal to be sent to each of our shareholders of record. The Merger
Consideration will be paid to each shareholder of record once that shareholder submits the letter of transmittal, properly endorsed stock certificates and any other required documentation to the paying agent identified in the letter of transmittal.
Shareholders who hold their shares in street name will not be required to deliver a letter of transmittal or stock certificate to the paying agent in order to receive their Merger Consideration; rather, they will receive instructions from their
broker or other nominee as to receipt of payment of the Merger Consideration.
Shares held by a shareholder who has properly perfected
rights of dissent and appraisal with respect to such shares and who otherwise complies with the TBOC will not be converted into the right to receive the Merger Consideration but will represent the right to receive the fair value of such shares as
determined in accordance with the TBOC.
Q.
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If the Merger is completed, what will I be entitled to receive for my options to purchase common stock of the Company?
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A.
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Upon completion of the Merger, each option to purchase our common stock that is outstanding immediately prior to the completion of the Merger will be cancelled and terminated and, to the extent any such option is vested
immediately prior to such time and held by a person other than the Insiders, such option will be converted into the right to receive the Option Consideration.
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Q.
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How does the Merger Consideration compare to the market price of the Companys common stock?
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A.
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The Merger Consideration of $3.00 per share of our common stock represents a 57.07% premium to the closing price of our common stock on March 14, 2014, the last trading day prior to the announcement of the Merger
Agreement, a 59.57% premium to the average closing price for the thirty trading days ended March 14, 2014, a 62.53% premium to the average closing price for the sixty trading days ending March 14, 2014, a 59.24% premium to the average
closing price for the ninety trading days ended March 14, 2014 and a 43.18% premium to the average closing price for the 180 trading days ended March 14, 2014.
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Q.
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Who are Parent and Merger Sub?
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Parent, a Delaware limited liability company, is a holding company which, following the consummation of the Merger, will hold all of the outstanding shares of the Company. Parent is an affiliate of NECA, which operates
as a media and entertainment company in the United States and internationally, with divisions dedicated to consumer products, filmed entertainment, and online retailing/digital distribution.
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Merger Sub, a Texas corporation, is a wholly-owned subsidiary of Parent. Merger Sub was formed on March 11, 2014 solely for the purpose of
entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement.
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Q.
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Are the obligations of Parent and Merger Sub subject to any guaranty?
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A.
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Under the Guaranty, Mr. Weinshanker has agreed to personally guaranty the obligations of Parent to pay the Merger Consideration and the Option Consideration under the terms of the Merger Agreement. In addition,
under the Guaranty Mr. Weinshanker has agreed to personally guaranty the obligation of Parent to reimburse Hastings for certain expenses in the event Hastings terminates the Merger Agreement under certain circumstances.
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What happens if I sell my shares of the Companys common stock after the record date, but before the Special Meeting?
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A.
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If you transfer your shares of our common stock after the record date, but before the date of the Special Meeting, you will retain your right to vote at the Special Meeting, but you will transfer the right to receive
the Merger Consideration. In order to receive the Merger Consideration, you must hold your shares through the completion of the Merger.
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What happens if the Merger is not completed?
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A.
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If the Merger Agreement is not approved by Hastings shareholders or if the Merger is not completed for any other reason, you will not receive any form of consideration for your shares of our common stock in connection
with the Merger, and the options to purchase our common stock will remain outstanding and will not be cancelled in exchange for any cash payment. Instead, we would remain an independent public company and our common stock would continue to be listed
and traded on The NASDAQ National Market (
NASDAQ
). If the Merger Agreement is terminated under specified circumstances, Hastings may be required to pay Parent a termination fee of $850,000 and to reimburse Parent for up to
$1.5 million of its expenses with respect to the Merger Agreement and the Merger, provided that any such expenses shall be credited against such $850,000 termination fee. For a description of the circumstances under which a termination fee would be
paid or such expenses would be reimbursed, please see The Merger Agreement (Proposal 1)Effect of Termination: Fees and Reimbursement.
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Am I entitled to rights of dissent and appraisal?
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Yes. In order to exercise your rights of dissent and appraisal, you must follow the requirements set forth in Subchapter H of Chapter 10 of the TBOC. Under Texas law, shareholders of the Company who vote against
approving the Merger Agreement will, if the Merger is completed, have the right to seek appraisal of the fair value of their shares as determined in accordance with the statutory requirements. Rights of dissent and appraisal will only be available
to these shareholders if they deliver to the Company a written notice of objection to the Merger prior to the Special Meeting, vote against approving the Merger Agreement by proxy or in person at the Special Meeting, deliver to the surviving
corporation a demand for payment of fair value of their shares following the Merger and otherwise comply with applicable statutory procedures and requirements, which are summarized in this proxy statement. The appraisal amount could be more than,
the same as, or less than the amount a shareholder would be entitled to receive under the terms of the Merger Agreement. A copy of Subchapter H of Chapter 10 of the TBOC is attached as Annex C to this proxy statement and a summary of this provision
can be found along with additional information about rights of dissent and appraisal under The MergerRights of Dissent and Appraisal.
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Q.
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Why is the Hastings Board recommending the Merger?
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The Board has unanimously adopted and approved the Merger Agreement and determined that the Merger Agreement, the performance by us of our obligations thereunder and the consummation of the transaction contemplated by
the Merger Agreement are fair to, advisable to and in the best interests of our shareholders. Accordingly, the Board recommends that you vote FOR the proposal to approve the Merger Agreement. To review the Boards reasons for
recommending the Merger, see the section entitled The MergerReasons for the Merger and Recommendation of the Board of Directors.
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Q.
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Will the Merger be a taxable transaction to me?
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Yes. The receipt of cash in exchange for shares of our common stock pursuant to the Merger will generally be a taxable transaction for U.S. federal
income tax purposes. In general, a U.S. holder will recognize a gain
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or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash you receive (determined before the deduction of any applicable withholding taxes) and the
adjusted tax basis of your shares of our stock. Any such gain or loss will be capital gain or loss if the holder holds the shares as capital assets, and will be long-term capital gain or loss if the holding period for the shares of our common stock
exceeds one year. This may also be a taxable transaction under applicable state, local and/or foreign income or other tax laws. Please see The MergerMaterial U.S. Federal Income Tax Consequences for a more detailed explanation of
the tax consequences of the Merger. Tax matters can be complicated, and the tax consequences of the Merger to you will depend on your particular tax situation. We urge you to consult your tax advisor on how specific tax consequences of the Merger
apply to you.
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Q.
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Is the Merger subject to the satisfaction of any conditions?
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A.
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Yes. In addition to the approval of the Merger Agreement by our shareholders, the Merger is subject to satisfaction of various conditions. For a description of these conditions, please see The Merger Agreement
(Proposal 1)Conditions to the Merger.
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Q.
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When is the Merger expected to be completed?
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A.
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We are working to complete the Merger as quickly as possible. We currently expect to complete the Merger promptly after all the conditions to the Merger are satisfied or waived, including approval of the Merger
Agreement by our shareholders at the Special Meeting. We expect this to occur during the second quarter of our fiscal year ending January 31, 2015.
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Q.
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Should I send in my Hastings stock certificates now?
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A.
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No. After the Merger is completed, the paying agent will send to each of our shareholders of record written instructions for exchanging your stock certificates. You must return your stock certificates as described in
the instructions. You will receive your cash payment as soon as practicable after the paying agent receives your stock certificates and any completed documents required in the instructions. Please do not send in your stock certificates now.
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If you elect to exercise your rights of dissent and appraisal in connection with the Merger, then you must submit your
stock certificates to the surviving corporation in the manner described on page 55 under Delivery of Share Certificates to the Surviving Corporation.
Q.
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What should I do if I have questions?
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A.
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If you have more questions about the Special Meeting, the Merger or this proxy statement, or would like additional copies of this proxy statement or the proxy card, you should contact our Corporate Secretary, Angie
Knight, at (806) 351-2300 or by email at Angie.Knight@goHastings.com.
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CAUTIONARY STATE
MENT
REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement and the documents incorporated by reference in this proxy statement contain
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management,
based on information currently available to our management. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements can be identified by the use of the future
tense or other forward-looking words such as believe, expect, anticipate, intend, plan, estimate, should, may, objective,
projection, forecast, management believes, continue, strategy, position or the negative of those terms or other variations of them or by comparable terminology. In particular,
statements, express or implied, concerning future actions, conditions or events, including with respect to the Merger, future operating results, the ability to generate sales, income or cash flow or to pay dividends are forward-looking statements.
Although we believe that these estimates and forward-looking statements are based on reasonable assumptions, they are subject to risks
and uncertainties and are made in light of information currently available to
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us. Many factors, in addition to the factors described in this proxy statement, may cause actual results to differ from those projected in our forward-looking statements. We urge you to read
carefully this entire proxy statement and the documents incorporated by reference into this proxy statement with the understanding that actual future results may be materially different from what we expect. Many of the factors that will determine
these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include:
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the inability to complete the Merger due to the failure to obtain shareholder approval or the failure to satisfy other conditions to completion of the Merger;
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the outcome of any legal proceedings instituted against the Company or others following the announcement of the Merger Agreement;
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changes in government regulation;
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the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;
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the failure of the Merger to close for any other reason;
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the actual timing of the closing of the Merger;
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the amount of the costs, fees, expenses and charges related to the Merger;
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the effect of the announcement of the Merger Agreement on our client relationships, operating results and business generally, including, without limitation, our ability to retain key employees; and
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additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements, which are discussed in reports we have filed with the SEC, including our most recent
filings on Forms 10-Q and 10-K.
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See Where You Can Find More Information and Incorporation by
Reference. The foregoing list and the risks reflected in our documents incorporated by reference in this proxy statement should not be construed to be exhaustive. Forward-looking statements speak only as of the date they were made, and, except
to the extent required by law, we undertake no obligation to update or to review any forward-looking statement because of new information, future events or other factors. Forward-looking statements involve risks and uncertainties and are not
guarantees of future performance. There is no assurance that any of the risks described in, or that any of the uncertainties associated with the forward-looking statements discussed in this proxy statement or the documents incorporated by reference
into this proxy statement will occur, or if any of them do, when they will occur or what impact they will have on our operations or financial condition. Future results and performance may differ materially from those expressed in these
forward-looking statements due to, but not limited to, the factors mentioned above. Because of these uncertainties, you should not place undue reliance on these forward-looking statements when making your decision.
THE SPECIAL MEETING
Date, Time, Place and Purpose of the Special Meeting
This proxy statement is being furnished to our shareholders in connection with the solicitation of proxies by the Board for use at the Special
Meeting to be held on , 2014, beginning at , Central Time at Hastings Store Support Center, located
at 3601 Plains Boulevard, Amarillo, Texas 79102. The purpose of the Special Meeting is:
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to vote on a proposal to approve the Merger Agreement;
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to vote on the Adjournment Proposal;
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to vote on the Related Compensation Proposal; and
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to transact such other business as may properly come before the Special Meeting or any adjournment or postponement thereof.
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Recommendations of the Board and the Special Committee
The Board, acting upon the unanimous recommendation of the Special Committee, unanimously determined that the Merger Agreement, the performance
by us of our obligations thereunder and the consummation of the transaction contemplated by the Merger Agreement are fair to, advisable to and in the best interests of the Company and our shareholders, and the Board has unanimously adopted and
approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. Accordingly, the Board unanimously recommends that our shareholders vote FOR the proposal to approve the Merger Agreement. If
there are insufficient votes at the time of the Special Meeting to approve the Merger Agreement, we may propose to adjourn the Special Meeting, if advisable or necessary, including for the purpose of soliciting additional proxies to approve the
Merger Agreement. The Board unanimously recommends that our shareholders vote FOR the Adjournment Proposal. The Board also unanimously recommends that our shareholders vote FOR the approval of the Related Compensation
Proposal.
Record Date; Quorum
As of the close of business on , 2014, the record date for the Special
Meeting, there were shares of our common stock entitled to vote at the Special Meeting. NECA holds approximately 12.4% shares of our outstanding common stock as of the record
date and, pursuant to a letter agreement with Parent, has agreed to vote its shares of our common stock in favor of approving the Merger Agreement. Additionally, under the terms of the Support Agreement, the Marmaduke Holders, who collectively hold
approximately 30.4% of our outstanding common stock as of the record date, agreed, among other things, to vote their respective shares in favor of the approval of the Merger Agreement.
The presence, in person or by proxy, of the holders of a majority of the shares of our common stock issued and outstanding on the record date
entitled to vote will constitute a quorum at the Special Meeting. Shares of our common stock represented in person or by proxy will be counted for purposes of determining whether a quorum is present at the Special Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the existence of a quorum. In the event that a quorum is not present at the Special Meeting, we currently expect that we will adjourn the Special Meeting, which would subject the
Company to additional expense.
Required Vote
The presence, in person or by proxy, of the holders of a majority of the shares of our common stock issued and outstanding on the record date
will constitute a quorum for purposes of voting at the Special Meeting. The approval of the Merger Agreement requires the affirmative vote of the holders of at least two-thirds of the shares of our common stock outstanding on the record date.
Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of our common stock present or represented by proxy at the Special Meeting. Approval of the Related Compensation Proposal requires the affirmative vote
of the holders of a majority of our common stock present or represented by proxy at the Special Meeting. The vote on the Related Compensation Proposal is advisory in nature and will not be binding on Hastings or the Board. If you abstain or fail to
submit your proxy or vote in person at the Special Meeting, it will have the same effect as a vote against the proposal to approve the Merger Agreement. If you abstain, it will have the same effect as a vote against the approval of the Adjournment
Proposal and the Related Compensation Proposal. If you fail to submit your proxy and do not attend the Special Meeting, it will have no effect on the outcome of the Adjournment Proposal or the Related Compensation Proposal.
Brokers or other nominees who hold shares of our common stock in street name for customers who are the beneficial owners of such
shares may not vote those customers shares on the proposal to approve the
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Merger Agreement or the other two proposals in the absence of specific instructions from those customers. These non-voted shares of our common stock, or broker non-votes, will be
counted for the purpose of determining whether a quorum is present, but will not be counted as shares voting on any of the proposals. Accordingly, broker non-votes will have the same effect as votes against the proposal to approve of the
Merger Agreement and will have no effect on the outcome of the Adjournment Proposal and the Related Compensation Proposal.
Voting; Submission of Proxy
Shareholders may vote their shares by attending the Special Meeting and voting their shares of our common stock in person.
Shareholders may submit their proxy by:
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completing the enclosed proxy card, signing and dating it and mailing it in the enclosed postage prepaid envelope;
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using the telephone number printed on your proxy card; or
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using the Internet instructions printed on your proxy card.
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All shares of our common stock
represented by properly executed proxies received in time for the Special Meeting will be voted at the Special Meeting in the manner specified by the holder. If a written proxy card is signed by a shareholder and returned without instructions, the
shares of our common stock represented by the proxy will be voted FOR the proposal to approve the Merger Agreement, FOR the Adjournment Proposal and FOR the Related Compensation Proposal, and in accordance with
the recommendations of the Board on any other matters properly brought before the Special Meeting for a vote.
Shareholders who have
questions or requests for assistance in completing and submitting proxy cards should contact Angie Knight, our Corporate Secretary, at (806) 351-2300 or by email at Angie.Knight@goHastings.com.
Shareholders who hold their shares in street name, meaning in the name of a broker or other nominee, must either direct the broker
or nominee how to vote their shares pursuant to the instructions they receive from their broker or other nominees or obtain a proxy from the record holder to vote their shares at the Special Meeting, in which case the shareholder attending the
Special Meeting must present proper identification.
Revocability of Proxies
If you are a shareholder of record, you may revoke your proxy at any time before it is voted at the Special Meeting by:
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sending a written notice of revocation to the Corporate Secretary of Hastings at Hastings Entertainment, Inc., Attn: Corporate Secretary, 3601 Plains Boulevard, Amarillo, Texas 79102, which must be received before your
shares are voted at the Special Meeting;
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properly submitting a new proxy card, which must be received before your shares are voted at the Special Meeting (in which case only the later-submitted proxy is counted and your earlier proxy is revoked);
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submitting another proxy via Internet or by telephone at a later date prior to the time your shares are voted at the Special Meeting (in which case only the later-submitted proxy is counted and your earlier proxy is
revoked); or
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attending the Special Meeting and voting by ballot in person.
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Simply attending the Special
Meeting will not constitute revocation of your proxy. If your shares are held in street name by your broker or other nominee, you should follow the instructions of your broker or nominee regarding revocation of proxies.
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Voting by Hastings Directors and Executive Officers
As of , 2014, the record date for the Special Meeting, our directors
and executive officers beneficially owned and were entitled to vote an aggregate of shares of our common stock, representing approximately
% of the voting power of the outstanding shares entitled to vote. We currently expect that our directors and executive officers will vote their shares in favor of the proposal
to approve the Merger Agreement and the other two proposals, although none of them, other than Mr. Marmaduke, has entered into any agreement obligating them to do so. On March 17, 2014, as a condition to Parent and Merger Sub entering into
the Merger Agreement, the Marmaduke Holders entered into the Support Agreement with Parent and Merger Sub, whereby the Marmaduke Holders agreed, among other things, to vote their shares in favor of approving the Merger Agreement.
Solicitation of Proxies; Expenses
In addition to solicitation by mail, our directors, officers and employees may solicit proxies by telephone, other electronic means or in
person. These persons will not receive any additional compensation for their services, but we will reimburse them for their out-of-pocket expenses. We will reimburse banks, brokers, nominees, custodians and fiduciaries and their nominees for their
reasonable expenses in forwarding copies of this proxy statement to the beneficial owners of shares of our stock and in obtaining voting instructions from those owners.
Other Business
We are not currently aware of any business to be acted upon at the Special Meeting other than the matters discussed in this proxy statement.
Under our bylaws, business transacted at the Special Meeting is limited to the purposes stated in the notice of the Special Meeting, which is provided at the beginning of this proxy statement. If other matters do properly come before the Special
Meeting, or at any adjournment or postponement of the Special Meeting, we intend that shares of our common stock represented by properly submitted proxies will be voted in accordance with the recommendations of the Board.
Adjournments
Adjournments may be made for the purpose of, among other things, soliciting additional proxies. Approval of the adjournment proposal requires
the affirmative vote of the holders of a majority of our common stock present or represented by proxy at the Special Meeting, whether or not a quorum exists. At any adjourned meeting, Hastings may transact any business that it might have transacted
at the original meeting, provided that a quorum is present at such adjourned meeting. Proxies submitted by Hastings shareholders for use at the Special Meeting will be used at any adjournment or postponement of the Special Meeting. References to the
Special Meeting in this proxy statement are to such Special Meeting as adjourned or postponed.
THE MERGER
This section of proxy statement describes the material aspects of the proposed transaction. This section may not contain all of
the information that is important to you. You should carefully read this entire proxy statement, including the full text of the Merger Agreement (which is attached as Annex A), for a more complete understanding of the transaction. In addition,
important business and financial information about us which you should read is incorporated by reference into this proxy statement. See Where You Can Find More Information and Incorporation by Reference.
Background of the Merger
Hastings operates entertainment superstores that buy, sell, trade and rent various home entertainment products, including books, music,
software, periodicals, movies on DVD and Blu-Ray, video games, video game
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consoles, hobby, sports and recreation, lifestyle and consumer electronics. Commencing with Hastings fiscal year ended January 31, 2012, Hastings has reported net losses, primarily due
to significant decreases in total revenues, year over year, from its historical core businesses of selling books, music and movies and renting movies. During that period, Hastings total revenues have declined from $496.4 million for the year
ended January 31, 2012 to $436.0 million for the year ended January 31, 2014.
Digital delivery of content has impacted all
companies that compete in Hastings industry and has impacted each of the product categories that have historically provided Hastings largest revenues. Rental kiosks (such as Red Box, for example) have severely impacted its movie rental
revenue, which has impacted earnings due to the substantially higher gross margins historically realized from rentals as compared to merchandise sales. In addition, book sales have been negatively impacted by electronic readers; sales of music CDs
have been negatively impacted by digital downloads and MP3 music players and sales of movies have been negatively impacted by on demand delivery of content digitally to TVs and tablets through subscription services such as Netflix.
Hastings has adopted a number of initiatives to attempt to return Hastings to profitability. During the last three-year period, Hastings has
closed 20 stores and has reduced selling, general and administrative expenses through management restructuring and other initiatives. Hastings has also undertaken a number of initiatives to increase its total revenues, including opening TRADESMART
and Sun Adventure Sports stores that expand on lifestyle and recreational trends, changing its pricing strategy for video rentals, offering tablets and resetting the floor plan of its stores to increase the product footprint. While Hastings believes
that these actions have reduced losses, they have not sufficiently offset declines in revenues or enabled Hastings to return to profitable operations.
Hastings has forecasted that its losses, although decreasing, will continue for at least the next four years. While Hastings anticipates that
the magnitude of losses will decrease over that period, continuing losses could have a negative impact on the companys liquidity and access to capital. Until the Company returns to profitability, Hastings does not anticipate paying any
dividends or funding any share repurchases and the Board does not anticipate any significant increases in the market price of our common stock.
Under these circumstances, the Board and management determined to explore strategic alternatives to obtain value for the Hastings
shareholders. The Company engaged STRH on June 21, 2012 for the purpose of assisting the Company in evaluating various strategic alternatives, including the possible sale of the Company. As part of this evaluation, the Board and the management
considered the effectiveness of the initiatives to reduce expenses and increase total revenues as described above. In early 2013, the Board determined to pursue a sale process, with the assistance of STRH, because these initiatives had not resulted
in a return to profitability or had sufficient impact to enable the Board to predict that the Company would return to profitability within the near future. In the spring of 2013, STRH presented information to the Board regarding the implications of
a potential sale transaction.
Beginning on May 28, 2013, at the request and direction of the Board, STRH began contacting
potentially interested parties regarding a possible acquisition of Hastings. The marketing process focused on a mix of 15 strategic and 39 financial buyers identified by the Board, management and STRH. Following an initial contact with each of these
potentially interested parties, STRH delivered a one page high-level overview of the Company (a
teaser
) to 39 potential buyers. Based on the response to the teasers, STRH, on behalf of the Company, entered into
confidentiality agreements with 20 potential buyers, including NECA, and delivered to each of these parties a copy of a detailed confidential executive summary regarding Hastings and its business. STRH followed up with these potential buyers by
email and/or phone to determine their interest in moving forward through further discussions with STRH and management.
On June 3,
2013, STRH contacted NECA, the holder of approximately 12.4% of our common stock, to determine its interest in pursuing a transaction with Hastings, and on June 4, 2013, STRH, on behalf of and with the authority of the Company, entered into a
confidentiality agreement with NECA in order to facilitate
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discussions related to NECAs possible acquisition of the Company. Upon receiving an executed confidentiality agreement from NECA, STRH furnished NECA with a Confidential Executive Summary
regarding Hastings and its business.
On July 16, 2013, NECA submitted a non-binding, preliminary indication of interest in response
to STRHs solicitation (the
Indication of Interest Letter
) setting forth two alternative acquisition structures: (1) a cash purchase by NECA of all of the issued and outstanding shares of our common stock for a
purchase price of $3.50 per share or (2) a cash purchase by NECA of 100% of the shares of our common stock held by non-insider shareholders, and up to 50% of the shares held by certain insider shareholders composed of management and founding
equity holders each for a purchase price of $4.00 per share. These insiders would roll over their remaining shares to become equity-holders in the surviving corporation, subject to certain redemption rights at a later date at a purchase
price of at least $4.00 per share, based upon a to-be-agreed upon valuation methodology. The Company had not received an indication of interest from any other party and none of the other 19 potential parties indicated any interest in pursuing
discussions with Hastings at this time.
On August 1, 2013, STRH updated the Hastings Board on the sales process, including the
number of parties contacted, the number of parties entering into confidentiality agreements and the status of indications of interest, including the fact that NECA was the only party to submit an indication of interest or express any interest in
pursuing an acquisition or combination with Hastings. STRH also provided the Board with additional background information regarding NECA. Following this presentation, the Board determined that it would be advisable to pursue preliminary discussions
with NECA, particularly with respect to its proposal to purchase all of the shares of the non-insider shareholders, and 50% of the shares held by certain insider shareholders, at a price of $4.00 per share.
Also, on August 1, 2013, the Board directed STRH to advise NECA that the Company was willing to discuss on a preliminary basis
NECAs indication of interest. On August 2, 2013, a representative of STRH called Mr. Weinshanker, the President and sole shareholder of NECA, to discuss NECAs Indication of Interest Letter. Mr. Weinshanker expressed his
continued interest in exploring a transaction with Hastings, and, on August 5, 2013, Mr. Marmaduke, at the Boards direction, contacted Mr. Weinshanker to arrange a meeting to discuss a possible acquisition of Hastings.
During August of 2013, two independent members of the Board separately contacted two companies previously contacted by STRH to inquire as to
whether such companies would have any interest in acquiring Hastings. Neither company indicated any interest in such an acquisition.
On
August 18, 2013, Mr. Weinshanker and Mr. Marmaduke met in Las Vegas, Nevada to discuss a possible acquisition. Mr. Marmaduke requested the Board be provided with NECAs financial information to assure the Board of
NECAs financial capacity with respect to a potential acquisition.
On August 20, 2013, Mr. Weinshanker provided
Mr. Marmaduke with the balance sheet included in NECAs 2012 income tax return, which was then furnished by Mr. Marmaduke to the Board.
On September 5, 2013, after receiving a phone call from Mr. Weinshanker, a representative of STRH informed Mr. Marmaduke of the
revised terms of a potential acquisition by NECA in a bifurcated transaction. Under the revised proposal, NECA would acquire: (a) all shares of Hastings other than shares held by Insiders and NECA, for $4.00 per share in cash and (b) all
of Hastings shares owned by the Insiders for (i) an initial payment of $2.00 per share in cash, payable six months after the closing of the transaction, and (ii) a second payment, equal to the greater of (1) $2.00 per share in cash
and (2) a per-share price in cash to be determined based upon the fair market value of Hastings business as of the date four years from the closing of the transaction. This proposal varied from the proposal set forth by NECA in its
Indication of Interest Letter in that the Insiders would no longer obtain equity in the surviving corporation and instead would only be entitled to two deferred payments for all of their shares.
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On September 13, 2013, Cooley, LLP (
Cooley
), counsel to NECA,
Parent, Merger Sub and their affiliates, submitted to a representative of STRH, on behalf of NECA, a formal non-binding proposal to acquire Hastings consistent with the proposal conveyed by Mr. Weinshanker on September 5, 2013. Over the
next several days, Hastings outside counsel, Kelly Hart & Hallman, LLP (
Kelly Hart
) and Cooley participated in numerous conference calls to discuss and negotiate the terms of the proposal letter. As part of
those negotiations, the parties respective legal counsel discussed the potential structure of the acquisition as a single-step merger rather than a tender offer followed by a short form merger and discussed NECAs request for exclusivity,
which ultimately was not given. During this time, Kelly Hart also advised Hastings executive officers and directors regarding the potential process of an acquisition of the Company by a private acquiror and discussed the fiduciary duties of
the Board in connection with the acquisition process. Kelly Hart recommended the appointment of a special, independent committee of the Board to oversee the process. At the request of the Company, Kelly Hart provided a memorandum summarizing these
matters.
On September 16, 2013, Mr. Marmaduke informed the Hastings Board of the revised proposal from NECA and the Board
members each concurred that Hastings should continue its discussions with NECA, with a focus on the transaction structure providing for the purchase of the shares of the non-insider shareholders at a price of $4.00 per share and the purchase of the
shares held by the Insiders in consideration for the two deferred payments described above.
On September 17, 2013,
Mr. Weinshanker and Mr. Marmaduke discussed via telephone the possibility of Hastings executives waiving a number of existing rights with respect to compensation in connection with the proposed transaction with NECA. In particular,
Mr. Weinshanker expressed a desire for such executives to forfeit certain options to purchase Hastings shares, all of which would vest upon a change-in-control of the Company, waive the right to receive retention bonuses previously established
by the Company, agree to terminate their respective employment agreements with the Company and enter into new agreements to be approved by NECA, and otherwise renegotiate the executives respective compensation. Mr. Marmaduke informed
Mr. Weinshanker that Hastings executives would likely be hesitant to agree to forfeit such options and otherwise agree to such requests in the absence of a suitable alternative.
On September 24, 2013, Mr. Marmaduke and Mr. Weinshanker discussed via telephone the possibility of utilizing debt financing
provided by Pathlight in connection with the possible acquisition of Hastings. During this call, Mr. Marmaduke suggested that the second deferred payment to the Insiders should be subject to a guaranty and other payment protections by a party
other than Hastings.
On September 25 and 26, 2013, Mr. Weinshanker toured the Companys TRADESMART store located in Denver
and a Company superstore located in Amarillo. Following the tour of the Companys Amarillo superstore on September 26, 2013, Messrs. Weinshanker, Marmaduke and Van Ongevalle held a meeting at the Hastings Store Support Center in
Amarillo, Texas to discuss the various synergies that might be possible by virtue of the strengthened relationship between Hastings and NECA resulting from NECAs acquisition strategy.
On September 27, 2013, the parties entered into a non-binding letter outlining the terms of the proposed transaction.
On October 2, 2013, the Hastings Board held a special meeting, during which the Board approved the formation of the Special Committee
consisting of Danny W. Gurr, Ann S. Lief, Frank O. Marrs and Jeffrey G. Shrader, each of whom is a member of the Board, and each of whom was determined to be an independent director with no interest in any transaction with Mr. Weinshanker or
NECA different from any Hastings securityholders. The Board members were aware that Mr. Shraders law firm has performed services for the Company for many years and considered the fees paid to Mr. Shraders firm in both absolute
dollar amount and relative to the firms total revenue in determining that Mr. Shrader is independent. The Board authorized the Special Committee to approve or reject, monitor and direct the process of reviewing NECAs proposal,
negotiate the terms of the transaction and the terms of any other transaction proposed as an alternative to a transaction with
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NECA or Mr. Weinshanker and determine, on behalf of the Board and the Company, whether such transaction with NECA, Mr. Weinshanker or such alternative transaction, as applicable, is
advisable and fair to, and in the best interests of, the Companys shareholders. The Board authorized the Special Committee to retain independent financial and legal advisors to advise it with regard to the potential transaction with
Mr. Weinshanker or NECA. The Board also authorized the payment of $10,000 per month to the chairman of the Special Committee and the payment of $5,000 per month to the other members of the Special Committee (an aggregate payment of $25,000 per
month) as consideration for their service on such committee.
On October 2, 2013, the Special Committee held its organizational
meeting, during which it elected Mr. Shrader to serve as Chairman and retained Haynes and Boone, LLP (
Haynes and Boone
) as its independent legal advisor. Haynes and Boone joined the meeting at the request of the
Special Committee and reviewed with the Special Committee its fiduciary duties applicable to the proposed transaction with NECA. The Special Committee also determined to amend the engagement letter with STRH to provide that STRH would perform
advisory services for, and render its fairness opinion to, the Special Committee.
On October 2, 2013, Cooley delivered an initial
due diligence request list to Kelly Hart.
On October 7, 2013, a data room was established by STRH to facilitate due diligence in
relation to the proposed acquisition.
On October 8, 2013, Messrs. Marmaduke, Shrader (on behalf of the Special Committee) and a
representative of STRH met in person to discuss the potential acquisition, at which meeting Messrs. Marmaduke and Shrader expressed concerns regarding the structure and financing of the transaction, particularly whether the proposed structure could
be dependent on Hastings incurring or guarantying additional indebtedness related to the acquisition. Messrs. Marmaduke and Shrader also discussed concerns that the proposed transaction structure imposed a great deal of risk upon the Insiders due to
the deferral of the payments of the proposed merger consideration to be made to the Insiders and that definitive agreements would need to contain protections with respect to the deferred payments to the Insiders. Among other things, both
Mr. Marmaduke and Mr. Shrader expressed their preference for a transaction that paid all shareholders a cash purchase price for their shares at the effective time of the Merger. However, NECAs indication of interest letter and
subsequent conversations with Mr. Weinshanker made it clear that NECA was willing to pay a higher cash price to outside shareholders only if the Insiders were willing to defer receipt of their payment, without interest. Mr. Marmaduke
indicated that he was willing to do so, and he believed that the other Insiders were also willing to do so, provided that the Merger documents would contain reasonable assurances that the deferred payments would be made and that there was a
reasonable possibility that an increased payment could be earned. Finally, the parties discussed concerns as to whether NECA could finance the proposed transaction.
On October 16, 2013, STRH amended the terms of its existing engagement to reflect its engagement by the Special Committee.
On October 30, 2013, Cooley submitted an initial draft of the Merger Agreement to Kelly Hart for its review.
On November 5, 2013, Kelly Hart and Haynes and Boone had a conference call with Messrs. Marmaduke, Crow and Shrader, acting on behalf of
the Special Committee, and representatives of STRH regarding the initial draft of the Merger Agreement. During this call, the parties and their respective legal counsel discussed numerous provisions (or the absence of provisions) of the proposed
Merger Agreement, regarding, among other things, the guaranty of the payment of merger consideration to the non-Insider shareholders and the Insiders, representations, warranties and covenants regarding NECAs proposed debt financing, the
no-shop provision and related fiduciary out provision, the materiality threshold to be applied to Hastings representations and warranties, the inclusion of certain representations and warranties in the Merger Agreement,
the proposed operating covenants in the Merger Agreement and the absence of certain ancillary documents
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addressing the second deferred payment to the Insiders. The STRH representative indicated that he was scheduled to meet with Mr. Weinshanker on the following day and indicated that he would
discuss these matters with Mr. Weinshanker at this meeting.
On November 6, 2013, representatives of STRH met with
Mr. Weinshanker and, at the request of the Board and the Special Committee, discussed the proposed transaction and presented Mr. Weinshanker with numerous concerns regarding the Merger Agreement. Mr. Weinshanker suggested that
Hastings provide a revised version of the Merger Agreement addressing these concerns and expressed his willingness to move the acquisition forward on an expedited schedule. Mr. Weinshanker also stated that he would expect Hastings to retain its
current management team following the closing of the Merger.
On November 7, 2013, Cooley submitted a supplemental due diligence
request to Kelly Hart.
On November 12, 2013, Cooley and Kelly Hart spoke via telephone call to discuss, among other things, the
structure of the Merger, the financing of the Merger and the proposed treatment of options under the Merger Agreement.
On
November 18, 2013, Mr. Crow, Cooley and Kelly Hart held a conference call to discuss issues related to the proposed debt financing. Mr. Crow expressed concerns that, should the parties cause any indebtedness associated with the
acquisition to be reflected as a liability of Hastings, such indebtedness could result in Hastings auditor rendering a going-concern opinion with respect to Hastings. Mr. Crow stated that the Companys receipt of such a qualified
opinion would have critical negative effects on Hastings dealings with its venders and trade creditors. On that same day, Cooley sent initial drafts of the Insider Agreement and Support Agreement to Kelly Hart.
On November 19, 2013, Mr. Marmaduke and Mr. Van Ongevalle met with Mr. Weinshanker to tour Graceland, a property being
managed and operated by Mr. Weinshanker, and to discuss Mr. Weinshankers acquisition strategy. During the meeting, the parties discussed the potential debt financing for the proposed transaction and the terms of the deferred payments
to the Insiders. Mr. Weinshanker stated that he was not willing to provide any guaranty to the Insiders with respect to the second deferred payment for their shares to be made four years after the closing of the Merger, but he suggested the
possibility of transferring to Hastings, after the closing of the Merger, certain assets owned by NECA that would benefit Hastings. Mr. Marmaduke and Mr. Van Ongevalle told Mr. Weinshanker that any debt financing obtained from
Pathlight in connection with a potential acquisition must be limited, as the $15 million in debt proposed by Mr. Weinshanker would reduce Hastings borrowing capacity and ability to make capital expenditures. Messrs. Weinshanker, Marmaduke
and Van Ongevalle also agreed that, in the event of a subsequent acquisition of Hastings by a third party (after NECAs acquisition of Hastings), the second payment due to the Insiders would be accelerated. Mr. Marmaduke, on behalf of the
Insiders, continued to reiterate his concerns regarding the lack of a guaranty of the obligations for the second payment to the Insiders.
On November 24, 2013, Messrs. Marmaduke and Crow, Mr. Shrader, on behalf of the Special Committee, and Mr. Weinshanker
discussed via telephone Mr. Weinshankers acquisition proposal, including the potential adverse impact any debt financing could have on Hastings ongoing operations and the lack of security or other protections to the Insiders with respect
to the deferred payments for their shares.
On November 27, 2013 Kelly Hart provided Cooley with comments to the Merger Agreement,
the Insider Agreement and the Support Agreement based on the input received from the Special Committee and its counsel Haynes and Boone, and from management of Hastings.
On December 4, 2013, Mr. Weinshanker e-mailed Mr. Marmaduke with a proposal that Mr. Weinshanker would guaranty a portion
of the second deferred payment to the Insiders. Mr. Marmaduke, on behalf of the Insiders, indicated that such a partial guaranty would not be sufficient.
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On December 5, 2013, the Board of Hastings held a regular meeting during which the Board
discussed, among other things, the status of the potential transaction with NECA. Mr. Shrader provided the Board with an update on the work performed by STRH in attempting to identify potential buyers of the Company and that, at that date, NECA
remained the only potential buyer that had evidenced interest in acquiring the Company. The Board discussed various alternatives to such an acquisition, including continuing to operate the Company as a publicly-traded company and causing the Company
to undertake a going-private transaction with the Companys management. The Board discussed the initiatives currently being pursued by the Company in an effort to return to profitability and the lack of immediate success of such initiatives.
Mr. Marmaduke also informed the Board that he was not interested in leading a going-private transaction structured as a management buyout. After discussing these alternatives and the current state of negotiations with NECA, the Board determined
that Messrs. Marmaduke and Shrader should continue to negotiate with Mr. Weinshanker regarding his possible acquisition of the Company.
On December 12, 2013, Mr. Marmaduke, Mr. Shrader, on behalf of the Special Committee, and Mr. Weinshanker had a conference
call to discuss, among other things, the transaction structure, the proposed terms of the debt financing to be used in connection with the transaction (particularly with regard to whether this financing would be reflected as a liability of
Hastings), a partial guaranty for the second deferred payment to the Insiders, the treatment of options, certain of the proposed representations and warranties and the amount of the termination fee.
On December 16, 2013, Kelly Hart and Cooley had a conference call to discuss the Merger Agreement and related documents. On this call,
the parties respective legal counsel discussed, among other things, the treatment of options, the terms of the deferred payments to the Insiders, the amount of the termination fee and the representations and warranties to be provided by the
Company in the Merger Agreement. Cooley inquired whether the Insiders would be interested in receiving an equity interest in the surviving corporation as an alternative to the deferred payments previously proposed, and Kelly Hart indicated that the
Insiders were not interested in this arrangement.
On December 18, 2013, Cooley e-mailed Kelly Hart to relay and clarify
Mr. Weinshankers position on several issues discussed during the December 16 call, including the treatment of options, the debt financing proposed to be used for the Merger and Mr. Weinshankers position that he would not
agree to contribute any assets or make any covenants regarding Hastings future earnings or operations for purposes of supporting Hastings earnings, assets or credit position or to protect or enhance the deferred payments to the Insiders.
On December 23, 2013, Cooley sent to Haynes and Boone revised drafts of the Merger Agreement, the Insider Agreement and the Support
Agreement.
On December 27, 2013, Cooley sent to Kelly Hart and Haynes and Boone an initial draft of the template employment
agreement proposed to be entered into between the purchaser and each of Messrs. Marmaduke, Crow, Van Ongevalle and McConnell to be effective as of the closing of the Merger.
On January 4, 2014, the Special Committee held a special meeting, in which Mr. Marmaduke and Haynes and Boone participated, to
discuss the status of negotiations with NECA. Mr. Marmaduke advised the Special Committee that the parties had made little progress in resolving open issues in the Merger Agreement and related documents. The Special Committee reviewed a draft
letter prepared by Kelly Hart at the direction of Messrs. Marmaduke and Shrader that outlined the material open issues and the Companys proposed position with respect to each open issue. The Special Committee discussed the fact that the
proposed unsecured deferred payments to the Insiders, who hold over 40% of the outstanding shares of Hastings, were the source of most of the unresolved issues and the fact that the Company needed the support of the Insiders to approve the
transaction given the fact that approval of the Merger Agreement would require the approval of two-thirds of the outstanding shares under Texas law. The Special Committee believed that the position taken by the Insiders that they could not support
the transaction as currently proposed was reasonable, and, accordingly, the Special Committee
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discussed an alternative transaction structure and requested that the letter to Mr. Weinshanker include a proposal providing that the Insiders agree to resign at the effective time of the
Merger and receive the same fixed merger consideration as the other shareholders.
On January 6, 2014, Mr. Marmaduke sent a
letter to Mr. Weinshanker expressing Hastings continued interest in exploring a potential acquisition by NECA and providing a list of the material outstanding issues in the Merger Agreement, the Insider and Support Agreement and the
proposed employment agreements. This list included, among other things, the lack of any guaranty of the obligations to make the payments to the Insiders and Hastings other shareholders, the scope of the representations and warranties to be
given by Hastings in the Merger Agreement, the absence of protective covenants regarding the debt financing to be used for the Merger, the lack of clarity regarding the fiduciary out exception to the no-shop provision, the venue for
resolving any disputes under the Merger Agreement and related documents and the deferred payments to the Insiders.
On January 7,
2014, Cooley called Haynes and Boone to discuss Mr. Marmadukes letter. Cooley indicated to Haynes and Boone that Mr. Weinshanker was interested in attempting to resolve the open issues listed in the letter.
On January 13, 2014, Kelly Hart, Haynes and Boone and Cooley held a conference call to discuss the open issues in
Mr. Marmadukes letter, including the scope of the proposed guaranty, the debt financing, and covenants relating to the deferred payments to the Insiders, including proposed restrictions on the operation of Hastings following the closing.
The next day, Cooley communicated to Kelly Hart and Haynes and Boone certain follow up responses from Mr. Weinshanker.
On
January 16, 2014, Messrs. Weinshanker and Marmaduke spoke via telephone. Mr. Marmaduke informed Mr. Weinshanker that only Messrs. Van Ongevalle and McConnell were willing to remain employees of the Company after the closing of the merger. In
light of this new fact, and because Mr. Weinshanker learned during his due diligence review of the Hastings financial records, statements and reports that Hastings has approximately $120 million in off-balance sheet lease obligations (of which
Mr. Weinshanker was not aware when he provided NECAs preliminary, non-binding indication of interest dated July 16, 2013), Mr. Weinshanker informed Mr. Marmaduke that he was still willing to pay an aggregate upfront purchase price of
approximately $21 million for Hastings, but he was not willing to have a contingent deferred payment, which he had intended as a retention incentive for Insiders. In addition, during the course of his due diligence investigation of Hastings and
negotiations regarding the Merger Agreement, Mr. Weinshanker learned that Hastings goShip software could not be commercially exploited without the expenditure of significant time and capital, a fact that made Hastings less valuable
to him. Mr. Weinshanker therefore made a revised proposal to purchase all shares at the closing of the acquisition, including the Insiders shares, for $3.00 per share, which was based on paying $21 million for Hastings upfront without any
payment deferrals or contingent consideration to Insiders. Under this revised proposal, all vested options to purchase shares of our common stock, other than options held by the Insiders, would be converted into the right to receive cash in the
amount by which $3.00 exceeds the per-share exercise price of such options, multiplied by the number of shares subject to such options. All options, including the options held by the Insiders, would be terminated upon the effective time of the
Merger. Mr. Marmaduke informed Mr. Weinshanker that he would discuss this proposal with the other members of the Board.
On
January 22, 2014, Mr. Weinshanker sent a non-binding proposal letter confirming the $3.00 per share proposal. Pursuant to this new proposal, Mr. Weinshanker, and not NECA, would be responsible for the acquisition and
Mr. Weinshanker would personally guaranty the payment of the Merger Consideration to Hastings shareholders. This proposal provided that Messrs. Marmaduke and Crow would retire from their positions as Chief Executive Officer and Chief
Financial Officer, respectively, in exchange for severance payments of $1.5 million and $750,000, respectively, and would waive all rights with respect to any other severance payments owed to them by Hastings in connection with a change in control
of Hastings. The proposal also provided that Messrs. Van Ongevalle and McConnell would continue their employment with Hastings under
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the terms of their existing employment agreements but would waive any rights with respect to the Merger as a change in control of Hastings under such employment agreements. Under the terms of
this proposal, none of Messrs. Marmaduke, Crow, Van Ongevalle or McConnell would receive any consideration for their vested options, regardless of the exercise price thereof.
On January 22, 2014, the Special Committee, together with Mr. Marmaduke, Mr. Van Ongevalle, representatives of STRH and Baum
(which Baum representative had previously served as one of the Special Committees contacts at STRH, as described below) and Haynes and Boone, met via conference call to discuss Mr. Weinshankers new proposal. The Special Committee
discussed the difference in consideration to be paid to Hastings shareholders under this new proposal and noted that the previous proposal provided for a higher price per share to non-insider shareholders at the expense of the Insiders, who were
being asked to accept deferred payments without interest or any meaningful protections or guaranty of future payment. The Special Committee discussed the challenges currently facing the Company, including the shift to digital distribution of certain
products and the increasing popularity of video rental kiosks and the risks and uncertainties of remaining an independent public company. The Special Committee determined that Messrs. Marmaduke and Shrader, together with Kelly Hart and Haynes and
Boone, should continue to negotiate with Mr. Weinshanker and Cooley regarding this new proposal and asked Kelly Hart and Haynes and Boone to schedule a conference call with Cooley to clarify several aspects of this proposal. The Special
Committee also determined that, as a preliminary matter, Mr. Weinshanker would need to provide a formal written summary of this new, clarified proposal and personal financial information supporting his ability to guaranty the payment of the
Merger Consideration to Hastings shareholders. Kelly Hart, Haynes and Boone and Cooley had a conference call later that night, in which Cooley clarified the proposals regarding options and the employment of Messrs. Marmaduke, Crow, Van
Ongevalle and McConnell.
On January 28, 2014, Cooley sent Haynes and Boone a proposed form of confidentiality agreement protecting
financial information of Mr. Weinshanker.
On January 29, 2014, Cooley, Kelly Hart, Haynes and Boone and Mr. Van Ongevalle
held a conference call to discuss certain proposed representations and warranties regarding Hastings intellectual property and logistics software.
On February 10, 2014, the Board of Hastings held a regular meeting. Haynes and Boone, Kelly Hart, Messrs. Van Ongevalle and Crow and
representatives of STRH and Baum participated in a portion of this meeting, during which STRH reported on the status of its evaluation of Mr. Weinshankers revised proposal and the further evaluation necessary for STRH to render a written
fairness opinion with respect to the transactions contemplated by this proposal. The Board discussed strategic alternatives to Mr. Weinshankers proposal, including remaining an independent public company and the risks and uncertainties of
these alternatives, including the fact that the Company would likely not return to profitability for at least four years. Following discussions, the directors comprising the Special Committee authorized continuing negotiations with
Mr. Weinshanker and requested that Messrs. Marmaduke and Shrader seek a higher price than $3.00 per share proposed by Mr. Weinshanker. On February 12, 2014, Messrs. Shrader and Marmaduke, at the direction of the Special Committee,
held a conference call with Mr. Weinshanker during which they requested that Mr. Weinshanker pay more than $3.00 per share.
On
February 16, 2014, Mr. Marmaduke discussed with Mr. Weinshanker via telephone Mr. Crows scheduled retirement and the need to engage Mr. Crow to provide consulting services after his retirement given the resignation of
Mike Molinar, Hastings controller. Mr. Crow indicated that he would agree to provide consulting services as needed through February 15, 2015 without receiving any additional consideration for such services.
On or about February 17, 2014, Messrs. Shrader and Marmaduke called Mr. Weinshanker to further discuss the possibility of
Mr. Weinshanker increasing the per-share price. During this discussion,
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Mr. Weinshanker stated that he was not willing to offer more than $3.00 per share and that this price was his best and final offer. Messrs. Shrader and Marmaduke reported these statements by
Mr. Weinshanker to the Special Committee.
On February 20, 2014, Hastings, acting with the approval of the Special Committee,
and Mr. Weinshanker executed a non-binding proposal letter reflecting the $3.00 per share proposal (the
Revised Proposal Letter
). The Revised Proposal Letter amended the confidentiality agreement entered into by NECA
and STRH on June 4, 2013 to clarify that NECA and its representatives were permitted to contact certain officers and other representatives of Hastings in connection with the negotiation of the Merger Agreement.
On February 24, 2014, the Board held a regular meeting, during which Mr. Crow noted that the Companys actual losses for the
recently completed fiscal year would be approximately 25% greater than those shown in the projections previously furnished to Mr. Weinshanker.
On February 24, 2014, Hastings entered into a confidentiality agreement with Mr. Weinshanker regarding certain financial information
of Mr. Weinshanker to be provided to the Special Committee, Mr. Marmaduke and Haynes and Boone for the purpose of verifying Mr. Weinshankers ability to guaranty the payment of the Merger Consideration.
On March 4, 2014, Cooley sent Kelly Hart and Haynes and Boone a revised draft of the Merger Agreement reflecting the terms of the Revised
Proposal Letter. From March 4 through March 14, 2014, Cooley, Kelly Hart and Haynes and Boone exchanged multiple drafts of the Merger Agreement and conducted multiple conference calls for the purpose of finalizing the terms of the Merger
Agreement.
On March 10, 2014, the Special Committee held a conference call with Mr. Weinshanker to discuss the personal
financial information provided to the Special Committee, Mr. Marmaduke and Haynes and Boone by Mr. Weinshanker in support of his ability to undertake the obligations under the Guaranty. Mr. Weinshanker and Mr. Shrader discussed
the fact that NECA and another of his affiliates were negotiating the terms of a credit facility with an affiliate of STRH. In addition, the Special Committee reviewed and discussed with Mr. Weinshanker his personal financial information. Also
on this date, the Special Committee and Baum executed an agreement pursuant to which Baum was engaged for the purposes of assisting the Special Committee in its consideration of a potential sale of the Company. The Special Committee elected to
engage Baum for this purpose because Michael Sheff, who had previously acted as the Special Committees primary contact at STRH, had left STRH and joined Baum effective January 6, 2014. In connection with the engagement of Baum, the
Special Committee executed a third amendment to the STRH engagement letter, pursuant to which STRH agreed to reduce its fee by the amount payable to Baum under its engagement letter with the Special Committee.
On March 12, 2014, Cooley provided Haynes and Boone with additional information regarding the potential credit facility between
affiliates of Mr. Weinshanker and an affiliate of STRH. Cooley stated that the STRH affiliate had entered into a commitment letter with NECA and an affiliate of NECA with respect to a $37 million credit facility as described below under
Opinion of SunTrust Robinson Humphrey, Inc.Miscellaneous.
On March 13, 2014, counsel for STRH provided Haynes and
Boone with substantially the same information as furnished by Cooley on March 12. STRH also confirmed that none of the members of the STRH core investment banking team involved in the financial advisory engagement for the Company or the Special
Committee had been engaged in working on the financings for Mr. Weinshanker or his affiliates. Members of the Special Committee subsequently discussed the proposed financing to be provided to Mr. Weinshanker or his affiliates and related
fees and determined that such information was not material to the services being provided to the Special Committee by STRH.
On
March 16, 2014, a meeting of the Board and the Special Committee was held via conference call to discuss the Merger Agreement. Kelly Hart and Haynes and Boone participated in this conference call, as did
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representatives of STRH and Mr. Sheff from Baum. A representative of STRH reviewed financial analyses relating to the Company and the proposed transaction. Following its presentation and
discussion, representatives of STRH rendered STRHs oral opinion to the Special Committee, subsequently confirmed by delivery of a written opinion dated March 16, 2014, that, as of March 16, 2014, and based upon and subject to the
factors and assumptions set forth therein, the $3.00 price per share to be received by shareholders of the Company pursuant to the Merger Agreement was fair to such shareholders (excluding NECA or any other shareholder of Parent, Merger Sub and
their respective affiliates) from a financial point of view. The Board and Special Committee discussed the fact that the Companys liability for future operating lease payments is in excess of $120 million, which is not reflected on the
Companys balance sheet, and that the liquidation of the Company would accelerate the due date of the lease payments. Because these liabilities would be accelerated upon a liquidation of the Company, it was noted that (i) such liquidation
would result in shareholders receiving substantially less than $3.00 per share, and perhaps nothing at all, and (ii) the Companys book value was not useful as a valuation metric. The Board also discussed the risks and uncertainties of
remaining an independent public company (as described below under Reasons for the Merger and Recommendation of the Board of Directors). Haynes and Boone and Kelly Hart then described the terms of the Merger Agreement to the Board
and the Special Committee. The Board then temporarily adjourned its meeting and the Special Committee convened a separate meeting via conference call with the participation of Haynes and Boone and Kelly Hart. During this separate meeting, the
Special Committee discussed the matters addressed at the Board meeting and a number of considerations with respect to the Merger and the Merger Agreement (as described below under Reasons for the Merger and Recommendation of the Board of
Directors), and unanimously determined to recommend to the full Board the adoption and approval of the Merger Agreement. The Special Committee then adjourned this separate meeting and the full Board reconvened its meeting, with the
participation of Kelly Hart and Haynes and Boone. Mr. Shrader informed the Board of the Special Committees recommendations (as described above), and, based on these recommendations, the Board unanimously (i) determined that the
transactions contemplated by the Merger Agreement, including the Merger, are fair to and in the best interests of the Companys shareholders (other than NECA) (ii) adopted, approved and declared advisable the Merger Agreement and the
transactions contemplated therein, including the Merger and, (iii) resolved to recommend that the Companys shareholders vote their shares of our common stock in favor of the approval of the Merger Agreement.
Following this meeting, Mr. Shrader notified Mr. Weinshanker that the Board had adopted and approved the Merger Agreement and Cooley
and Kelly Hart exchanged executed signature pages of the Merger Agreement and related documents, under the condition that such signature pages would be released on 12:01 a.m. Central time on March 17.
On the morning of March 17, 2014 before the opening of trading on NASDAQ, Hastings issued a press release announcing the execution of the
Merger Agreement.
Reasons for the Merger and Recommendation of the Board of Directors
Determinations of the Special Committee
On March 16, 2014, the Special Committee, consisting entirely of independent and disinterested directors, and acting with the advice of
its own independent legal and financial advisors, unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are fair to and in the best interests of the Companys shareholders (other than
NECA), (ii) recommended that the Board adopt, approve and declare advisable the Merger Agreement and the transactions contemplated therein, including the Merger, and (iii) recommended that the Companys shareholders vote their shares
of our common stock in favor of the approval of the Merger Agreement.
In the course of making the determinations described above, the
Special Committee considered the following factors relating to the Company, its business and prospects, and the risks and challenges facing it, and relating to the Merger Agreement and the transactions contemplated thereby, including the Merger (all
of which
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factors tended to support the recommendation and consummation of such agreement and transactions, but which factors are not intended to be exhaustive and are not presented in any relative order
of importance):
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the fact that Hastings conducted an extensive sale process, in which it attempted to solicit interest from a significant number of strategic and financial acquirors, which process did not result in the receipt of offers
from any acquiror other than NECA;
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the fact that Hastings, the Special Committee and their respective legal counsel had extensively negotiated the terms of the Merger Agreement over an extended period of time;
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the fact that $3.00 per share represents a significant premium to the recent prices of the Companys common stock;
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the belief that, absent the public announcement of the Merger Agreement, it would take a considerable amount of time before the trading price of the Companys common stock would reach and sustain a value of at
least the $3.00 per share Merger Consideration, as adjusted for present value, and that there is no guaranty that such trading price would ever reach and sustain a value equal to the Merger Consideration, as adjusted for present value;
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the belief that, although neither STRH, Baum nor the Companys management had calculated the Companys estimated liquidation value, this value, expressed on a per-share basis, is certain to be less than the
$3.00 per share Merger Consideration due to the Companys long-term lease obligations in excess of $120 million that are recorded as off-balance sheet liabilities, all of which would become immediately due and payable upon the liquidation of
the Company and would have priority over any payments to the Companys shareholders in connection with such liquidation;
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the information with respect to the Companys financial condition, results of operation, business, competitive position and business strategy, on both a historical and prospective basis, as well as current
industry, economic and market conditions and trends, most of which seem negative (including the sustained adverse effects of digital media delivery and alternative rental business (such as Redbox) on the Companys business);
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liquidity constraints faced by the Company, including the possibility that vendors of the Company may require the Company to do business on a cash basis and the effects of such potential requirements on the
Companys liquidity;
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the Companys lack of access to additional financing, either through the incurrence of additional debt or through the issuance of equity securities;
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the fact that recent initiatives, including the opening of TRADESMART, resets of store consumer electronics inventory and a significant management restructuring, have failed to return the Company to profitability;
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the fact that the Merger Consideration will be paid in cash, providing certainty and immediate value to shareholders;
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the fact that the Company has a fiduciary out in the Merger Agreement, allowing the Board to change its recommendation to the Companys shareholders and accept a superior proposal (provided it does so
in compliance with the provisions of the Merger Agreement);
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the fact that the Special Committee received an opinion of STRH, dated March 16, 2014, to the Special Committee to the effect that the $3.00 per share of our common stock to be received in the Merger by the
Unaffiliated Shareholders, in exchange for their shares of our common stock was fair, from a financial point of view, to such Unaffiliated Shareholders, which opinion was based on and subject to the factors and conditions, limitations,
qualifications and assumptions set forth in the opinion, as more fully described under Opinion of SunTrust Robinson Humphrey, Inc. beginning on page 35;
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the fact that Mr. Weinshanker has agreed in the Guaranty to personally guaranty the obligations of Parent to pay the Merger Consideration, the
Option Consideration, and the reimbursement of
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33
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certain of Hastings expenses under the terms of the Merger Agreement, and the fact that, in support of such guaranty, Mr. Weinshanker has furnished the Board and Haynes and Boone with
personal financial information, and has further agreed to maintain a minimum net worth of at least four times the amount necessary to satisfy the guarantied obligations pursuant to the Merger Agreement;
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the fact that the obligations of Parent and Merger Sub to consummate the Merger under the Merger Agreement are not subject to a financing condition;
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the fact that Hastings officers have advised the Board that they do not expect the Company to return to profitability until at least its fiscal year ending January 31, 2019; and
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the fact that the Companys financial condition has been deteriorating for a number of years and that recent financial performance was worse than the Company had expected when the Company began soliciting interest
from potential acquirors in the spring and summer of 2013.
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The Board also considered a variety of risks and other
potentially negative factors of the Merger Agreement and the Merger, including the following:
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the fact that the Company will no longer exist as an independent public company and shareholders will forgo any future increase in the value of the Company that might result from earnings or possible growth as an
independent company;
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the uncertainty of the reaction by employees, vendors, and customers to the announcement of the Merger and the potential diversion of management and employee time away from day-to-day operations of the business;
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the risk that while the Merger Agreement is not subject by its terms to a financing condition, if sufficient financing is not obtained, the Merger may not be consummated; and
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the fact that an all cash transaction would be taxable to shareholders for U.S. Federal Income Tax purposes.
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The foregoing discussion of the information and factors considered by the Special Committee is not intended to be exhaustive but includes the
material factors considered by the Special Committee. In view of the variety of factors considered in connection with its evaluation of the Merger (many of which are listed above), the Special Committee did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual members of the Special Committee may have given different weights to different factors. The
Special Committee recommended to the Board the approval of the Merger Agreement and the Merger based upon the totality of the information it considered.
Recommendation of the Board of Directors
On March 16, 2014, the Board, acting upon the unanimous recommendation of the Special Committee, unanimously (i) determined on behalf
of the Company that the transactions contemplated by the Merger Agreement, including the Merger, are fair to, and in the best interests of, the Company and its shareholders (other than NECA), (ii) adopted, approved and declared advisable the
execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated therein, including the Merger, and (iii) resolved to recommend that the Companys shareholders vote for the approval of the
Merger Agreement.
In the course of making such determinations, the Board considered the following factors (which factors are not intended
to be exhaustive and are not in any relative order of importance):
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the Special Committees analyses, conclusions and unanimous determination, as described above, which the Board adopted, that the transactions
contemplated by the Merger Agreement, including the
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34
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Merger, are fair to, and in the best interests of, the Companys shareholders (other than NECA) and the Special Committees unanimous recommendation that the Board adopt, approve and
declare advisable the Merger Agreement and the transactions contemplated therein, including the Merger, and that the Companys shareholders vote for the approval of the Merger Agreement;
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the fact that the Special Committee consists of four independent directors of the Company who are not affiliated with NECA, Parent or Merger Sub, are not employees of the Company or any of its affiliates and have no
financial interest in the Merger different from, or in addition to the Companys unaffiliated shareholders other than their interests described under Interests of Directors and Executive Officers of Hastings in the Merger
beginning on page 43; and
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the fact that the Special Committee received the opinion of STRH as to the fairness, from a financial point of view, of the Merger Consideration to the Unaffiliated Shareholders.
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The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive but includes the material
factors considered by the Board. In view of the variety of factors considered in connection with its evaluation of the Merger, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The Board made its recommendation based upon the totality of the information it considered.
The Board unanimously recommends that the shareholders of the Company vote FOR the proposal to approve the Merger Agreement.
Opinion of SunTrust Robinson Humphrey, Inc.
On March 16, 2014, STRH delivered to the Special Committee an oral opinion, which was confirmed by delivery of a written opinion, dated
March 16, 2014, to the effect that, as of the date of the opinion and based upon and subject to the conditions, limitations, qualifications and assumptions set forth in the opinion, the $3.00 per share of our common stock to be received in the
Merger by the Unaffiliated Shareholders in exchange for their common stock was fair, from a financial point of view, to such Unaffiliated Shareholders. STRH has consented to the use of its opinion and related disclosure in this proxy statement.
The full text of the written opinion of STRH, which sets forth, among other things, the assumptions made, procedures followed, matters
considered and limitations on the review undertaken in connection with the opinion of STRH, is attached as Annex B to this proxy statement and is incorporated herein by reference. You are urged to read STRHs written opinion carefully and in
its entirety. STRHs opinion was furnished solely for the use of the Special Committee (solely in its capacity as such) in connection with its evaluation of the Merger. STRHs opinion is limited solely to the fairness to the Unaffiliated
Shareholders, from a financial point of view, of the $3.00 per share of our common stock to be paid to the Unaffiliated Shareholders in exchange for their shares of common stock in connection with the Merger and does not address the Companys
underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available with respect to the Company. STRHs opinion does not constitute a
recommendation to any shareholder of the Company as to how such shareholder should vote or act with respect to the Merger or any other matter. STRHs opinion was approved by an internal opinion committee of STRH authorized to approve opinions
of this nature.
In connection with its delivery of its opinion, STRH conducted such reviews, analyses and inquiries as STRH deemed
necessary and appropriate under the circumstances. Among other things, STRH reviewed the following:
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an execution version draft, dated March 14, 2014, of the Merger Agreement, including its financial terms;
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certain publicly available business and financial information relating to the Company;
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35
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the historical reported price and historical trading activity for our common stock;
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certain other information relating to the historical, current and future business, financial condition, results of operations and prospects of the Company made available to STRH by the Company, including financial
projections prepared by management of the Company relating to the Company for the years ending January 31, 2015 through January 31, 2019 (the
Projections
);
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the current and projected financial and operating performance of the Company as compared to that of other companies with publicly traded equity securities that STRH deemed relevant; and
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the publicly available financial terms of certain transactions that STRH deemed relevant.
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STRH also had discussions with certain members of the management of the Company regarding the business, financial condition, results of
operations, and prospects of the Company and the Merger and undertook such other studies, analyses and investigations as STRH deemed appropriate.
STRH relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information
furnished, or otherwise made available, to STRH, discussed with or reviewed by STRH, or publicly available, and did not assume any responsibility with respect to such data, material and other information. STRHs role in reviewing such data,
material and other information was limited solely to performing such review as STRH deemed necessary and appropriate to support its opinion. In addition, management of the Company advised STRH, and STRH assumed, that the Projections were reasonably
prepared in good faith on bases reflecting the best currently available estimates and judgments of management of the Company as to the future financial results and condition of the Company. STRH expressed no opinion with respect to the Projections
or the assumptions on which they were based, or any other assumptions discussed in its opinion. STRH relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition,
results of operations, cash flows or prospects of the Company since the date of the most recent financial statements and other information, financial or otherwise, provided to STRH and that there was no information, facts or circumstances that would
make any of the information discussed with or reviewed by STRH inaccurate, incomplete or misleading.
STRH also relied upon and assumed
without independent verification that (a) the representations and warranties of all parties to the Merger Agreement are true and correct; (b) each party to the Merger Agreement will fully and timely perform all of the covenants and
agreements required to be performed by such party under the Merger Agreement; (c) all conditions to the consummation of the Merger will be satisfied without waiver thereof; (d) the Merger will be consummated in accordance with the terms of
the Merger Agreement without waiver, modification or amendment of any term, condition or agreement therein; and (e) in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the Merger, no
delay, limitation, restriction or condition will be imposed that would have an adverse effect on the Company or the expected benefits of the Merger. In addition, STRH assumed that the Merger Agreement, when executed by the parties thereto, would
conform to the draft reviewed by STRH in all respects material to STRHs analysis and its opinion.
Furthermore, in connection with
its opinion, STRH was not requested to make, and did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the
Company or any other person or entity, nor was STRH provided with any such appraisal or evaluation. STRH undertook no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent
liabilities to which the Company or any other person or entity was or might have been a party or was or might have been subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the
Company was or might have been a party or was or might have been subject.
The opinion of STRH was necessarily based on financial,
economic, monetary, market and other conditions as in effect on, and the information made available to STRH as of, the date of the delivery of its opinion, March 16, 2014. STRH had and has no obligation to update, revise, reaffirm or withdraw
its opinion or otherwise comment upon events occurring or information that has become or becomes available after its delivery of its opinion.
36
The opinion of STRH only addresses the fairness, from a financial point of view, of the $3.00 per
share of our common stock to be received in the Merger pursuant to the Merger Agreement by the Unaffiliated Shareholders, and does not address any other term, aspect or implication of the Merger or any agreement, arrangement or understanding entered
into in connection therewith or otherwise. STRH was not requested to opine as to, and its opinion does not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Company, its security
holders or any other person or entity to proceed with or effect the Merger; (ii) the form, structure or any other portion or aspect of, the Merger; (iii) the fairness of any portion, term, aspect or implication of the Merger to the holders
of debt of the Company, or any particular holder of securities, creditors or other constituencies of the Company, or to any other person or entity, except as expressly set forth in the last paragraph of the opinion; (iv) the relative merits of
the Merger as compared to any alternative business strategies that might exist for the Company or any other person or entity or the effect of any other transaction in which the Company or any other person or entity might engage; (v) whether or
not Parent, the Company, its security holders or any other person or entity is receiving or paying reasonably equivalent value in the Merger; (vi) the solvency, creditworthiness, viability, ability to pay debts when due, or fair value of the
Company or any other participant in the Merger, or any of their respective assets, including under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or the impact of the Merger on such matters;
(vii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Merger or any class of such
persons; or (viii) the fairness of any term or aspect of the Merger to any one class of the Companys security holders relative to any other class of the Companys security holders, including the allocation of any consideration among
or within such classes.
The STRH opinion was not intended to be, and does not constitute, a recommendation to the Special Committee, the
Board of the Company, the Company, any security holder of the Company or any other person or entity as to how to act or vote with respect to any matter relating to the Merger or otherwise. As specified in the engagement letter between STRH and the
Company relating to the delivery of STRHs opinion, (i) STRH was engaged by the Company and its opinion was to be delivered to the Special Committee, (ii) nothing in the engagement letter shall be deemed to create a fiduciary or
agency relationship between STRH and the Company or its shareholders, and (iii) the Companys engagement of STRH was not intended to confer on any person or entity (other than the Company, the Companys Board, the Special Committee
and certain indemnified parties identified in the engagement letter) any relationship, rights or remedies under or by reason of the engagement letter or as a result of the services rendered by STRH under the engagement letter. Under such
circumstances, no privity is created between STRH and the Companys shareholders regarding STRHs delivery of its opinion to the Special Committee and, consequently, you may not rely on STRHs opinion to support any claims against
STRH arising under applicable state law. The availability of no privity defenses to STRH and the question of whether such defenses are available under these circumstances would be resolved by a court of competent jurisdiction. In any
event, the resolution of whether such defense is available to STRH would have no effect on (i) the rights and responsibilities of the Companys Board or Special Committee under applicable state law or (ii) the rights and
responsibilities of either STRH or the Companys Board or Special Committee under federal securities laws.
Furthermore, in
STRHs opinion, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. STRH assumed that such opinions, counsel or interpretations have been
or will be obtained from appropriate professional sources. STRH relied, with the Special Committees consent, on the assessments by the Company and the Special Committee and their respective advisors as to all legal, regulatory, accounting,
insurance and tax matters with respect to the Company and the Merger.
The following is a summary of the material financial analyses
presented by STRH to the Special Committee at its meeting held on March 16, 2014, in connection with STRHs opinion.
Some of
the summaries of financial analyses below include information presented in tabular format. In order to fully understand STRHs analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a
complete description of the analyses. Considering the data described below
37
without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of
STRHs analyses.
Financial Analyses of the Company
Selected Public Companies Analysis
. STRH reviewed financial and stock market information of the following selected publicly traded
retail companies (the
Selected Companies
), which STRH considered most appropriate based on its professional judgment taking into account size, scale, services, end-market and other factors:
Selected Companies:
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Trans World Entertainment Corporation
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Selected Company Multiples:
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Enterprise Value /Adjusted EBITDA
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2014E
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2015E
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High
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8.1x
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7.8x
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Mean
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5.5x
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5.0x
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Median
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4.5x
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4.0x
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Low
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4.1x
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3.9x
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STRH reviewed, among other things, enterprise values of the Selected Companies (calculated as market value of
the relevant companys fully diluted common equity based on its closing stock price on March 13, 2014, plus preferred stock, plus, as of the relevant companys most recently reported quarter end, short-term and long-term debt, less
cash and cash equivalents, plus book value of non-controlling interests) as a multiple, to the extent information was publicly available, of estimated Adjusted EBITDA (defined as earnings before interest, taxes, depreciation, amortization, and other
applicable adjustments, such as one-time costs or other non-recurring expenses) for fiscal year 2014, and estimated fiscal year 2015. Financial data for the Selected Companies was based on publicly available consensus research analysts
estimates, public filings and other publicly available information. STRH then (i) calculated the mean and median of the applicable multiples for the Selected Companies and (ii) applied ranges of selected multiples derived from the Selected
Companies of 5.0x to 7.0x in the case of fiscal year ended January 31, 2014 Adjusted EBITDA (which was $5.8 million) and 4.0x to 6.0x in the case of estimated fiscal year ending January 31, 2015 Adjusted EBITDA (which was $2.7 million).
Estimated financial data for the Company was based on the Projections. This analysis (including deducting the Companys net debt) indicated a negative implied per share reference range. This implied per share reference range for the Company, as
compared to the $3.00 per share Merger Consideration is shown in the table below:
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Implied Per Share Reference
Range
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EV/2014
Adjusted
EBITDA
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EV/2015E
Adjusted
EBITDA
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Merger
Consideration
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$(2.36) - $(0.95)
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$(4.57) - $(3.90)
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$
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3.00
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38
Selected Precedent Transactions Analysis
. STRH reviewed financial information of the
following selected transactions in the specialty retail industry announced between September 4, 2008 and the date of STRHs opinion, which STRH considered most appropriate based on STRHs professional judgment taking into account
size, scale, market and other factors. Furthermore, STRH limited the analysis to those transactions where it was possible to calculate enterprise value to EBITDA multiples from publicly available information.
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Date Announced
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Target
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Acquiror
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2/19/14
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Zale Corporation
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Signet Jewelers Limited
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5/23/13
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rue21, Inc.
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Apax Partners L.P.
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5/10/13
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True Religion Apparel, Inc.
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TowerBrook Capital Partners L.P.
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3/7/13
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Hot Topic, Inc.
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Sycamore Partners Management, L.L.C.
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12/21/12
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Sierra Trading Post, Inc.
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The TJX Companies, Inc.
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11/11/12
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The Brick Ltd.
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Leons Furniture Ltd.
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11/2/12
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Oriental Trading Company, Inc.
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Berkshire Hathaway Inc.
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6/27/12
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Tile Shop Holdings, Inc.
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JWC Acquisition Corp.
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5/31/12
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The Talbots, Inc.
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Sycamore Partners, L.P.
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5/14/12
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Golfsmith International Holdings, Inc.
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Golf Town USA Holdings Inc.
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5/10/12
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Things Remembered, Inc.
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Madison Dearborn Partners, LLC
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4/16/12
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Dreams, Inc.
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Fanatics, Inc.
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2/24/12
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Kenneth Cole Productions Inc.
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Kenneth Cole
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10/4/11
|
|
A.C. Moore Arts & Crafts, Inc.
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|
Sbars, Inc.
|
8/24/09
|
|
Charlotte Russe Holding, Inc.
|
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Advent International Corporation
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8/10/09
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Barnes & Noble College Booksellers, LLC
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Barnes & Noble, Inc.
|
6/25/09
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Tween Brands, Inc.
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Ascena Retail Group, Inc.
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9/04/08
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Hudson Group
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Dufry AG
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Total Enterprise
Value as a Multiple of
Adjusted EBITDA
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High
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12.3x
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Mean
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8.1x
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Median
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8.3x
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Low
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4.2x
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STRH reviewed, among other things, announced transaction values of the selected transactions as a multiple, to
the extent information was publicly available, of Adjusted EBITDA for the latest twelve months (
LTM
). Financial data for the relevant transaction was based on publicly available information at the time of announcement of
the relevant transaction. STRH then (i) calculated the mean, median, high and low of the multiples in such transactions and (ii) applied ranges of selected multiples derived from the selected transactions of 7.0x to 9.0x (based on LTM
Adjusted EBITDA) to fiscal year ended January 31, 2014 Adjusted EBITDA of the Company. This analysis (including deducting the Companys net debt) indicated a negative lower end of the implied per share reference range. This implied per
share reference range for the Company, as compared to the $3.00 per share Merger Consideration, is shown in the table below:
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Implied Per Share Reference Range
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|
Merger
Consideration
|
|
$(0.95) $0.46
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$
|
3.00
|
|
Discounted Cash Flow Analysis
. STRH performed a discounted cash flow (
DCF
)
analysis of the Company using the Projections to calculate the present value of the estimated future unlevered free cash flows projected to be generated by the Company. In performing the DCF analysis of the Company, STRH utilized a range of discount
rates of 12.0% to 14.0%, taking into account the Companys weighted average cost of capital, size and comparability to similarly sized companies, and STRHs professional judgment, to calculate estimated
39
present values as of January 31, 2014 (using the mid-year convention) of (i) the Companys estimated after-tax unlevered free cash flows for the estimated fiscal years ending
January 31, 2015 through January 31, 2019, and (ii) estimated terminal values derived by applying a range of multiples of 7.0x to 9.0x (taking into account the results of the selected transactions analysis and STRHs professional
judgment) to the Companys estimated fiscal year ending January 31, 2019 Adjusted EBITDA. STRH did not take into account the Companys net operating loss carryforwards because the Projections provided by the Company indicated the
Company would not have taxable net income during the relevant periods. This analysis (including deducting the Companys net debt) indicated a negative implied per share reference range. This implied per share reference range for the Company, as
compared to the $3.00 per share Merger Consideration is shown in the table below:
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|
Implied Per Share Reference Range
|
|
Merger
Consideration
|
|
$(3.81) $(2.47)
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$
|
3.00
|
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THIS PROXY STATEMENT DOES NOT
CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
INTO THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED
, 2014. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO
SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Special Meeting, please sign and date the enclosed proxy card
and return it promptly in the envelope provided as described in the enclosed proxy card. Giving your proxy now will not affect your right to vote in person if you attend the Special Meeting.
If you have any questions about this proxy statement, the Special Meeting or the Merger or need assistance with the voting procedures, you
should contact our Corporate Secretary:
Hastings Entertainment, Inc.
Attn: Corporate Secretary
3601
Plains Boulevard
Amarillo, Texas 79102
81
A
nnex A
AGREEMENT AND PLAN OF MERGER
among:
H
ASTINGS
E
NTERTAINMENT
, I
NC
.,
a Texas corporation;
D
RAW
A
NOTHER
C
IRCLE
, LLC,
a Delaware limited liability company; and
H
ENDRIX
A
CQUISITION
C
ORP
.,
a Texas corporation
Dated as of
March 17, 2014
TABLE OF CONTENTS
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Page
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SECTION 1.
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MERGER TRANSACTION
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A-2
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1.1
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Merger of Merger Sub into the Company
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A-2
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1.2
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Effect of the Merger
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A-2
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1.3
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Closing; Effective Time
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A-2
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1.4
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Certificate of Formation and Bylaws; Directors and Officers
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A-2
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1.5
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Treatment of Company Common Stock
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A-3
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1.6
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Surrender of Certificates; Stock Transfer Books
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A-3
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1.7
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Dissenters Rights
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A-5
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1.8
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Treatment of Company Options
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A-5
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1.9
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Further Action
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A-6
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SECTION 2.
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
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A-6
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2.1
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Due Organization; Subsidiaries Etc
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A-6
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2.2
|
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Certificate of Formation and Bylaws
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A-7
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2.3
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Capitalization, Etc
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A-7
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2.4
|
|
SEC Filings; Financial Statements
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A-8
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2.5
|
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Absence of Changes
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A-10
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2.6
|
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Title to and Condition of Assets; Inventory; Information Technology
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A-10
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2.7
|
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Real Property
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A-11
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2.8
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Intellectual Property
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A-11
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2.9
|
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Contracts
|
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A-13
|
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2.10
|
|
Suppliers
|
|
|
A-14
|
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|
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2.11
|
|
Liabilities
|
|
|
A-14
|
|
|
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|
2.12
|
|
Compliance with Legal Requirements
|
|
|
A-15
|
|
|
|
|
2.13
|
|
Certain Business Practices
|
|
|
A-15
|
|
|
|
|
2.14
|
|
Governmental Authorizations
|
|
|
A-15
|
|
|
|
|
2.15
|
|
Tax Matters
|
|
|
A-15
|
|
|
|
|
2.16
|
|
Employee Matters; Benefit Plans
|
|
|
A-17
|
|
|
|
|
2.17
|
|
Environmental Matters
|
|
|
A-19
|
|
|
|
|
2.18
|
|
Insurance
|
|
|
A-19
|
|
|
|
|
2.19
|
|
Legal Proceedings; Orders
|
|
|
A-19
|
|
|
|
|
2.20
|
|
Authority; Binding Nature of Agreement
|
|
|
A-20
|
|
|
|
|
2.21
|
|
Vote Required
|
|
|
A-20
|
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|
|
|
2.22
|
|
Non-Contravention; Consents
|
|
|
A-20
|
|
A-i
|
|
|
|
|
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2.23
|
|
Fairness Opinion
|
|
|
A-20
|
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2.24
|
|
Financial Advisor
|
|
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A-20
|
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|
|
|
SECTION 3.
|
|
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
|
|
|
A-21
|
|
|
|
|
3.1
|
|
Due Organization
|
|
|
A-21
|
|
|
|
|
3.2
|
|
Parent and Merger Sub
|
|
|
A-21
|
|
|
|
|
3.3
|
|
Authority; Binding Nature of Agreement
|
|
|
A-21
|
|
|
|
|
3.4
|
|
Non-Contravention; Consents
|
|
|
A-21
|
|
|
|
|
3.5
|
|
Disclosure
|
|
|
A-21
|
|
|
|
|
3.6
|
|
Absence of Litigation
|
|
|
A-22
|
|
|
|
|
3.7
|
|
Sufficiency of Funds
|
|
|
A-22
|
|
|
|
|
3.8
|
|
Solvency
|
|
|
A-22
|
|
|
|
|
3.9
|
|
Certain Arrangements
|
|
|
A-23
|
|
|
|
|
3.10
|
|
Brokers and Other Advisors
|
|
|
A-23
|
|
|
|
|
SECTION 4.
|
|
CERTAIN COVENANTS OF THE COMPANY
|
|
|
A-23
|
|
|
|
|
4.1
|
|
Access and Investigation
|
|
|
A-23
|
|
|
|
|
4.2
|
|
Operation of the Companys Business
|
|
|
A-24
|
|
|
|
|
4.3
|
|
No Solicitation
|
|
|
A-27
|
|
|
|
|
SECTION 5.
|
|
ADDITIONAL COVENANTS OF THE PARTIES
|
|
|
A-28
|
|
|
|
|
5.1
|
|
Shareholder Approval; Proxy Statement
|
|
|
A-28
|
|
|
|
|
5.2
|
|
Filings, Consents and Approvals
|
|
|
A-30
|
|
|
|
|
5.3
|
|
Employee Matters and Employee Plans
|
|
|
A-30
|
|
|
|
|
5.4
|
|
Indemnification of Officers and Directors
|
|
|
A-31
|
|
|
|
|
5.5
|
|
Securityholder Litigation
|
|
|
A-31
|
|
|
|
|
5.6
|
|
Additional Agreements
|
|
|
A-32
|
|
|
|
|
5.7
|
|
Disclosure
|
|
|
A-32
|
|
|
|
|
5.8
|
|
Resignation of Directors
|
|
|
A-33
|
|
|
|
|
5.9
|
|
Takeover Laws; Advice of Changes
|
|
|
A-33
|
|
|
|
|
5.10
|
|
Section 16 Matters
|
|
|
A-33
|
|
|
|
|
5.11
|
|
Bank of America Consent and Waiver
|
|
|
A-33
|
|
|
|
|
5.12
|
|
Financing
|
|
|
A-33
|
|
|
|
|
5.13
|
|
Operation of Parent and Merger Sub
|
|
|
A-34
|
|
|
|
|
SECTION 6.
|
|
CONDITIONS PRECEDENT TO THE MERGER
|
|
|
A-34
|
|
|
|
|
6.1
|
|
Conditions to Each Partys Obligation To Effect the Merger
|
|
|
A-34
|
|
|
|
|
6.2
|
|
Conditions to Obligations of Parent and Merger Sub
|
|
|
A-34
|
|
|
|
|
6.3
|
|
Conditions to Obligation of the Company
|
|
|
A-36
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
SECTION 7.
|
|
TERMINATION
|
|
|
A-37
|
|
|
|
|
7.1
|
|
Termination
|
|
|
A-37
|
|
|
|
|
7.2
|
|
Effect of Termination
|
|
|
A-38
|
|
|
|
|
7.3
|
|
Expenses
|
|
|
A-38
|
|
|
|
|
SECTION 8.
|
|
MISCELLANEOUS PROVISIONS
|
|
|
A-40
|
|
|
|
|
8.1
|
|
Amendment
|
|
|
A-40
|
|
|
|
|
8.2
|
|
Waiver
|
|
|
A-40
|
|
|
|
|
8.3
|
|
No Survival of Representations and Warranties
|
|
|
A-40
|
|
|
|
|
8.4
|
|
Entire Agreement; Counterparts
|
|
|
A-40
|
|
|
|
|
8.5
|
|
Applicable Legal Requirements; Jurisdiction; Specific Performance; Remedies
|
|
|
A-40
|
|
|
|
|
8.6
|
|
Attorneys Fees
|
|
|
A-41
|
|
|
|
|
8.7
|
|
Assignability; Successors and Assigns
|
|
|
A-41
|
|
|
|
|
8.8
|
|
No Third Party Beneficiaries
|
|
|
A-41
|
|
|
|
|
8.9
|
|
Notices
|
|
|
A-42
|
|
|
|
|
8.10
|
|
Severability
|
|
|
A-43
|
|
|
|
|
8.11
|
|
Obligation of Parent
|
|
|
A-43
|
|
|
|
|
8.12
|
|
Disclaimer of Representations and Warranties
|
|
|
A-43
|
|
|
|
|
8.13
|
|
Construction
|
|
|
A-43
|
|
The Company Disclosure Schedule and the following Exhibit are omitted pursuant to Item 601(b)(2) of Regulation S-K.
A supplemental copy of the Company Disclosure Schedule and such Exhibit shall be furnished to the Securities and Exchange Commission upon request.
Exhibit:
Exhibit B -
Surviving Corporation Certificate of Formation
A-iii
AGREEMENT AND PLAN OF MERGER
T
HIS
A
GREEMENT
AND
P
LAN
OF
M
ERGER
(
Agreement
) is made and entered into as of March 17, 2014, by and among: Draw Another Circle, LLC, a Delaware limited liability company (
Parent
); Hendrix Acquisition Corp., a Texas
corporation and a wholly owned subsidiary of Parent (
Merger Sub
); and Hastings Entertainment, Inc., a Texas corporation (the
Company
). Certain capitalized terms used in this Agreement are defined
in
Exhibit A
.
R
ECITALS
A
.
The Parties intend that Merger Sub be merged (the
Merger
) with and into the Company, with the Company
surviving the Merger (the
Surviving Corporation
) on the terms and subject to the conditions set forth in this Agreement, whereby (i) each issued and outstanding share of common stock, par value one cent ($0.01) per
share, of the Company (the
Company Common Stock
) not beneficially owned by Parent, Merger Sub or the Company as of the Effective Time shall be converted into the right to receive the Merger Consideration, (ii) each
Company Option shall be treated in accordance with Section 1.8, and (iii) the Company shall become a wholly-owned Subsidiary of Parent as a result of the Merger.
B. Concurrently with the execution of this Agreement and as an inducement to Parents willingness to enter into this Agreement,
(i) the Insiders are entering into an Insider Agreement, pursuant to which the Insiders will agree to the treatment of those shares of Common Stock and those Company Options held by such Insiders in connection with the Merger pursuant to the
terms and conditions set forth herein and therein (the
Insider Agreement
), (ii) certain shareholders of the Company have delivered to Parent and Merger Sub a support agreement (the
Support
Agreements
), dated as of the date hereof, providing that such shareholders of the Company have, among other things and on the terms and subject to the conditions set forth in the Support Agreement, agreed to vote their shares of
Company Common Stock in favor of adoption and approval of this Agreement and the Transactions and to take certain other actions in furtherance of the Transactions, including the Merger, (iii) each Continuing Officer has entered into a waiver
and amendment to the employment agreement with the Company, dated as of the date hereof, to be effective as of the Effective Time (the
Amendment and Waivers
), and (iv) each Resigning Officer has entered into a
separation agreement with the Company, dated as of the date hereof, to be effective as of the Effective Time (the
Separation Agreements
).
C. The Special Committee of the Board of Directors of the Company has unanimously determined to recommend that the Board of Directors of the
Company approve this Agreement, as well as its execution, delivery and performance by the Company, and the consummation of the Transactions, including the Merger.
D. The Board of Directors of the Company, upon considering, among other things, the recommendation of the Special Committee, has unanimously
(i) determined that it is fair to, advisable and in the best interests of the Company and its shareholders to enter into this Agreement, (ii) adopted a resolution approving this Agreement, as well as its execution, delivery and performance
by the Company, and the consummation of the Transactions, including the Merger and (iii) adopted a resolution recommending that the shareholders of the Company approve this Agreement and the Transactions, including the Merger (the
Company Board Recommendation
), and declaring advisable this Agreement and the Transactions in accordance with the requirements of the TBOC.
E. The sole Manager of Parent and the Board of Directors of Merger Sub have adopted a resolution approving this Agreement, as well as its
execution, delivery and performance by the Parent and Merger Sub, respectively, and declaring it advisable for Parent and Merger Sub, respectively, to enter into this Agreement and consummate the Transactions, including the Merger, and Parent, in
its capacity as the sole shareholder of Merger Sub, has adopted a resolution approving this Agreement and the Transactions, including the Merger.
A-1
F. Concurrently with the execution of this Agreement, and as an inducement to the Companys
willingness to enter into this Agreement, the Guarantor is entering into a limited guaranty (the
Guaranty
) in favor of the Company with respect to certain deposit and payment obligations of Parent and Merger Sub under this
Agreement.
A
GREEMENT
The Parties to this Agreement, intending to be legally bound, agree as follows:
ARTICLE 1 MERGER TRANSACTION
1.1
Merger of Merger Sub into the Company
. Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the relevant provisions of the TBOC, at the Effective Time, the Company and Parent shall consummate the
Merger, whereby Merger Sub shall be merged with and into the Company, and the separate existence of Merger Sub shall cease. The Company will continue as the Surviving Corporation.
1.2 Effect of the Merger
. The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the TBOC.
Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, all property, rights, privileges, immunities, powers, franchises, licenses and authority of the Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities, obligations, restrictions and duties of each of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions and duties of the Surviving Corporation, all without any
transfer or assignment having occurred.
1.3 Closing; Effective Time
.
(a)
The consummation of the Merger (the
Closing
) shall take place electronically via email and/or facsimile at
10:00 a.m. Eastern Time on a date to be designated by Parent (the
Closing Date
), which shall be no later than the third business day after the satisfaction or waiver of the last to be satisfied or waived of the conditions
set forth in article 6 (other than those conditions that by their nature are to be satisfied at the Closing), but subject to the satisfaction or waiver of such conditions,
provided
that if the Parties mutually agree to a physical closing then
the Closing shall occur at the offices of Cooley LLP, 1114 Avenue of the Americas, New York, NY 10036 or at such other place as the Parties may agree to in writing.
(b)
Concurrently with or as soon as practicable following the Closing, the Parties hereto shall cause the Merger to be consummated by
filing a certificate of merger with the Secretary of State of the State of Texas, in such form as required by and executed in accordance with the relevant provisions of the TBOC. The Merger shall become effective upon the date and time of the
acceptance of the filing of such certificate of merger by the Secretary of State of the State of Texas or at such later time (or subsequent date and time) as Parent and the Company shall agree and specify in such certificate of merger (the effective
time of the Merger being hereinafter referred to as the
Effective Time
).
1.4 Certificate of Formation and
Bylaws; Directors and Officers
. Unless otherwise determined by Parent prior to the Effective Time:
(a)
at the Effective Time,
the certificate of formation of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to
Exhibit B
;
(b)
at the Effective Time and without any further action on the part of the Company and Merger Sub, the bylaws of the Surviving
Corporation shall be amended and restated as of the Effective Time to conform to the bylaws of Merger Sub as in effect immediately prior to the Effective Time, except that the bylaws shall be amended to reflect that the name of the Surviving
Corporation is Hastings Entertainment, Inc.; and
(c)
the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the respective individuals who are designated as directors and officers on Schedule 1.4(c) hereto.
A-2
1.5 Treatment of Company Common Stock.
(a)
At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any
shareholder of the Company:
(i)
any shares of Company Common Stock then held by the Company or any wholly owned Subsidiary of the
Company or held in the Companys treasury shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor;
(ii)
any shares of Company Common Stock then held by NECA or any other member of Parent, Parent, Merger Sub or any of their respective
Affiliates shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor;
(iii)
except as provided in clauses (i) and (ii) above and subject to Section 1.5(b), each share of Company Common Stock then outstanding (other than Dissenting Shares, as defined below) shall be converted into the right
to receive three dollars ($3.00) in cash, without interest (together with the payments described in Section 1.8, the
Merger Consideration
), subject to any withholding of Taxes required by applicable Legal Requirements
in accordance with Section 1.6(e), and Dissenting Shares shall be converted into the rights contemplated in Section 1.7; and
(iv)
each share of the common stock, $0.0001 par value per share, of Merger Sub then outstanding shall be converted into and become one
validly issued, fully paid and nonassessable share of common stock, par value one cent ($0.01) per share, of the Surviving Corporation and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.
(b)
All shares of Company Common Stock converted pursuant to Section 1.5(a) shall no longer be outstanding and shall automatically
be cancelled and retired and cease to exist, and each certificate representing any such shares of Company Common Stock (each a
Certificate
) and each such Book-Entry Share which immediately prior to the Effective Time was
registered to a holder on the stock transfer books of the Company, excluding the shares of Company Common Stock described in Section 1.5(a)(i) and (a)(ii), shall from and after the Effective Time represent only (i) the right to receive the
Merger Consideration in accordance with Section 1.5(a)(iii), or (ii) in the case of Dissenting Shares, the rights contemplated in Section 1.7, as applicable.
(c)
If, between the date of this Agreement and the Effective Time, the outstanding shares of Company Common Stock are changed into a
different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Merger
Consideration shall be appropriately adjusted.
1.6 Surrender of Certificates; Stock Transfer Books.
(a)
Prior to the Effective Time, Parent shall designate a bank or trust company reasonably acceptable to the Company to act as agent
(the
Paying Agent
) for the holders of shares of Company Common Stock to receive the funds to which holders of such shares shall become entitled pursuant to Section 1.5. At the Effective Time, Parent shall deposit, or
shall cause to be deposited, with the Paying Agent cash sufficient to make payment of the Merger Consideration payable pursuant to Section 1.5 (the
Payment Fund
). The Payment Fund shall not be used for any other
purpose. The Payment Fund shall be invested by the Paying Agent as directed by the Surviving Corporation;
provided
, that such investments shall be invested in
short-term
obligations of, or guaranteed
by, the United States of America and backed by the full faith and credit of the United States of America or in commercial paper obligations rated A-1 or P-1 or better by Moodys Investors Service, Inc. or Standard & Poors
Corporation, respectively, in certificates of deposit, bank repurchase agreements or bankers acceptances of commercial banks with capital exceeding $1 billion, or in money market funds having a rating in the highest investment category granted
by a recognized credit rating agency at the time of acquisition or a combination of the foregoing and, in any such case, no such instrument shall have a maturity exceeding thirty (30) days from the date of such investment in such instrument;
provided, however
, that any interest or other income resulting from the investment of the Payment Fund shall be solely for the account of Parent or the Surviving Corporation.
A-3
(b)
As soon as reasonably practicable after the Effective Time, Parent and the Surviving
Corporation shall cause the Paying Agent to mail to each Person who was, at the Effective Time, a holder of record of the shares of Company Common Stock entitled to receive the Merger Consideration pursuant to Section 1.5 (excluding, for the
avoidance of doubt, the Company, any Subsidiary of the Company, NECA or any other member of Parent, Parent, Merger Sub or any other wholly owned Subsidiary of Parent, or holders of Dissenting Shares who have not subsequently withdrawn or lost their
rights of dissent and appraisal) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates or Book-Entry Shares pursuant to such letter of transmittal. Upon surrender to the Paying Agent of Certificates or Book-Entry Shares, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificates or Book-Entry Shares shall be entitled to receive in exchange
therefor the Merger Consideration for each share of Company Common Stock formerly evidenced by such Certificates or Book-Entry Shares, and such Certificates and Book-Entry Shares shall then be canceled. No interest shall accrue or be paid on the
Merger Consideration payable upon the surrender of any Certificates or Book-Entry Shares for the benefit of the holder thereof. If the payment of any Merger Consideration is to be made to a Person other than the Person in whose name the surrendered
Certificates formerly evidencing the shares of Company Common Stock is registered on the stock transfer books of the Company, it shall be a condition of payment that the Certificate so surrendered shall be endorsed properly or otherwise be in proper
form for transfer and that the Person requesting such payment shall have paid all transfer and other similar Taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the Certificate
surrendered, or shall have established to the satisfaction of the Surviving Corporation that such Taxes either have been paid or are not applicable. Payment of the applicable Merger Consideration with respect to Book-Entry Shares shall only be made
to the Person in whose name such Book-Entry Shares are registered.
(c)
At any time following twelve (12) months after the
Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any portion of the Payment Fund which has not been disbursed to holders of Certificates or Book-Entry Shares (including, without limitation, all
interest and other income received by the Paying Agent in respect of the Payment Fund), and, thereafter, such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat and other similar Legal
Requirements) only as general creditors thereof with respect to any Merger Consideration that may be payable upon due surrender of the Certificates or Book-Entry Shares held by them. Notwithstanding the foregoing, none of the Surviving Corporation,
Parent or the Paying Agent shall be liable to any holder of Certificates or Book-Entry Shares for any Merger Consideration delivered in respect of such shares to a public official pursuant to any abandoned property, escheat or other similar Legal
Requirements. Any amounts remaining unclaimed by such holders at such time at which such amounts would otherwise escheat to or become property of any Governmental Body shall become, to the extent permitted by applicable Legal Requirements, the
property of the Surviving Corporation or its designee, free and clear of all claims or interest of any Person previously entitled thereto.
(d)
At the close of business on the day of the Effective Time, the stock transfer books of the Company with respect to the shares of
Company Common Stock shall be closed and thereafter there shall be no further registration of transfers of shares of Company Common Stock on the records of the Company. From and after the Effective Time, the holders of the shares of Company Common
Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares except as otherwise provided herein or by applicable Legal Requirements.
(e)
Each of the Surviving Corporation, Parent and Merger Sub shall be entitled to deduct and withhold (or cause the Paying Agent to
deduct and withhold) from the Merger Consideration payable to any holder of the shares of Company Common Stock or any other consideration otherwise payable pursuant to this Agreement such amounts as it is required by any Legal Requirement to deduct
and withhold with respect to Taxes. Each such payor shall take all action that may be necessary to ensure that any such amounts so withheld are promptly and properly remitted to the appropriate Governmental Body. If any withholding obligation may be
avoided by a payee providing information or documentation to the applicable payor, such payor shall request such information
A-4
from such payee and use commercially reasonable efforts to avoid such withholding obligation. To the extent that amounts are so withheld and properly remitted to the appropriate Governmental
Body, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock or other recipient of consideration hereunder in respect of which such deduction and withholding
was made.
(f)
If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the delivery by such person of a written indemnity agreement in form and substance reasonably acceptable to Parent and the posting by such Person of a bond,
in such amount as Parent may reasonably direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will pay, in exchange for such lost, stolen or destroyed Certificate, the applicable Merger
Consideration to be paid in respect of the shares of Company Common Stock formerly represented by such Certificate, as contemplated by this article 1.
1.7 Dissenters Rights
. Notwithstanding any other provisions contained in this Agreement, shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time and held by a holder who has not voted such shares in favor of the Merger, is entitled to demand, and properly demands, the fair value of such shares pursuant to, and complies in all respects
with (and has otherwise taken all of the steps required by), Subchapter H of Chapter 10 of the TBOC to properly exercise and perfect such shareholders rights of dissent and appraisal (the
Dissenting Shares
) shall be
deemed to have ceased to represent any interest in the Surviving Corporation as of the Effective Time and the holder of such shares shall be entitled to those rights and remedies set forth in Subchapter H of Chapter 10 of the TBOC. In the event that
a shareholder of the Company fails to perfect such shareholders rights of dissent and appraisal or withdraws or otherwise loses any such rights or remedies granted by the TBOC, each such share of Company Common Stock previously held by such
shareholder shall be treated as if it had been converted as of the Effective Time into a right to receive the Merger Consideration, without any interest thereon and less any amounts entitled to be deducted or withheld pursuant to
Section 1.6(e). The Company shall give Parent prompt notice of any written notices to exercise rights of dissent and appraisal in respect of any shares of Company Common Stock, attempted withdrawals of such notice, and any other instruments
served pursuant to any applicable Legal Requirement that are received by the Company with respect to its shareholders rights of dissent and appraisal, and Parent shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands for appraisal. The Company shall not, without the prior written consent of Parent, voluntarily make any payment with respect to any demands for appraisal of Company Common Stock under the TBOC, or settle or
offer to settle, any such demands.
1.8 Treatment of Company Options.
(a)
As soon as reasonably practicable following the date of this Agreement, and in any event prior to the Effective Time, the
Companys Board of Directors, and the compensation committee thereof, will adopt resolutions, and the Company will take all other actions as may be necessary or required in accordance with applicable Law and each Company Equity Plan (including,
the award agreements in respect of awards granted thereunder) to give effect to this Section 1.8 to provide that, with respect to each Company Option outstanding immediately before the Effective Time:
(i)
subject to subsection (b) below, each Company Option not held by an Insider that is vested and exercisable and has an exercise
price per share that is less than $3.00 shall be cancelled and terminated and converted at the Effective Time into the right to receive an amount in cash equal to the total number of shares subject to such Company Option multiplied by the excess of
(x) $3.00 over (y) the exercise price payable per share under such Company Option.
(ii)
Each Company Option that is
vested and exercisable and has an exercise price per share that is equal to or greater than $3.00 shall be cancelled and terminated at the Effective Time, and the holder of any such Company Option shall not be entitled to any payment with respect to
such cancelled Company Option.
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(iii)
Each Company Option that is unvested (whether or not exercisable) shall be
cancelled and terminated at the Effective Time, and the holder of any such unvested Company Option shall not be entitled to any payment with respect to such unvested Company Option.
(iv)
Each Company Option that is held by an Insider (whether or not vested, and whether or not the exercise price is less than the
Merger Consideration) shall be cancelled and terminated at the Effective Time, and no holder of a Company Option who is an Insider shall be entitled to any payment with respect to such cancelled Company Option.
(v)
Each of the Company Equity Plans shall be terminated effective as of the Effective Time, and no Company Options or any other rights
with respect to Company Common Stock shall be granted or be outstanding thereafter.
(b)
As soon after the Effective Time as shall
be practicable and, in any event, no later than the first payroll date following the Effective Time, Parent shall cause to be paid by the Surviving Corporation to each holder of a Company Option the cash amount due and payable to such holder
pursuant to Section 1.8(a)(i) above, net of any applicable withholding Taxes.
1.9 Further Action
. If, at any time after the
Effective Time, any further action is reasonably determined by Parent to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right, title and possession of and to all rights and
property of Merger Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of Merger Sub, in the name of the Company and otherwise) to take such action.
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as follows (it being understood that each representation and warranty
contained in article 2 is subject to (a) exceptions and disclosures set forth in the part or subpart of the Company Disclosure Schedule corresponding to the particular Section or subsection in this article 2; (b) any exception or
disclosure set forth in any other part or subpart of the Company Disclosure Schedule to the extent it is reasonably apparent from the wording of such exception or disclosure that such exception or disclosure is intended to qualify such
representation and warranty; and (c) disclosure in the Company SEC Documents filed with the SEC on or after April 22, 2013 and prior to the date of this Agreement other than any information in the Risk Factors or
Forward-Looking Statements sections of such Company SEC Documents and any other disclosures contained or referenced therein of information, factors or risks that are general, nonspecific, predictive, forward-looking or cautionary in
nature, in each case, other than specific factual information contained therein):
2.1 Due Organization; Subsidiaries Etc.
(a)
Each Acquired Corporation is an Entity duly organized, validly existing and in good standing under the laws of the jurisdiction of
its organization and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all Contracts by which it is bound. Each Acquired Corporation is qualified or licensed to do business as a foreign Entity, and is in good standing, in each jurisdiction where the nature of
its business requires such qualification or licensing, except where the failure to be so qualified, licensed or in good standing does not have, and would not reasonably be expected to have, a Material Adverse Effect.
(b)
Part 2.1(b) of the Company Disclosure Schedule identifies the sole Subsidiary of the Company and indicates its jurisdiction of
organization. Neither the Company nor its Subsidiary owns any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entity identified in Part 2.1(b) of the Company Disclosure Schedule. None of the Acquired
Corporations has agreed or is obligated to make, or is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity.
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2.2 Certificate of Formation and Bylaws.
The Company has delivered or made available to
Parent or Parents Representatives accurate and complete copies of the certificate of formation, bylaws and other charter and organizational documents of each of the Acquired Corporations, including all amendments thereto, as in effect on the
date hereof.
2.3 Capitalization, Etc.
(a)
The authorized capital stock of the Company consists of: (i) seventy-five million (75,000,000) shares of Company Common
Stock, of which eight million one hundred forty-three thousand three hundred seventeen (8,143,317) shares have been issued and are outstanding as of the close of business on the day immediately preceding the date of this Agreement and none of
which are held in treasury and none of which are Restricted Securities; and (ii) five million (5,000,000) shares of Company Preferred Stock, of which no shares have been issued or are outstanding. All of the outstanding shares of Company
Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable.
(b)
Except as set forth in Part
2.3(b) of the Company Disclosure Schedule: (i) none of the outstanding shares of Company Common Stock are entitled or subject to any preemptive right, right of repurchase or forfeiture, right of participation, right of maintenance or any
similar right; (ii) none of the outstanding shares of Company Common Stock are subject to any right of first refusal in favor of the Company; (iii) there are no outstanding bonds, debentures, notes or other indebtedness of the Acquired
Corporations having a right to vote on any matters on which the shareholders of the Company have a right to vote; (iv) there is no Company Contract relating to the voting or registration of, or restricting any Person from purchasing, selling,
pledging or otherwise disposing of (or from granting any option or similar right with respect to), any shares of Company Common Stock. Except as set forth in Part 2.3(b) of the Company Disclosure Schedule, none of the Acquired Corporations is under
any obligation, or is bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Company Common Stock or other securities. The Company Common Stock constitutes the only
outstanding class of securities of the Company or its Subsidiaries registered under the Securities Act.
(c)
As of the date of this
Agreement: (i) 29,760 shares of Company Common Stock are authorized for future issuance under the 2012 Director Option Plan, none of which are subject to issuance pursuant to Company Options granted and outstanding under the 2012 Director
Option Plan; (ii) zero (0) shares of Company Common Stock are authorized for future issuance under the 2002 Director Option Plan; (iii) 212,500 shares of Company Common Stock are authorized for future issuance under the 2010 Plan,
none of which are subject to issuance pursuant to Company Options granted and outstanding under the 2010 Plan; and (iv) 54,136 shares of Company Common Stock are authorized for future issuance under the 2006 Plan, none of which are subject to
issuance pursuant to Company Options granted and outstanding under the 2006 Plan. The Company has delivered or otherwise made available to Parent or Parents Representatives copies of all Company Equity Plans covering the Company Options
outstanding as of the date of this Agreement and the forms of all stock and stock option agreements evidencing such Company Options. The exercise price of each Company Option is not less than the fair market value of a share of Company Common Stock
as of the grant date of such Company Option as determined pursuant to the terms of each Company Equity Plan, as applicable, on the date of grant of such Company Option, and each Company Option was granted in compliance in all material respects with
all applicable Legal Requirements and all of the terms and conditions of the applicable Company Equity Plan pursuant to which it was issued and has a grant date which was approved by the Board of Directors of the Company or a committee thereof no
later than the grant date. The Company has delivered or other made available to Parent or Parents Representatives copies of the Company ASOP and applicable offering documents. Part 2.3(c) of the Company Disclosure Schedule sets forth, as of
the date of this Agreement, a list of all holders of Company Options, the date of grant, the number of shares of Company Common Stock subject to such Company Option and the price per share at which such Company Option may be exercised. Other than as
set forth in this Section 2.3(c) or in Part 2.3(c) of the Company Disclosure Schedule, there are no outstanding or authorized stock option, stock appreciation, phantom stock, profit participation or similar rights or equity-based awards with
respect to any of the Acquired Corporations.
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(d)
All of the outstanding capital stock or other voting securities of, or ownership
interests in, the Subsidiary of the Company are owned by the Company, directly or indirectly, beneficially and of record, free and clear of all Encumbrances and transfer restrictions, except for such Encumbrances and transfer restrictions of general
applicability as may be provided under the Securities Act or other applicable securities laws. Except as set forth in this Section 2.3 or in Part 2.3(c) of the Company Disclosure Schedule, there is no: (i) outstanding subscription, option,
call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock, restricted stock unit, stock-based performance unit or any other right that is linked to, or the value of which is in any way based on or
derived from the value of any shares of capital stock or other securities of any of the Acquired Corporations; (ii) outstanding security, instrument, bond, debenture, note or obligation that is or may become convertible into or exchangeable for
any shares of the capital stock or other securities of any of the Acquired Corporations; or (iii) shareholder rights plan (or similar plan commonly referred to as a poison pill) or Contract under which any of the Acquired
Corporations is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities. The Board of Directors of the Company has taken all necessary action so that any Takeover Laws applicable to the Company do
not, and will not, apply to this Agreement or the Transactions contemplated hereby. Each outstanding share of capital stock of the Subsidiary of the Company is duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights.
None of the Acquired Corporations has any outstanding equity compensation plans or policies relating to the capital stock of, or other equity or voting interests in, the Subsidiary of the Company.
(e)
Except as described in this Section 2.3 and changes since the date of this Agreement resulting from the exercise of Company
Options outstanding at such date, and except for issuances expressly permitted under Section 4.2, as of the close of business on the day immediately preceding the date of this Agreement, there were no other obligations by the Company or its
Subsidiary to make any payments based on the price or value of any Company securities or dividends paid thereon or revenues, earnings or financial performance or any other attribute of the Company. Since the close of business on the day immediately
preceding the date of this Agreement, neither the Company nor any of its Subsidiaries has (1) issued any securities or incurred any obligation to make any payments based on the price or value of any securities or dividends paid thereon or
revenues, earning or financial performance or any other attribute of the Company or any of its Subsidiaries, other than pursuant to the Company Options referred to above that were outstanding as of the close of business on the day immediately
preceding the date of this Agreement, or (2) established a record date for, declared, set aside for payment or paid any dividend on, or made any other distribution in respect of, any shares of its capital stock.
2.4 SEC Filings; Financial Statements.
(a)
Since January 31, 2009, the Company has filed with or furnished to the SEC on a timely basis, all reports, schedules, forms,
statements and other documents (including exhibits and all other information incorporated therein) required to be filed or furnished by the Company (the
Company SEC Documents
). As of their respective filing dates (and in
the case of registration statements and proxies, their respective effectiveness and mailing dates), the Company SEC Documents complied in all respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such Company SEC Documents and, except to the extent that information contained in any Company SEC Document has been revised, amended, modified or superseded (prior to the date of this
Agreement) by a later filed Company SEC Document, none of the Company SEC Documents when filed contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made, not misleading.
(b)
Except as set forth on Part
2.4(b) of the Company Disclosure Schedule, the consolidated financial statements (including any related notes and schedules) contained or incorporated by reference in the Company SEC Documents: (i) complied as to form in all respects with the
published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with United States generally accepted accounting principles applied on a consistent basis throughout the periods covered
(
GAAP
)
(except as permitted by Regulation
S-X,
or, in the case of unaudited financial statements, as permitted by Form 10-Q, Form 8-K or any successor form
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under the Exchange Act); and (iii) fairly present, in all material respects, the consolidated financial position of the Company and its Subsidiary as and at the respective dates thereof and
the consolidated results of operations and consolidated cash flows of the Company and its Subsidiary for the periods covered thereby (subject, in the case of the unaudited financial statements, to normal and recurring year-end adjustments that are
not material). Except as set forth in Part 2.4(b) of the Company Disclosure Schedule, no financial statements of any Person other than the Acquired Corporations are required by GAAP to be included in the consolidated financial statements of the
Company.
(c)
Except as set forth on Part 2.4(c) of the Company Disclosure Schedule, the Acquired Corporations maintain, and at all
times since January 31, 2011 have maintained, a system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) which is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of the Acquired Corporations; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the assets of the Acquired Corporations that could have a material effect on the financial statements. The Companys management has completed an assessment of the effectiveness of the
Companys system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes Oxley Act for the fiscal year ended January 31, 2013, and, except as set forth in the Company SEC
Documents filed prior to the date of this Agreement, such assessment concluded that such controls were effective as of January 31, 2013, to provide reasonable assurance that the information required to be disclosed by the Company in its reports
filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and such information is accumulated and communicated to the Companys management as
appropriate to allow timely decisions regarding required disclosure. To the knowledge of the Acquired Corporations, except as set forth in the Company SEC Documents filed prior to the date of this Agreement, since January 31, 2009, none of the
Acquired Corporations nor the Companys independent registered accountant has identified or been made aware of: (1) any significant deficiency or material weakness in the design or operation of internal control over financial reporting
utilized by the Acquired Corporations; (2) any illegal act or fraud, whether or not material, that involves the management of any Acquired Corporation; or (3) any claim or allegation regarding any of the foregoing.
(d)
The Company maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act that are
reasonably designed to ensure that all information required to be disclosed in the Companys reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules
and forms of the SEC and that all such information is accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding required disclosure and to enable each of the principal executive officer of the
Company and the principal financial officer of the Company to make the certifications required under the Exchange Act with respect to such reports. The Company is in compliance in all material respects with all current listing and corporate
governance requirements of the NASDAQ Stock Market.
(e)
None of the Acquired Corporations is a party to or has any obligation or
other commitment to become a party to any securitization transaction, off-balance sheet partnership or any similar Contract (including any Contract relating to any transaction or relationship between or among the Acquired Corporations, on the one
hand, and any unconsolidated Affiliate, including any structured finance, special purpose or limited purpose Entity, on the other hand, or any off-balance sheet arrangements (as defined in Item 303(a) of Regulation S-K under the
Exchange Act)) where the result, purpose or intended effect of such Contract is to avoid disclosure of any material transaction involving, or material liabilities of, any Acquired Corporation in any Acquired Corporations published financial
statements or other Company SEC Documents.
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(f)
As of the date of this Agreement, there are no outstanding or unresolved comments in
comment letters received from the SEC with respect to the Company SEC Documents. To the knowledge of the Acquired Corporations, none of the Company SEC Documents is the subject of ongoing SEC review and there are no inquiries or investigations by
the SEC or any internal investigations pending or threatened in writing, in each case regarding any accounting practices of the Acquired Corporations. The Company has made available (including via the EDGAR system, as applicable) to Parent all
correspondence (if such correspondence has occurred since January 1, 2012) between the SEC on the one hand, and the Acquired Corporations, on the other hand.
(g)
The Proxy Statement to be sent to the shareholders of the Company in connection with the Company Shareholders Meeting
(including any amendment or supplement or document incorporated by reference) shall not, on the date the Proxy Statement (including any amendment or supplement thereto) is first mailed to shareholders of the Company or at the time of the Company
Shareholders Meeting (or any adjournment or postponement thereof), contain any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits
to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Company Shareholders
Meeting or subject matter which has become false or misleading. The Proxy Statement will contain disclosures that are appropriately responsive, in all material respects, to the applicable requirements of the Exchange Act. Notwithstanding the
foregoing, the Company makes no representation with respect to statements with respect to the Surviving Corporation, Parent or Merger Sub made therein based on information supplied by or on behalf of Parent or Merger Sub for inclusion or
incorporation by reference in the Proxy Statement.
2.5 Absence of Changes.
Except as expressly contemplated by this Agreement or
as described in Part 2.5 of the Company Disclosure Schedule, since January 31, 2013 through the date of this Agreement, (a) except for discussions, negotiations and transactions related to this Agreement, the Company has operated in all
respects in the ordinary course of business and (b) there has not occurred any event, change, action, failure to act or transaction that, individually or in the aggregate, has had or would be reasonably expected to have, a Material Adverse
Effect. Except as expressly contemplated by this Agreement since January 31, 2013 through the date of this Agreement, the Acquired Corporations have not taken any actions which, had such actions been taken after the date of this Agreement,
would have required the written consent of Parent pursuant to Section 4.2.
2.6 Title to and Condition of Assets; Inventory;
Information Technology.
(a)
The Acquired Corporations have good and valid title to all material assets owned by them as of the
date of this Agreement, including all assets (other than capitalized or operating leases) reflected on the unaudited balance sheet in the most recent Quarterly Report on Form 10-Q (the
Balance Sheet
) filed by the Company
with the SEC (except for assets sold or otherwise disposed of in the ordinary course of business since the date of such Balance Sheet). All of said material assets are owned by the Acquired Corporations free and clear of any Encumbrances (other than
Permitted Encumbrances). The plants, property and equipment of the Acquired Corporations that are used in the operations of their respective businesses are in reasonably good operating condition and repair, subject to ordinary wear and tear and to
requirements for periodic maintenance for the requirements of the business of the Acquired Corporations as currently conducted.
(b)
Subject to any reserve therefor in the Balance Sheet, all Inventories consist of items of a quality usable or saleable in the ordinary course of business consistent with past practices and are in quantities reasonably sufficient for the normal
operation of the business of the Acquired Corporations in accordance with past practices. Since January 31, 2013, the Acquired Corporations have continued to replenish their Inventories and to dispose of out-of-season and slow-moving
Inventories in a normal and customary manner consistent with past practices prevailing in the business of the Acquired Corporations. The Acquired Corporations maintain in all material respects policies, practices and procedures with respect to the
adequate security and safeguard of Inventories and other assets (including, with respect to employee and third-party theft and other loss), in each case consistent with past practices prevailing in the business of the Acquired Corporations.
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(c)
The Company IT Systems are in good working condition to effectively perform all
information technology operations necessary to conduct the business of the Acquired Corporations consistent with past practices. The Acquired Corporations maintain and are in compliance in all material respects with policies and procedures regarding
data security, back-up, disaster recovery and privacy that are commercially reasonable and, in any event, are in compliance with all applicable Legal Requirements. Except as disclosed in Part 2.6(c) of the Company Disclosure Schedule, to the
knowledge of the Acquired Corporations, since January 31, 2010, there have been no (a) failures of computer services or other information technology assets that have caused disruptions that are material to the business of any Acquired
Corporation, or (b) security breaches relating to, violations of any security policy regarding or any unauthorized access of any data used in the business of any Acquired Corporation.
2.7 Real Property.
(a)
Except as disclosed in Part 2.7(a) of the Company Disclosure Schedule, the Acquired Corporations do not own and have not owned any
real property.
(b)
The Acquired Corporations, as applicable, hold a valid and existing leasehold interest in the real property that
is leased or subleased by any of the Acquired Corporations from another Person (the
Leased Real Property
), free and clear of all Encumbrances other than Permitted Encumbrances. Part 2.7(b) of the Company Disclosure Schedule
sets forth a true and complete list of all Leased Real Property, including the address of each such property and identifying the use(s) of each such property. The Leased Real Property comprises all material real property used by any of the Acquired
Corporations in the conduct of their current business operations. Summaries of the material terms of all Company Leases (including summaries of all amendments, addenda and material waivers relating thereto) have been delivered to Parent. Except as
explicitly stated in the summaries of the Company Leases made available to Parent, there are no contractual or legal restrictions that preclude or restrict the ability to use any Leased Real Property by any Acquired Corporation for the current or
contemplated use of such property. No Acquired Corporation has received any written notice regarding any violation or breach or default under any Company Lease that has not since been cured. No Leased Real Property is subject to any governmental
decree or order to be sold or is being condemned, expropriated or otherwise taken by any Governmental Body with or without payment of compensation therefor, nor, to the knowledge of the Acquired Corporations, has any such condemnation, expropriation
or taking been proposed. To the knowledge of the Acquired Corporations, each of the Acquired Corporations enjoys peaceful and undisturbed possession under all Company Leases. To the knowledge of the Acquired Corporations, no Acquired Corporation is
obligated to pay any sums or perform any work to any portion of the Leased Real Property including, but not limited to, any work which may now or hereafter be required to cause the Leased Real Property to be in compliance with the requirements of
the Americans with Disabilities Act or any other Legal Requirements. All plants, warehouses, distribution centers, structures and other buildings on the Leased Real Property are in reasonably good operating condition and repair, subject to ordinary
wear and tear and to requirements for periodic maintenance, for the requirements of the business of the Acquired Corporations as currently conducted.
2.8 Intellectual Property.
(a)
Part 2.8(a) of the Company Disclosure Schedule identifies (i) the name of applicant/registrant and current owner, (ii) the
jurisdiction of application/registration and (iii) the application or registration number for each item of Registered IP owned by or exclusively licensed to any of the Acquired Corporations. Except as would not reasonably be expected to have a
Material Adverse Effect, as of the date of this Agreement, no interference, opposition, reissue, reexamination or other proceeding of any nature is pending or, to the knowledge of Company, threatened, in which the scope, validity or enforceability
of any Registered IP listed on Part 2.8(a) of the Company Disclosure Schedule is being or has been contested or challenged. (A) All Registered IP listed on Part 2.8(a) of the Company Disclosure Schedule is, to the knowledge of the Company,
valid, subsisting, and enforceable and in full force and effect as of the date hereof, and has not lapsed, been abandoned, been disclaimed, been cancelled or been forfeited, in whole or in part and (B) and, to the knowledge of Company none of
such Registered IP is being misappropriated, violated or infringed by any third party.
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(b)
The Company or another Acquired Corporation is the sole and exclusive owner of all
right, title and interest in Company IP owned or purported to be owned by the Company or another Acquired Corporation, free and clear of all Encumbrances other than Permitted Encumbrances. To the knowledge of the Acquired Corporations, the Acquired
Corporations own, or hold a valid license or other right to use, all material Intellectual Property Rights that are necessary for the conduct of the Acquired Corporations business as currently conducted.
(c)
Except as would not reasonably be expected to have a Material Adverse Effect, each Acquired Corporation has taken commercially
reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all proprietary information held by any of the Acquired Corporations, or purported to be held by any of the Acquired Corporations, as a trade secret.
(d)
Except as set forth on Part 2.8(d) of the Company Disclosure Schedule, to the knowledge of the Company (i) the operation
of the business of the Acquired Corporations as currently conducted does not infringe, misappropriate or otherwise violate, and has not infringed, misappropriated or violated, any Intellectual Property Rights owned or held by any other Person; and
(ii) to the knowledge of the Company, no other Person is infringing, misappropriating, or violating any Registered IP owned by the Acquired Corporations. Except as set forth on Part 2.8(d) of the Company Disclosure Schedule, no Legal Proceeding
is pending and served (or, to the knowledge of the Company, is being threatened or is pending and has not been served) against the Acquired Corporations or by the Acquired Corporations relating to any actual, alleged or suspected infringement,
misappropriation or violation of any Intellectual Property Rights of another Person or to the Acquired Corporations Registered IP or any of the Acquired Corporations Intellectual Property Rights. Except as disclosed in Part 2.8(d) of the
Company Disclosure Schedule, for the past three years, none of the Acquired Corporations has received any written notice or, to the knowledge of the Company, oral communication relating to any actual, alleged or suspected infringement,
misappropriation or violation of any Intellectual Property Right of another Person by any of the Acquired Corporations.
(e)
Each
Acquired Corporation maintains policies and procedures regarding data security, privacy, data transfer and the use of data that are commercially reasonable and that are designed to ensure that the Acquired Corporations are in compliance in all
material respects with all applicable Legal Requirements. The Company has provided to Parent copies of each Company Privacy Policy that applies to any data or information collected by any of the Acquired Corporations. Except as would not reasonably
be expected to have a Material Adverse Effect, the Acquired Corporations are in compliance with all Company Privacy Policies and other Legal Requirements pertaining to data privacy and data security. To the knowledge of the Company, for the past
three years, there have been (i) no material losses or thefts of data or security breaches relating to data used in the businesses of the Acquired Corporations; (ii) violations of any security policy regarding any such data; (iii) no
unauthorized access or unauthorized use of any data; and (iv) no unintended or improper disclosure of any personally identifiable information in the possession, custody or control of any Acquired Corporation or a contractor or agent acting on
behalf of the Acquired Corporation. Neither the execution, delivery, or performance of this Agreement (or any of the ancillary agreements) nor the consummation of any of the transactions contemplated by this Agreement (or any of the ancillary
agreements), will result in any violation of any Company Privacy Policy.
(f)
Except as set forth in Part 2.8(f) of the Company
Disclosure Schedule, to the knowledge of the Acquired Corporations, the Company owns all right, title and interest in and to the software (in both source code and object code) it uses to price, locate and ship used products it sells in retail stores
and through its on-line business (the
Proprietary Software
) and has not granted any licenses in and to such software or permitted any third party to use such software. To the knowledge of the Acquired Corporations, none of
the Proprietary Software contains any bug, defect, or error (including any bug, defect, or error relating to or resulting from the display, manipulation, processing, storage, transmission, or use of date data) that materially and adversely affects
the use, functionality, or performance of the Proprietary Software or any product or system containing or used in conjunction with the Proprietary Software.
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2.9 Contracts.
(a)
Part 2.9(a) of the Company Disclosure Schedule identifies each Company Contract that constitutes a Material Contract. For purposes
of this Agreement, each of the following Company Contracts shall be deemed to constitute a
Material Contract
:
(i)
any Company Contract constituting a Company Employee Agreement pursuant to which any of the Acquired Corporations is or may become
obligated to (A) make any severance, termination, tax gross-up or similar payment to any current or former Company Associate or any spouse or heir of any current or former Company Associate except for severance, termination or similar payments
required by applicable Legal Requirements that does not exceed $75,000 per beneficiary, (B) make any bonus, deferred compensation or similar payment (other than payments constituting base salary or commissions paid in the ordinary course of
business) in excess of $75,000 to any current or former Company Associate or (C) grant or accelerate the vesting of, or otherwise modify, any Company Equity Award other than accelerated vesting provided in Company Equity Plans;
(ii)
any Company Contract (A) limiting the freedom or right of any Acquired Corporation to engage in any line of business, to make
use of any material Company IP or to compete with any other Person in any location or line of business, including any settlement agreement, cross license agreement, concurrent use agreement, consent to use agreement or standstill agreement or
(B) containing any most favored nations terms and conditions (including with respect to pricing) granted by any of the Acquired Corporations or exclusivity obligations or restrictions or otherwise materially limiting the freedom or
right of any Acquired Corporation to sell, distribute or manufacture any products or service or any technology or other assets to or for any other Person;
(iii)
any Company Contract that requires by its terms the payment or delivery of cash or other consideration by the Acquired
Corporations in an amount having an expected value in excess of $150,000 in any fiscal year of the Company (each such obligation, a
Minimum Payment Obligation
) and cannot be cancelled by the Acquired Corporations without
penalty or further payment without more than ninety (90) days notice (other than payments for services rendered to the date);
(iv)
any Company Contract relating to Indebtedness in excess of $150,000 (whether incurred, assumed, guaranteed or secured by any
asset) of the Acquired Corporations, other than any Indebtedness between or among the Acquired Corporations;
(v)
any Company
Contract that creates or grants an Encumbrance on material properties or other material assets of the Company or its Subsidiary, other than Permitted Encumbrances;
(vi)
any Company Contract or arrangement with any Person constituting (A) a joint venture, partnership, collaboration or limited
liability corporation or (B) a development, marketing or distribution arrangement;
(vii)
any Company Contract that requires
or expressly permits an Acquired Corporation, or any successor, to, or acquirer of an Acquired Corporation, to make any payment to another person as a result of a change of control of such Acquired Corporation (a
Change of Control
Payment
) or gives another Person a right to receive or elect to receive a Change of Control Payment;
(viii)
any
Company Contract that prohibits the payment of dividends or distributions in respect of the capital stock of any of the Acquired Corporations, prohibits the pledging of the capital stock or other equity interests of the Acquired Corporations or
prohibits the issuance of any guaranty by the Acquired Corporations;
(ix)
any Company Contract that involves the acquisition from
another Person or disposition to another Person, directly or indirectly (by merger or otherwise), of any material asset, a business, division or Subsidiary that (A) was entered into since January 31, 2009 and was for aggregate
consideration under such Company Contract (or series of related Contracts) in excess of $3,000,000 or (B) contains obligations (including indemnification,
earn-out
or other contingent obligations) that
are still in effect and could result in material payments by any Acquired Corporation;
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(x)
any license agreements pursuant to which any of the Acquired Corporations licenses in
any Intellectual Property Right or licenses out any Intellectual Property Right owned by the Acquired Corporations (other than license agreements for commercially available software on standard terms);
(xi)
any Company Lease; and
(xii)
any other Company Contract that is currently in effect and has been filed (or is required to be filed) by the Company as an
exhibit pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act or that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act.
(b)
As of the date of this Agreement, the Company has either delivered or otherwise made available to Parent or Parents
Representatives an accurate and complete copy of each Material Contract or has publicly made available such Material Contract in the Electronic Data Gathering, Analysis and Retrieval (EDGAR) database of the SEC, except, in each case, for the Company
Leases set forth in Part 2.9(b) of the Company Disclosure Schedule. Except as set forth on Part 2.9(b) of the Company Disclosure Schedule, neither the Acquired Corporations nor, to the knowledge of the Acquired Corporations, the other party is in
violation or breach of or default under any Material Contract and, neither the Acquired Corporations, or to the knowledge of the Acquired Corporations, the other party has taken or failed to take any action that with or without notice, lapse of time
or both would constitute a violation or breach of or material default under any Material Contract. Each Material Contract is, with respect to the Acquired Corporations and, to the knowledge of the Acquired Corporations, the other party, a valid
agreement, binding, and in full force and effect. To the knowledge of the Acquired Corporations, each Material Contract is enforceable by the applicable Acquired Corporation in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. Except as set forth on Part 2.9(b) of the Company Disclosure
Schedule, no Acquired Corporation has received any written or, to the knowledge of the Acquired Corporations, oral notice regarding any violation or breach or default under any Material Contract that has not since been cured. The Acquired
Corporations have not waived in writing any material rights under any Material Contract. The Company has not received any notice in writing from any Person that such Person intends to terminate, or not renew, any Material Contract. There are no
renegotiations of, or attempts to renegotiate, any Material Contract with any Person and no party to a Material Contract has made written demand for such renegotiation or, to the knowledge of the Acquired Corporations, no Person (including the
Acquired Corporations) has any intention to commence any such renegotiation.
(c)
Except as set forth in Part 2.9(c) of the Company
Disclosure Schedule, the Acquired Corporations have paid all Minimum Payment Obligations required to be paid on or prior to the date of this Agreement.
(d)
To the knowledge of the Acquired Corporations, none of the Acquired Corporations is, as of the date of this Agreement, a party to a
Contract with a Specially Designated National or Blocked Person as defined by the Office of Foreign Asset Control of the United States Department of the Treasury.
2.10 Suppliers
. Part 2.10 of the Company Disclosure Schedule sets forth a complete and correct list of the ten largest suppliers
of the Acquired Corporations, taken as a whole, measured by dollar of net purchases for the fiscal year ended on January 31, 2013, including the suppliers names and the amount of purchases for such period. The Acquired Corporations have
not received any notice in writing from any such supplier that such supplier intends to terminate, or not renew, its relationship with the Acquired Corporations and, to the knowledge of the Acquired Corporations, no such supplier intends to cancel
or otherwise terminate its relationship with the Acquired Corporations. Except as set forth on Part 2.10 of the Company Disclosure Schedule, there are no minimum purchase contracts or understandings between any of the Acquired Corporations, on the
one hand, and any respective supplier, on the other hand.
2.11 Liabilities
. None of the Acquired Corporations has any liabilities
of any nature (whether accrued, absolute, contingent or otherwise), except for: (a) liabilities disclosed on the Balance Sheet (other than in the notes thereto) contained in the Company SEC Documents filed prior to the date of this Agreement;
(b) liabilities incurred in the ordinary course of business since the date of the Balance Sheet; (c) liabilities or obligations
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incurred pursuant to the terms of this Agreement; (d) liabilities set forth in the Company Leases that are to be performed solely after the Closing (excluding, for clarity, any obligations
due to any breaches or non-performance thereunder or for indemnification for pre-Closing acts or omissions); and (e) liabilities that individually or in the aggregate have not and would not reasonably be expected to have a Material Adverse
Effect.
2.12 Compliance with Legal Requirements
.
Each of the Acquired Corporations is, and during the past five
(5) years has been, in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets. Since January 1, 2008, no Acquired Corporation
has received any written notice from any Governmental Body regarding (a) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (b) any actual, alleged, possible, or potential
obligation on the part of any Acquired Corporation to undertake, or to bear all or any portion of the cost of, any remedial action of any nature.
2.13 Certain Business Practices
. None of the Acquired Corporations or, to the knowledge of the Acquired Corporations, any of their
respective directors, officers, employees or representatives has (a) used any corporate funds for unlawful direct or indirect contributions, gifts, entertainment or other unlawful expenses relating to political activity, or (b) made any
unlawful payment to any foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, and any rules or regulations
promulgated thereunder (the
FCPA
) or any applicable Legal Requirement of similar effect. During the past three (3) years, none of the Acquired Corporations has received any written communication from any Governmental
Body that alleges any of the foregoing matters set forth in this Section 2.13. The Acquired Corporations (i) make and keep books, records and accounts that accurately and fairly reflect their transactions, and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that transactions are taken in accordance with managements directives and are properly recorded, in each case in accordance with the FCPA and (ii) have effective disclosure
controls and procedures and an internal accounting controls system that is sufficient to provide reasonable assurances that violations of the FCPA and/or any similar law will be prevented, detected and deterred.
2.14 Governmental Authorizations.
The Acquired Corporations hold all material Governmental Authorizations necessary to enable the
Acquired Corporations to conduct their businesses in the manner in which their businesses are currently being conducted. The Governmental Authorizations held by the Acquired Corporations are valid and in full force and effect. The Acquired
Corporations are in compliance with the terms and requirements of the Governmental Authorizations, and no suspension or cancellation of any such Governmental Authorization is pending or, to the knowledge of the Acquired Corporations, threatened in
writing.
2.15 Tax Matters
.
(a)
(i) All material Tax Returns required by any Legal Requirement to be filed with any Taxing Authority by, or on behalf of, the
Acquired Corporations have been filed when due (taking into account extensions) in accordance with all applicable Legal Requirements, and all such material Tax Returns are, or shall be at the time of filing, true, correct and complete in all
material respects, and (ii) the Acquired Corporations have paid, or have withheld and remitted, to the appropriate Governmental Body all Taxes due and payable with respect to the Tax Returns and all other Taxes otherwise due and payable, except
in each case, with respect to matters contested in good faith and disclosed on Part 2.15(a) of the Company Disclosure Schedule or for which adequate reserves have been established under GAAP.
(b)
Except as disclosed on Part 2.15(b) of the Company Disclosure Schedule, neither of the Acquired Corporations has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.
(c)
As of the
date hereof, to the knowledge of the Acquired Corporations, there is no claim, audit, action, suit or proceeding now pending or threatened in writing against the Acquired Corporations in respect of any material Tax.
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(d)
During the two-year period ending on the date hereof, neither of the Acquired
Corporations was a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.
(e)
To the knowledge of the Acquired Corporations, the Acquired Corporations have not received any written claim by any Governmental
Body in a jurisdiction where the Acquired Corporations do not file Tax Returns that either of the Acquired Corporations is or may be subject to taxation by, or required to file any Tax Return in, that jurisdiction.
(f)
The Acquired Corporations have collected and remitted to the proper Governmental Body all employee withholding and social security
taxes and all sales, use, value added, and similar Taxes (such Taxes being either individually or in the aggregate) required to be collected.
(g)
The Acquired Corporations have no liability for the Taxes of any other Person under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local, or non-U.S. Tax law), as a transferee or successor, or by contract (other than Contracts entered into in the ordinary course of business, the primary subject of which is not Taxes). Neither of the Acquired
Corporations has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which is the Company).
(h)
The Acquired Corporations have not participated in a listed transaction as defined in Treasury Regulation
Section 1.6011-4(b)(2).
(i)
The Acquired Corporations have complied with all applicable Legal Requirements relating to record
retention (including, without limitation, to the extent necessary to claim any exemption from sales tax collection and maintaining adequate and current resale certificates to support any such claimed exemption). The Acquired Corporations will retain
and at the time of the closing will be in possession of all of the tax records of the Acquired Corporations that are in existence at the time this Agreement is signed or are created thereafter and before the Closing Date.
(j)
Except as provided in Part 2.15(j) of the Company Disclosure Schedule, the Acquired Corporations have no obligation as a result of
the obligations contemplated by this Agreement or any other agreement to compensate any person (i) in a manner that would cause Section 280G of the Code to apply or (ii) for taxes imposed as a consequence of the application of
Section 409A or Section 4999 of the Code.
(k)
The Acquired Corporations will not be required to include any item of
income in, or exclude any item of deduction from, the computation of taxable income for any taxable period (or portion thereof) ending after the Closing Date, except as would not, individually or in the aggregate, have a Material Adverse Effect, as
a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date, (ii) closing agreement as described in Section 7121 of the Code (or any corresponding or similar provision of
state, local or foreign income Tax law) executed on or prior to the Closing Date, (iii) installment sale or open transaction disposition made on or prior to the Closing Date, or (iv) prepaid amount received on or prior to the Closing Date.
(l)
Neither of the Acquired Corporations is, or has at any time during the last five years been, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code.
(m)
No ruling requests, closing agreements, private
letter rulings, technical advice memoranda or requests for changes of method of accounting have been submitted to, or entered with, any Governmental Body by the Acquired Corporations that will have a effect on a Tax payable by, or a Tax Return filed
by, the Acquired Corporations on or after the Closing Date.
(n)
Neither of the Acquired Corporations has made any payments, or is
party to any plan, arrangement, or other Contract, that could result in it making a payment that is nondeductible under Section 162(m) of the Code.
(o)
None of the net operating loss carryforwards of the Acquired Corporations is subject to limitation under Section 382 of the
Code other than the limitation that will apply as a consequence of the transactions contemplated by this Agreement.
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2.16 Employee Matters; Benefit Plans.
(a)
The Company has made available to Parent correct and complete copies of: (i) all arbitration awards for the last three (3
years) regarding employment or labor issues; (ii) all material employment policy manuals and individual employment policies; (ii) all pending employment or labor related charges and lawsuits; (iii) all pending unfair labor practice
charges and complaints; and (iv) all pending United States Occupational Safety and Health Administration charges and complaints. Except as set forth in Part 2.16(a) of the Company Disclosure Schedule, there has not been, during the last three
(3) years, any claim or grievance and there is no claim or grievance currently pending or, to the knowledge of the Company, threatened in connection with an individual claim or series of related claims which have an actual or expected value in
excess of $100,000 relating to any Company Employee Agreement, wages and hours, leave of absence, plant closing notification, employment statute or regulation, privacy right, labor dispute, workers compensation policy or long-term disability
policy, safety, retaliation, immigration or discrimination matters involving any Company Associate or any other matter relating to any Company Associate, including charges of unfair labor practices or harassment complaints.
(b)
None of the Acquired Corporations is a party to, or has a duty to bargain for or is currently negotiating in connection with
entering into, any collective bargaining agreement or other Contract with a labor organization or works council representing any of its employees and there are no labor organizations or works councils representing, purporting to represent or, to the
knowledge of the Company, seeking to represent any employees of any of the Acquired Corporations. There are no (i) actions relating to the labor and employment practices of the Company or its Subsidiary pending, scheduled, or, to the
Companys knowledge, threatened against the Company or its Subsidiary before the U.S. National Labor Relations Board or any other Governmental Body and (ii) complaints or charges relating to labor or employment practices of the Company or
its Subsidiary that have been made or are reasonably expected to be made to the U.S. National Labor Relations Board or any other Governmental Body. In the past three years, there has been no strike, slowdown, work stoppage, lockout, job action,
picketing, interruption of work or any similar activity pending or, to the Companys knowledge, threatened against the Company or its Subsidiary.
(c)
Except as identified in Part 2.16(c) of the Company Disclosure Schedule, since January 31, 2010, neither the Company nor its
Subsidiary has effectuated (i) a plant closing (as defined in the Worker Adjustment and Retraining Notification Act, as amended (the
WARN Act
) or similar state law), affecting any site of employment or one
or more facilities or operating units within any site of employment or facility of the Company or its Subsidiary, or (ii) a mass layoff (as defined in the WARN Act or similar state law) affecting any site of employment or facility
of the Company or its Subsidiary; nor has the Company or its Subsidiary been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any state, or local law or regulation similar to
the WARN Act.
(d)
Part 2.16(d) of the Company Disclosure Schedule contains a correct and complete list of each material Employee
Plan. The Company has made available to Parent or Parents Representatives prior to the execution of this Agreement with respect to each material Employee Plan true, correct and complete copies of: (i) all plan documents and all amendments
thereto, and all related trust or other funding documents, and in the case of unwritten Employee Plans, written descriptions thereof, (ii) all determination letters, rulings, opinion letters, information letters or advisory opinions issued by
the IRS or the United States Department of Labor (
DOL
), (iii) the two most recent annual actuarial valuations, if any, and the two most recent annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), (iv) the most recent summary plan descriptions and any material modifications thereto, (v) the most recent nondiscrimination tests required to be performed under the Code (including 401(k) and 401(m) tests) for each
Employee Plan, and (vi) all correspondence to or from the IRS, the DOL, or any other Governmental Body relating to any Employee Plan since January 1, 2010.
(e)
None of the Acquired Corporations nor any other Person that would be or, at any relevant time, would have been considered a single
employer with an Acquired Corporation under the Code or ERISA has ever maintained, contributed to, or been required to contribute to, and no Acquired Corporation has any current or
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contingent liability or obligation under or with respect to, a plan that is or was subject to Title IV of ERISA or Code Section 412, including any single employer defined benefit
plan or any multiemployer plan each as defined in Section 4001 of ERISA.
(f)
Each Employee Plan that is intended
to be qualified under Section 401(a) of the Code, including the Company 401(k) Plan and the Company ASOP, has received a favorable determination letter or opinion letter, or has pending or has time remaining in which to file, an application for
such determination or opinion from the IRS, and the Company is not aware of any reason why any such determination letter or opinion letter should be revoked or not be reissued. The Company has made available to Parent copies of the most recent IRS
determination and opinion letters with respect to each such Employee Plan.
(g)
Except to the extent required under Section 601
et seq. of ERISA or Section 4980B of the Code (or any other similar state or local Legal Requirement) and the cost of which is borne entirely by the recipient, neither the Acquired Corporations nor any Employee Plan has any present or future
obligation to make any payment to, or with respect to, any present or former employee, officer or director of the Acquired Corporations or any other Person pursuant to any retiree or post-service medical benefit plan or other retiree or post-service
welfare plan. With respect to each Employee Plan, all contributions or payments (including all employer contributions, employee salary reduction contributions, and premium payments) that are due from the Acquired Corporations have been made within
the time periods prescribed by the terms of each Employee Plan and applicable Legal Requirements, and all contributions or payments for any period ending on or before the Closing Date that are not yet due from the Acquired Corporations have been
made, paid or properly accrued.
(h)
Except as provided in Section 1.8 hereof or in Part 2.16(h) of the Company Disclosure
Schedule, the consummation of the Merger or the other Transactions contemplated by this Agreement will not, either alone or together with any other event: (i) entitle any current or former Company Associate of the Acquired Corporations to any
payment or benefit, including any bonus, retention, severance, retirement or job security payment or benefit, (ii) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, or increase the amount payable or trigger any other material obligation under, any Employee Plan, (iii) limit or restrict the right of the Company or its Subsidiary or, after the Effective Time, Parent or
Surviving Corporation, to merge, amend or terminate any Employee Plan, (iv) directly or indirectly cause the Acquired Corporations to transfer or set aside any assets to fund any benefits under any Employee Plan, or (v) give rise to the
payment of any amount under any Employee Plan that would not be deductible pursuant to the terms of Section 280G of the Code. Since January 1, 2013, none of the Acquired Corporations has made any payment or award to any employee in respect
of any severance, transaction bonus, retention payment or other similar award in connection with the sale or change in control of the Company.
(i)
Except as set forth in Part 2.16(i) of the Company Disclosure Schedule, no Employee Plan is maintained primarily for the benefit of
employees or other service providers who are primarily located outside of the United States.
(j)
Each Employee Plan that is subject
to Section 409A of the Code has been administered in compliance with its terms and, to the knowledge of the Acquired Corporations, the operational and documentary requirements of Section 409A of the Code and the regulations thereunder.
Except as set forth in Part 2.16(j) of the Company Disclosure Schedule, the Acquired Corporations do not have an obligation to gross-up, indemnify or otherwise reimburse any current or former service provider to the Acquired Corporations for any tax
incurred by such service provider pursuant to Section 409A of the Code.
(k)
All contributions or premiums required to be made
by either the Company under the terms of each Employee Plan or by ERISA, the Code or Applicable Laws have been made in a timely fashion in accordance with ERISA, the Code or Applicable Laws and the terms of such Employee Plan.
(l)
The Acquired Corporations have (i) withheld and reported all amounts required by any Legal Requirement or Contract to be
withheld and reported with respect to wages, salaries and other payments to any Company Associate; (ii) has no liability for any arrears of wages or any Taxes or any penalty for failure to comply with any of the foregoing; and (iii) has no
liability for any payment to any trust or other fund governed
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by or maintained by or on behalf of any Governmental Body with respect to unemployment compensation benefits, social security or other benefits or obligations for any Company Associate (other
than routine payments to be made in the normal course of business and consistent with past practice).
(m)
No current or former
independent contractor of the Acquired Corporations could reasonably be deemed to be a misclassified employee. No independent contractor (i) has provided services to any of the Acquired Corporations for a period of six consecutive months or
longer or (ii) is eligible to participate in any Employee Plan. No Acquired Corporation could be considered a joint or co-employer of any temporary or leased employees from a third party that worked at any of the Acquired Corporations.
(n)
Except as required by applicable Legal Requirements or as set forth in Part 2.16(n) of the Company Disclosure Schedule, the
employment of each of the Acquired Corporations employees is terminable by the applicable Acquired Corporation at-will.
2.17
Environmental Matters
. Except for those matters that would not reasonably be expected to have a Material Adverse Effect, (a) each Acquired Corporation is, and has been, in compliance with all applicable Environmental Laws, which compliance
includes obtaining, maintaining or complying with all Governmental Authorizations required under Environmental Laws for the operation of their respective businesses, (b) there is no investigation, suit, claim, action or proceeding relating to
or arising under any Environmental Law that is pending or, to the knowledge of the Acquired Corporations, threatened against any of the Acquired Corporations or Leased Real Property, (c) the Acquired Corporations have not received any written
notice of or entered into any legally-binding agreement, order, settlement, judgment, injunction or decree involving uncompleted, outstanding or unresolved requirements on the part of the Acquired Corporations relating to or arising under
Environmental Laws, (d) there are and have been no Hazardous Materials present on any Leased Real Property in a manner and concentration that would reasonably be expected to result in any claim against any of the Acquired Corporations under any
Environmental Law, and (e) no Acquired Corporation has Released, transported, disposed of or exposed any Person to any Hazardous Materials in a manner and concentration that would reasonably be expected to result in a claim against any of the
Acquired Corporations under any Environmental Law. The Company has provided to Parent copies of any and all pleadings, demands, notices, consent orders, settlements, Phase I environmental site assessment reports, other environmental reports, and
analytical results possessed by any of the Acquired Corporations (or any of their Representatives) concerning Environmental Laws or Hazardous Materials with respect to any of the Acquired Corporations and/or any of their properties or premises.
2.18 Insurance
. The Company has delivered or otherwise made available to Parent or Parents Representatives summaries of all
insurance policies and all self insurance programs and arrangements relating to the business, assets and operations of the Acquired Corporations (the
Insurance Policies
). Part 2.18 of the Company Disclosure Schedule
contains a correct and complete list of the material Insurance Policies. The Insurance Policies are in full force and effect, no written notice of cancellation or material modification has been received, and there is no existing default or event
which, with the giving of notice or lapse of time or both, would constitute a default, by any insured thereunder. All premiums due and payable under all of the Insurance Policies have been paid when due, and the Acquired Corporations are otherwise
in compliance with the terms of all of the Insurance Policies (or other policies and bonds providing substantially similar insurance coverage).
2.19 Legal Proceedings; Orders
.
(a)
Except as set forth in Part 2.19 of the Company Disclosure Schedule, there is no Legal Proceeding pending and served (or, to the
knowledge of the Acquired Corporations, threatened in writing or pending and not served) against any of the Acquired Corporations or any of their respective properties, assets or operations, or executive officers or directors;
(b)
there is no order, writ, injunction or judgment to which the Acquired Corporations are subject that has had or is reasonably likely
to have a Material Adverse Effect; and
(c)
no investigation or review by any Governmental Body with respect to the Acquired
Corporations is pending or to the Acquired Corporations knowledge is being threatened.
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2.20 Authority; Binding Nature of Agreement
. The Company has the corporate power and
authority to enter into and deliver and, subject to obtaining the Required Company Shareholder Vote, to perform its obligations under this Agreement and to consummate the Transactions. The Board of Directors of the Company (at a meeting duly called
and held and acting upon recommendation of the special committee thereof) has unanimously (a) determined that it is fair to, and in the best interests of, the Company and its shareholders to enter into this Agreement, (b) adopted a
resolution approving this Agreement, as well as its execution, delivery and performance by the Company, and the consummation of the Transactions, including the Merger and (c) adopted a resolution recommending that the shareholders of the
Company approve this Agreement and the Transactions, including the Merger. This Agreement has been duly executed and delivered by the Company, and assuming due authorization, execution and delivery by Parent and Merger Sub, this Agreement
constitutes the legal, valid and binding obligations of the Company and is enforceable against the Company in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors,
and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
2.21 Vote Required
. The
Required Company Shareholder Vote is the only vote of the holders of any class or series of the Companys capital stock necessary to approve this Agreement and the Transactions.
2.22 Non-Contravention; Consents
. Except as set forth in Part 2.22 of the Company Disclosure Schedule and assuming compliance with the
applicable provisions of the TBOC, any applicable antitrust filing, notification or approval in any other relevant jurisdiction, the rules and regulations of NASDAQ and the receipt of the Required Company Shareholder Vote, the execution and delivery
of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement will not: (a) cause a violation of any of the provisions of the certificate of formation or bylaws (or similar
organizational documents) of any Acquired Corporation; or (b) cause a violation by any Acquired Corporation of any Legal Requirement or order applicable to any Acquired Corporation, or to which any Acquired Corporation is subject; or
(c) conflict with, result in breach of, or constitute a default under or give rise to a right of acceleration or termination under, any Material Contract or any Company Lease. Except as set forth in Part 2.22 of the Company Disclosure Schedule
and as may be required by the Exchange Act (including without limitation the requirement under the Exchange Act for the Companys shareholders to approve or disapprove, on an advisory basis, the Merger-related compensation of the Companys
named executive officers), the TBOC, the HSR Act and any antitrust filing, notification or approval in any other relevant jurisdiction and the rules and regulations of NASDAQ, none of the Acquired Corporations is required to give notice to, make any
filing with, or obtain any Consent from any Person (including, without limitation, any party to a Material Contract) at any time prior to the Closing in connection with the execution and delivery of this Agreement, or the consummation by the Company
of the Merger.
2.23 Fairness Opinion
. The special committee of the Companys Board of Directors has received the oral opinion
(to be confirmed in writing) of SunTrust Robinson Humphrey, Inc. as financial advisor to the special committee, dated on or prior to the date of this Agreement, to the effect that, as of the date of such opinion, and subject to the assumptions,
qualifications and limitations set forth therein, the $3.00 per share of Company Common Stock to be received in the Merger by the holders of shares of Company Common Stock (other than NECA, Parent and Merger Sub, and their respective Affiliates,
which, for the avoidance of doubt, will not receive the Merger Consideration) is fair, from a financial point of view, to such holders. The Company will make available to Parent solely for informational purposes a signed copy of the fairness opinion
as promptly as practicable following the date of this Agreement.
2.24 Financial Advisor
. Except for SunTrust Robinson Humphrey and
George K. Baum & Capital Advisors, Inc. (
GKB
), no broker, finder, investment banker, financial advisor or other Person is entitled to any brokerage, finders or other similar fee or commission, or the
reimbursement of expenses in connection therewith, in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any other Acquired Corporation. Part 2.24 of the Company Disclosure
Schedule sets forth the Companys good faith estimate, as of the date hereof, of the out-of-pocket fees and
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expenses it will incur to Sun Trust Robinson Humphrey and GKB in connection with this Agreement and the transactions contemplated hereby.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Due Organization
. Each of Parent and Merger Sub is an Entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization and has all necessary power and authority: (a) to conduct its business in the manner in which its business is currently being conducted; (b) to own and use its assets in the manner in which its assets are
currently owned and used; and (c) to perform its obligations under all Contracts by which it is bound, except where any such failure would not reasonably be expected to have a Parent Material Adverse Effect.
3.2 Parent and Merger Sub
.
Each of Parent and Merger Sub was formed solely for the purpose of engaging in the transactions
contemplated hereby and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated hereby and those incident to its formation. Parent owns beneficially and of record all of the
outstanding capital stock of Merger Sub. NECA and the Guarantor own beneficially and of record all of the membership interest of Parent.
3.3 Authority; Binding Nature of Agreement
. Parent and Merger Sub have the corporate power and authority to execute and deliver and
perform their obligations under this Agreement; and the execution, delivery and performance by Parent and Merger Sub of this Agreement have been duly authorized by all necessary action on the part of Parent and Merger Sub and their respective sole
Manager and Boards of Directors. This Agreement constitutes the legal, valid and binding obligation of Parent and Merger Sub, and assuming due authorization, execution and delivery by the Company, is enforceable against them in accordance with its
terms, subject to (a) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies.
3.4 Non-Contravention; Consents
. Assuming compliance with the applicable provisions of the HSR Act, if applicable, and any applicable
antitrust filing, notification or approval in any other relevant jurisdiction, the execution and delivery of this Agreement by Parent and Merger Sub, and the consummation of the transactions contemplated by this Agreement, will not: (a) cause a
violation of any of the provisions of the certificate of formation or bylaws or other organizational documents of Parent or Merger Sub; (b) cause a violation by Parent or Merger Sub of any Legal Requirement or order applicable to Parent or
Merger Sub, or to which they are subject; or (c) conflict with, result in a breach of, or constitute a default on the part of Parent or Merger Sub under any Contract, except, in the case of clauses (b) and (c), for such conflicts,
violations, breaches or defaults as would not reasonably be expected to have a Parent Material Adverse Effect. Except as may be required by the Exchange Act, state Takeover Laws, the TBOC or the HSR Act and any antitrust filing, notification or
approval in any other relevant jurisdiction, neither Parent nor Merger Sub, nor any of Parents other Affiliates, is required to make any filing with or give any notice to, or to obtain any Consent from, any Governmental Body at or prior to the
Closing in connection with the execution and delivery of this Agreement by Parent or Merger Sub or the consummation by Parent or Merger Sub of the Merger and the transactions contemplated hereby, other than such filings, notifications, approvals,
notices or Consents that, if not obtained, made or given, would not reasonably be expected to have a Parent Material Adverse Effect. No vote of Parents equity holders is necessary to approve this Agreement or any of the transactions
contemplated by this Agreement, other than those which have been previously obtained.
3.5 Disclosure
. None of the information with
respect to Parent or Merger Sub to be supplied by or on behalf of Parent or Merger Sub specifically for inclusion in the Proxy Statement or any other filing required to be made by the Company will, at the time the Proxy Statement is first mailed to
the shareholders of the Company or at the time of the Company Shareholders Meeting (or any adjournment or postponement thereof) or, in the case of any
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other such filing, on the date it and any amendment or supplement to it is filed with the SEC, contain any untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.
3.6 Absence of Litigation
. To the knowledge of Parent or Merger Sub, as of the date of this Agreement, there is no Legal Proceeding
pending or threatened against Parent or Merger Sub, except as would not reasonably be expected to materially and adversely affect Parents or Merger Subs ability to consummate the Transactions contemplated hereby. To the knowledge of
Parent or Merger Sub, as of the date of this Agreement, neither Parent nor Merger Sub is subject to any continuing order of, consent decree, settlement agreement or similar written agreement with, or continuing investigation by, any Governmental
Body, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Body, except as would not reasonably be expected to materially and adversely affect Parents or Merger Subs ability to consummate the
Transactions contemplated hereby.
3.7 Sufficiency of Funds.
(a)
Parent will have available to it upon the consummation of the Merger sufficient funds to pay the Merger Consideration.
(b)
As of the date of this Agreement, Parent has delivered to the Company true and complete copies of an executed contribution
agreement, dated as of the date of this Agreement, between Parent and NECA pursuant to which NECA has committed, subject to the terms and conditions therein, to contribute all of the shares of Company Common Stock beneficially owned by NECA (the
NECA Shares
) to Parent and a letter agreement, dated as of the date of this Agreement, between Parent and NECA pursuant to which NECA has committed, subject to the terms and conditions therein, to vote all shares of Company
Common Stock beneficially owned by it in favor of approving the Merger Agreement (the foregoing agreements, the
NECA Agreements
).
(c)
As of the date of this Agreement, (i) the NECA Agreements and the terms of the NECA Agreements have not been amended or
modified prior to the date of this Agreement except as permitted by this Agreement; and (ii) the commitments contained therein have not been withdrawn, terminated or rescinded in any respect. As of the date of this Agreement, there are no other
Contracts, agreements, side letters or arrangements to which Parent or Merger Sub is a party relating to the contribution of the NECA Shares, other than as expressly set forth in the NECA Agreements.
(d)
As of the date of this Agreement, each NECA Agreement is in full force and effect and constitutes the legal, valid and binding
obligations of NECA, enforceable against NECA in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting or relating to
creditors rights generally and by general principles of equity.
(e)
Parent acknowledges and agrees that notwithstanding
anything to the contrary in this Agreement, the consummation of the transactions contemplated by the NECA Agreements shall not be a condition to the obligation of Parent and Merger Sub to consummate the Merger and the other transactions contemplated
hereby.
3.8 Solvency.
Without limiting the generality of the representations and warranties contained in Section 3.7(a) and
assuming (a) the satisfaction of the conditions to Parents obligation to consummate the Merger, and after giving effect to the Transactions, including the transactions contemplated by the Contribution Agreement and the payment of the
aggregate Merger Consideration and (b) the accuracy in all material respects of the representations and warranties set forth in Section 2 of this Agreement and, after giving effect to the Transactions contemplated by this Agreement,
including the transactions contemplated by the Contribution Agreement, the payment of the aggregate Merger Consideration and the payment of all related fees and expenses, each of the Acquired Corporations will be Solvent as of the Effective Time and
immediately after the consummation of the Transactions contemplated hereby. For purposes of this Agreement,
Solvent
when used with respect to any Person, means that, as of any date of determination, (i) the amount of
the fair saleable value of the assets of such Person will, as of such date, exceed (A) the value of all liabilities of such Person, including
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contingent and other liabilities, as of such date, as such quoted terms are generally determined in accordance with applicable federal laws governing determinations of the insolvency of
debtors, and (B) the amount that will be required to pay the probable liabilities of such Person on its existing debts (including contingent liabilities) as such debts become absolute and matured, (ii) such Person will not have, as of such
date, an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged following such date and (iii) such Person will be able to pay its liabilities, including contingent and other
liabilities, as they mature.
3.9 Certain Arrangements.
As of the date of this Agreement, there are no Contracts or other
agreements, arrangements or understandings (whether oral or written) or commitments to enter into agreements, arrangements or understandings (whether oral or written) (a) between Parent, Merger Sub or any of their Affiliates, on the one hand,
and any member of the Companys management or directors, on the other hand, as of the date hereof that relate in any way to the Company or its Subsidiary or the Transactions or (b) pursuant to which any shareholder of the Company would be
entitled to receive consideration of a different amount or nature than the applicable Merger Consideration or pursuant to which any shareholder of the Company agrees to vote to approve this Agreement or the Merger or agrees to vote against any
Superior Offer, other than, in each such case, the Insider Agreement, Separation Agreements and Support Agreement as in effect on the date hereof.
3.10 Brokers and Other Advisors.
No broker, investment banker, financial advisor or other Person is entitled to any brokers,
finders, financial advisors or other similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of Parent or any of its Subsidiaries except for Persons, if any, whose fees and expenses will
be paid by Parent.
ARTICLE 4 CERTAIN COVENANTS OF THE COMPANY
4.1 Access and Investigation
. During the period from the date of this Agreement until the earlier of the Effective Time and the
termination of this Agreement pursuant to Section 7.1 (the
Pre-Closing Period
), upon reasonable advance notice to the Company, the Company shall, and shall cause the respective Representatives of the Acquired
Corporations to: (a) provide Parent and Parents Representatives with reasonable access during normal business hours of the Company to all of the Acquired Corporations personnel, properties and assets and to all existing books,
records, Tax Returns, work papers and other documents and information relating to the Acquired Corporations (including financial schedules and accounting records); and (b) promptly provide Parent and Parents Representatives with all
requested information in the possession of any of the Acquired Corporations regarding the business of the Acquired Corporations, including copies of the existing books, records, Tax Returns, Company Contracts, work papers and other documents and
information relating to the Acquired Corporations, and with such additional financial, operating and other data and information regarding the Acquired Corporations, as Parent may reasonably request;
provided, however
, that any such access
shall be conducted at Parents expense, at a reasonable time, under the supervision of appropriate personnel of the Company and in such a manner as not to unreasonably interfere with the normal operation of the business of the Company. Nothing
herein shall require the Company to disclose any information to Parent if such disclosure would, in its reasonable discretion (i) jeopardize any attorney-client or other legal privilege, (ii) contravene any applicable Legal Requirement,
fiduciary duty or binding agreement entered into prior to the date of this Agreement (including any confidentiality agreement to which the Company or its Affiliates is a party) or (iii) result in the disclosure of any trade secrets of third
parties. Without limiting the foregoing, in the event that the Company does not disclose information in reliance on the preceding sentence, it shall provide notice to Parent that it is withholding such information and shall use its reasonable best
efforts to communicate, to the extent feasible, the applicable information in a way that would not violate the applicable Legal Requirements, Contract or obligation or risk waiver of such privilege. Without limiting the generality of this
Section 4.1, during the Pre-Closing Period the Company will furnish to the Parent promptly after becoming available (to the extent such items become available), monthly financial statements, including an unaudited balance sheet, income
statement and statement of cash flows for each month through the Closing Date as it may prepare for managements internal use. With respect to the information disclosed pursuant to this Section 4.1, Parent shall comply with, and
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shall cause Parents Representatives to comply with, all of its obligations under the Confidentiality Agreement by and between Parent and Company dated June 4, 2013 (as amended from
time to time, the
Confidentiality Agreement
).
4.2 Operation of the Companys Business
.
(a)
During the Pre-Closing Period: (i) except (x) as required or otherwise expressly permitted under this Agreement or as
required by applicable Legal Requirements, (y) with the written consent of Parent, or (z) as set forth in Part 4.2(a) of the Company Disclosure Schedule, the Company shall ensure that each of the Acquired Corporations conducts its business
and operations in the ordinary course and in substantially the same manner as previously conducted; and (ii) the Company shall promptly (but in any event within two (2) business days) notify Parent of (A) any knowledge of any written
notice from any Person alleging that the Consent of such Person is or may be required in connection with any of the transactions contemplated by this Agreement, and (B) any Legal Proceeding commenced, or, to its knowledge threatened in writing,
relating to or involving any of the Acquired Corporations that relates to the consummation of the transactions contemplated by this Agreement. The Company shall, and shall cause each of the other Acquired Corporations to, use commercially reasonable
efforts to preserve intact the material components of their current business organization, assets and goodwill including keeping available the services of current officers and key employees, and use commercially reasonable efforts to maintain their
respective relations and goodwill with all material suppliers, material customers, licensors, lenders, Governmental Bodies and other material business relations;
provided, however
, that the Acquired Corporations shall be under no obligation
to put in place any new retention programs or include additional personnel in existing retention programs.
(b)
During the
Pre-Closing Period, except (x) as required or otherwise contemplated under this Agreement or as required by applicable Legal Requirements, (y) with the written consent of Parent, or (z) as set forth in Part 4.2(b) of the Company
Disclosure Schedule, the Company shall not, and shall not permit its Subsidiary to:
(i)
(1) establish a record date for, declare,
accrue, set aside or pay any dividend or make any other distribution in respect of any shares of its capital stock (including the Company Common Stock), or (2) repurchase, redeem or otherwise reacquire any of its shares of capital stock
(including any Company Common Stock), or any rights, warrants or options to acquire any shares of its capital stock, other than: (A) dividends or distributions between or among any of the Acquired Corporations to the extent consistent with past
practices (but not from the Company to its shareholders); (B) repurchases of Company Options (or shares of capital stock issued upon the exercise thereof) outstanding on the date hereof (in cancellation thereof) pursuant to the terms of any
such Company Option between the Company and an employee, consultant or member of the Board of Directors of the Company only upon termination of such Persons employment or engagement by the Acquired Corporations; or (C) in connection with
withholding to satisfy the Tax obligations with respect to Company Options.
(ii)
split, combine, subdivide or reclassify any
shares of its capital stock (including the Company Common Stock);
(iii)
sell, issue, grant, deliver, transfer, pledge or authorize
the issuance or grant of (A) any capital stock or other security, (B) any option, call, warrant, restricted securities or right to acquire any capital stock or other security, or (C) any instrument convertible into or exchangeable for
any capital stock or other security (except that the Company may issue shares of the Company Common Stock as required to be issued upon the valid exercise of Company Options outstanding as of the date of this Agreement);
(iv)
except as contemplated by either Section 1.8 or Section 5.3, establish, adopt, terminate or amend any Employee Plan (or
any plan, program, arrangement, practice or agreement that would be an Employee Plan if it were in existence on the date hereof), or amend or waive any of its rights under, or accelerate the vesting under, any provision of any of the Employee Plans
(or any plan, program, arrangement, practice or agreement that would be an Employee Plan if it were in existence on the date hereof) or grant any employee or director any increase in compensation, bonuses or other benefits (except that the Acquired
Corporations: (A) may
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provide increases in salary, wages or benefits to non-executive officer employees in the ordinary course of business and consistent with past practice; (B) may amend any Employee Plans to
the extent required by applicable Legal Requirements; and (C) may make usual and customary annual bonus payments and profit sharing payments in the ordinary course of business consistent with past practice in accordance with the bonus and
profit sharing plans existing on the date of this Agreement and disclosed on the Company Disclosure Schedule);
(v)
hire any new
officer or terminate the employment of any current Officer.
(vi)
(A) enter into or amend any existing change-in-control or
retention agreement with any officer, employee, director or independent contractor, (B) enter into any employment, severance or other agreement with any officer, employee, director or independent contractor, other than in the ordinary course of
business consistent with past practice with respect to non-executive officer employees, employees with an annual base salary of less than $100,000 and independent contractors, (C) hire any employee with an annual base salary in excess of
$100,000 or (D) enter into any agreement with respect to the voting of its capital stock;
(vii)
amend or permit the adoption
of any amendment to its certificate of formation or bylaws or other charter or organizational documents;
(viii)
form any
Subsidiary, acquire any equity interest or other interest in any other Entity or enter into any joint venture, partnership, limited liability corporation or similar arrangement;
(ix)
make or authorize any capital expenditure other than (A) as provided for in the Companys capital expenditure budget as
set forth in Part 4.2(b)(ix) of the Company Disclosure Schedule; or (B) when added to all other capital expenditures made on behalf of all of the Acquired Corporations since the date of this Agreement but not provided for in the Companys
capital expenditure budget as set forth in Part 4.2(b)(ix) of the Company Disclosure Schedule, does not exceed $100,000 individually and $200,000 in the aggregate during any fiscal quarter;
(x)
enter into any agreement with respect to the acquisition, lease, license or sublicense of any rights, assets or properties (other
than purchases of inventory and supplies in the ordinary course of business), in a single transaction or series of transactions, of or from any other Person (other than in the ordinary course of business consistent with past practice) or sell or
otherwise dispose of, divest or spin-off, or lease, license or sublicense, in a single transaction or series of transactions, any rights, assets or properties to any other Person (other than in the ordinary course of business consistent with past
practice or pursuant to dispositions of obsolete, surplus or worn out assets that are no longer useful in the conduct of the business of the Company), or waive or relinquish, abandon, allow to lapse or encumber (except for any Permitted Encumbrance)
any right, asset or property that is material to the business of the Company;
(xi)
lend money or make capital contributions or
advances to or make investments in, any Person (except advances to employees for travel and other business related expenses in the ordinary course of business consistent with past practice and in compliance with the Companys policies related
thereto and intercompany loans, advances, capital contributions or investments between or among the Company and any Subsidiary of the Company), or incur or guarantee any Indebtedness except for borrowings incurred in the ordinary course of business
under the Companys existing secured line of credit under the Loan Facility and pre-payments thereon made in the ordinary course of business;
(xii)
amend or modify in any material respect, waive any rights under or terminate any Material Contract, or enter into any Contract
which if entered into prior to the date hereof would have been a Material Contract, in each case except as described in Part 4.2(b) of the Company Disclosure Schedule;
(xiii)
except as required by applicable Legal Requirement, (a) make any material change to any accounting method or accounting
period used for Tax purposes (or request such a change); (b) make any material Tax election (other a Tax election that is consistent with a Tax election made in a previous period); (c) rescind or change any material Tax election;
(d) surrender a right to a material Tax refund; (e) file an amended Tax Return that could reasonably be expected to increase the Taxes payable by the Acquired Corporations; (f) enter into a
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closing agreement with any Governmental Body regarding any material Tax; (g) waive or extend the statute of limitations with respect to any material Tax other than (1) pursuant to
extensions of time to file a Tax Return obtained in the ordinary course of business or (2) pursuant to an extension granted in the ordinary course of business in connection with an audit of state of local Taxes to prevent the immediate
assessment or collection of a Tax;
(xiv)
commence any Legal Proceeding, except with respect to: (A) routine matters in the
ordinary course of business; (B) in such cases where the Company reasonably determines in good faith that the failure to commence suit would result in a material impairment of a valuable aspect of its business (provided that the Company
consults with Parent and considers the views and comments of Parent with respect to such Legal Proceedings prior to commencement thereof); or (C) in connection with a breach of this Agreement or any other agreements contemplated hereby;
(xv)
settle or compromise any Legal Proceeding or other claim (or threatened Legal Proceeding or other claim), other than pursuant to a
settlement that does not relate to the any of the Transactions contemplated hereby and: (A) that results solely in a monetary obligation involving only the payment of monies by the Acquired Corporations of not more than $75,000 individually or
$150,000 in the aggregate; or (B) that results solely in a monetary obligation that is funded by an indemnity obligation to or an insurance policy of the Acquired Corporations and the payment of monies by the Acquired Corporations that together
with any settlement made under subsection (A) are not more than $75,000 individually or $150,000 in the aggregate (not funded through insurance policies);
(xvi)
change any of its methods of accounting or accounting practices unless required by GAAP or applicable Legal Requirements;
(xvii)
enter into any collective bargaining agreement or agreement to form a work council or other union or similar agreement or commit
to enter into any such agreements;
(xviii)
adopt or implement any shareholder rights plan or similar arrangement;
(xix)
fail to make any filing, pay any fee, or take another action necessary to maintain in full force and effect any trademark or
trade name that is material to the conduct of the business of the Acquired Corporations, as a whole, as currently conducted, or enter into any license or transfer agreement granting or transferring to a third party an exclusive right to use any such
trademark or trade name;
(xx)
adopt a plan or agreement of complete or partial liquidation or dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of the other Acquired Corporations; or
(xxi)
mortgage, pledge, hypothecate, grant any security interest in or otherwise subject to any other Encumbrance other than Permitted Encumbrances, any material assets of the Company or its Subsidiary;
(xxii)
implement any employee layoffs that would require any of the Acquired Corporations to provide notice under the WARN Act or
similar state laws;
(xxiii)
grant any material refunds, credits, rebates or other allowances to any end user, customer, reseller
or distributor, in each case other than in the ordinary course of business consistent with past practice; or
(xxiv)
authorize, or
agree or commit to take, any of the actions described in clauses (i) through (xxiii) of this Section 4.2(b).
(c)
Notwithstanding the foregoing, nothing contained herein shall give to Parent or Merger Sub, directly or indirectly, rights to
control or direct the operations of the Acquired Corporations prior to the Effective Time, and nothing contained in this Agreement is intended to give the Company, directly or indirectly, the right to control or direct Parents or its
Subsidiaries operations. Prior to the Effective Time, each of Parent and the Company shall exercise, consistent with the terms and conditions hereof, complete control and supervision of its and its Subsidiaries respective operations.
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4.3 No Solicitation
.
(a)
For the purposes of this Agreement,
Acceptable Confidentiality Agreement
means any customary
confidentiality agreement that contains provisions that are no less favorable in the aggregate to the Company than those contained in the Confidentiality Agreement.
(b)
The Company shall and shall instruct its Subsidiary and Representatives to immediately cease any discussions or negotiations with
any Persons that may be ongoing with respect to any Acquisition Proposal, and deliver a written notice to each such Person to the effect that the Company is ending all discussions and negotiations with such Person with respect to any Acquisition
Proposal and request such Person to promptly return or destroy all confidential information concerning the Company and its Subsidiary. Except as permitted by this Section 4.3, during the Pre-Closing Period the Company shall not and shall cause
its Subsidiary not to and shall not permit their respective Representatives to, directly or indirectly, (A) solicit, initiate or knowingly facilitate or encourage (including by way of furnishing information) any inquiries regarding, or the
making of any proposal or offer that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal, (B) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other Person
any information in connection with or for the purpose of encouraging or facilitating, an Acquisition Proposal, (C) approve, endorse, recommend or enter into any letter of intent, acquisition agreement, agreement in principle or similar
agreement with respect to an Acquisition Proposal or any proposal or offer that could reasonably be expected to lead to an Acquisition Proposal or that requires the Company to abandon this Agreement, (D) grant any waiver, amendment or release
under any standstill or confidentiality agreement, any rights agreement or poison pill arrangement or Takeover Law, or otherwise knowingly facilitate any effort or attempt by any Person to make an Acquisition Proposal, or (E) agree
to do any of the foregoing.
(c)
Notwithstanding any provision herein to the contrary, including, without limitation,
Section 4.3(b) and Section 5.1(a), if at any time on or after the date of this Agreement and prior to obtaining the Required Company Shareholder Vote, the Company or its Subsidiary or their respective Representatives receives a bona fide
written Acquisition Proposal from any unaffiliated Third Party, which Acquisition Proposal was made or renewed on or after the date of this Agreement and was not initiated as a result of any breach of this Section 4.3, (i) the Company and
its Representatives may contact such Third Party to clarify the terms and conditions thereof and (ii) if the Companys Board of Directors determines in good faith, after consultation with independent financial advisors and outside legal
counsel, that such Acquisition Proposal constitutes or could reasonably be expected to result in a Superior Offer, then the Company and its Representatives may (x) furnish, pursuant to (but only pursuant to) an Acceptable Confidentiality
Agreement, information (including non-public information) with respect to the Company and its Subsidiary to the Third Party who has made such Acquisition Proposal;
provided, that
, the Company shall provide Parent with a copy of such
Acceptable Confidentiality Agreement and any information concerning any of the Acquired Corporations that is provided to any Person given such access which was not previously provided to Parent or its Representatives (y) grant a waiver,
amendment or release under any standstill or confidentiality agreement but only to the extent that after consulting with outside legal counsel, the Companys Board of Directors determines in good faith that failure to grant such a waiver,
amendment or release would constitute a breach of the Board of Directors fiduciary duties under applicable law, and (z) engage in or otherwise participate in discussions or negotiations with the Third Party making such Acquisition Proposal.
(d)
From and after the date of this Agreement, the Company shall promptly (and in any event within thirty-six (36) hours)
(i) provide to Parent an unredacted copy of any such Acquisition Proposal made in writing provided to the Company or its Subsidiary (including any financing commitments relating thereto), (ii) provide to Parent a written summary of the
material terms of any such Acquisition Proposal not made in writing (including any financing commitments relating thereto) and (iii) keep Parent reasonably informed of any material developments, discussions or negotiations regarding any
Acquisition Proposal on a prompt basis (and in any event within thirty-six (36) hours), including by providing Parent a copy of any written proposal or a summary of any oral proposal made by the Company in response to any such Acquisition
Proposal. The Company agrees that it and its Subsidiaries will not enter into any confidentiality agreement with any Person subsequent to the date hereof which prohibits the Company from providing any information to Parent in accordance with this
Section 4.3.
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(e)
Nothing in this Section 4.3 or elsewhere in this Agreement shall prohibit the
Company from (i) taking and disclosing to the shareholders of the Company a position contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act or (ii) making any disclosure to the
shareholders of the Company that is required by applicable Legal Requirements;
provided,
that, any disclosures permitted under this Section 4.3(e) (other than a stop, look and listen communication) that do not contain either
an unqualified express rejection of any applicable Acquisition Proposal or an unqualified express reaffirmation of the Company Board Recommendation shall be deemed a Company Adverse Change Recommendation. For clarity, a public disclosure by the
Company that does not refer to this Agreement or the transactions contemplated hereby or another Acquisition Proposal or strategic alternative will not require the Company to include an unqualified express rejection of any applicable Acquisition
Proposal or an unqualified express reaffirmation of the Company Board Recommendation.
ARTICLE 5 ADDITIONAL COVENANTS OF THE PARTIES
5.1 Shareholder Approval; Proxy Statement
.
(a)
Subject to Section 5.1(b), (i) the Proxy Statement shall include the Company Board Recommendation and (ii) neither
the Board of Directors of the Company nor any committee of the Board of Directors of the Company shall (x)(A) withhold, qualify or withdraw (or modify in a manner adverse to Parent or Merger Sub), or publicly propose to withhold, qualify or
withdraw (or modify in a manner adverse to Parent or Merger Sub), the Company Board Recommendation or (B) approve, recommend or declare advisable, or propose to approve, recommend or declare advisable, any Acquisition Proposal or (C) fail
to publicly reaffirm the Company Board Recommendation within five (5) business days after Parent so requests in writing,
provided that
, in the absence of a publicly announced Acquisition Proposal, Parent may only make such request once
during any consecutive thirty (30) day period; or (D) fail to recommend against any Acquisition Proposal by any Third Party subject to Regulation 14D under the Exchange Act in a Solicitation/ Recommendation Statement on Schedule 14D-9
within five (5) business days after the commencement of such Acquisition Proposal by any Third Party (any action described in this clause (x) or in the following clause (y) being referred to as an
Company
Adverse Change Recommendation
) or (y) (A) approve, recommend or declare advisable, or propose to approve, recommend or declare advisable, or allow any Acquired Corporation to execute or enter into any letter of intent,
memorandum of understanding, or Contract constituting or relating to, or that is intended to or would reasonably be expected to lead to, any Acquisition Proposal, or requiring, or reasonably expected to cause, the Company to abandon, terminate,
delay or fail to consummate, or that would reasonably be expected to otherwise materially impede, interfere with or be inconsistent with, the Transactions (other than an Acceptable Confidentiality Agreement).
(b)
Notwithstanding anything to the contrary contained in this Agreement, at any time prior to the receipt of the Required Company
Shareholder Vote, if the Company has received a bona fide written Acquisition Proposal (which Acquisition Proposal did not arise out of a breach of Section 4.3) from any Third Party that has not been withdrawn, and after consultation with
outside legal counsel and independent financial advisors, the Companys Board of Directors shall have determined, in good faith, that such Acquisition Proposal is a Superior Offer, (x) the Companys Board of Directors may make a
Company Adverse Change Recommendation, or (y) the Company may terminate this Agreement to enter into a definitive agreement with respect to such Superior Offer, if and only if (in the case of the foregoing clauses x and
y): (A) the Companys Board of Directors determines in good faith, after consultation with the Companys outside legal counsel, that the failure to do so would reasonably constitute a breach of the fiduciary duties of the
Board of Directors of the Company to the Companys shareholders under applicable Legal Requirements; (B) the Company shall have given Parent prior written notice of its intention to consider making a Company Adverse Change Recommendation
or terminate this Agreement pursuant to Section 7.1(f) at least five (5) business days prior to making any such Company Adverse Change Recommendation or termination (a
Determination Notice
) (which notice shall not
constitute a Company Adverse Change Recommendation); and (C) (1) the Company shall have provided to Parent the material terms and conditions of the Acquisition Proposal in accordance with Section 4.3(d), (2) the Company shall
have provided to Parent, during the period of five (5) business days after the date on which the Company
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furnishes the Determination Notice to Parent, an opportunity to propose revisions to the terms of this Agreement or make another proposal so that such Acquisition Proposal would cease to
constitute a Superior Offer, and shall have negotiated in good faith with Parent with respect to such proposed revisions or other proposal, if any, and (3) after considering the results of such negotiations and giving effect to the proposals
made by Parent, if any, after consultation with outside legal counsel, the Companys Board of Directors shall have determined, in good faith, that such Acquisition Proposal is a Superior Offer and that the failure to make the Company Adverse
Change Recommendation or terminate this Agreement pursuant to Section 7.1(f) would reasonably constitute a breach of fiduciary duties of the Board of Directors of the Company to the Companys shareholders under applicable Legal
Requirements. Issuance of any stop, look and listen communication by or on behalf of the Company pursuant to Rule 14d-9(f) shall not be considered a Company Adverse Change Recommendation and shall not require the giving of a
Determination Notice or compliance with the procedures set forth in this Section 5.1. For the avoidance of doubt, the provisions of this Section 5.1(b) shall also apply to any material amendment to any Acquisition Proposal and require a
new Determination Notice, except that the references to five (5) business days set forth in Section 5.1(b)(B) shall be deemed to be three (3) business days.
The Company agrees to keep confidential, and not to disclose to the public or to any Person, any and all information regarding any negotiations that take
place with the Parent and the Parents Representatives pursuant to this Section 5.1(b) (including the existence and terms of any proposal made on behalf of Parent or the Company during such negotiations), except to the extent such
disclosure is required by any applicable Legal Requirements. The Company shall ensure that any Company Adverse Change Recommendation: (x) does not change or otherwise affect the approval of this Agreement by the Companys Board of
Directors or any other approval of the Companys Board of Directors; and (y) does not have the effect of causing any corporate takeover statute or other similar statute (including any moratorium, control share
acquisition, business combination or fair price statute) of the State of Texas or any other state to be applicable to this Agreement or the Merger.
(c)
The Company shall, as soon as practicable following the SEC Clearance Date, take all action necessary under all applicable Legal
Requirements, the Companys certificate of formation and bylaws and the rules of NASDAQ to establish a record date for purposes of determining shareholders entitled to notice of and to vote at the Company Shareholders Meeting (the
Record Date
) and the Company shall not change such Record Date without the prior written consent of Parent. The Company shall, as soon as practicable following the SEC Clearance Date (and in no event fewer than twenty one
(21) calendar days, nor later than thirty (30) calendar days, following the SEC Clearance Date), call, give notice of and hold a meeting of the holders of the shares of Company Common Stock to vote on the adoption of this Agreement and
approval of the Merger (including any adjournment or postponement thereof, the
Company Shareholders Meeting
). The Company shall ensure that all proxies solicited by the Company in connection with the Company
Shareholders Meeting are solicited in compliance in all material respects with all applicable Legal Requirements. Subject to Section 4.3, the Company shall use its commercially reasonable efforts to obtain the Required Company Shareholder
Vote. The Company shall, upon the reasonable request of Parent, use its commercially reasonable efforts to advise Parent during the last ten (10) business days prior to the date of the Company Shareholders Meeting, as to the aggregate
tally of the proxies received by the Company with respect to the Required Company Shareholder Vote. The Company may only adjourn or postpone the Company Shareholders Meeting (i) after consultation with Parent, and with Parents
consent, to the extent necessary to ensure that any required supplement or amendment to the Proxy Statement is provided to the shareholders of the Company within a reasonable amount of time in advance of the Company Shareholders Meeting or
(ii) if as of the time for which the Company Shareholders Meeting is originally scheduled (as set forth in the Proxy Statement) there are insufficient shares of Company Common Stock represented (either in person or by proxy) to constitute
a quorum necessary to conduct the business of the Company Shareholders Meeting. Notwithstanding the foregoing, the Companys obligation to call, give notice of and hold the Company Shareholders Meeting in accordance with this
Section 5.1(c) shall not be limited or otherwise affected by the making, commencement, disclosure, announcement or submission of any Superior Offer or other Acquisition Proposal, by any Company Adverse Change Recommendation. As soon as
reasonably practicable following the date hereof, the Company shall prepare the Proxy Statement and file it with the SEC.
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The Parent shall timely cooperate with and assist the Company in connection with the preparation of the foregoing. The Company shall use commercially reasonable efforts to respond as promptly as
reasonably pra
c
ticable to any comments of the SEC or its staff concerning the Proxy Statement and shall cause the Proxy Statement to be mailed to the Companys shareholders as promptly as practicable after the resolution of any
such comments (the
SEC Clearance Date
);
provided
that if the SEC has failed to affirmatively notify the Company within ten (10) calendar days after the filing of the Proxy Statement with the SEC that it will or
will not be reviewing the Proxy Statement, then such tenth day shall be the SEC Clearance Date. Parent and Merger Sub will provide to the Company upon request any information with respect to Parent and Merger Sub and their respective
officers, directors, Affiliates and agents required to be provided in the Proxy Statement under applicable Legal Requirements or as reasonably requested by the Company in connection with the Proxy Statement. The Company shall notify Parent promptly
of the receipt of any comments from the SEC or its staff or any other governmental officials and of any request by the SEC or its staff or any other governmental officials for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondence between the Company or any of its Representatives, on the one hand, and the SEC or its staff or any other governmental officials, on the other hand, with respect to the Proxy
Statement. Notwithstanding anything to the contrary stated above, prior to filing or mailing the Proxy Statement or filing any other required filings with respect to the Transactions (or, in each case, any amendment or supplement thereto) or
responding to any comments of the SEC with respect thereto, the Company shall give Parent a reasonable opportunity to review and comment on such document or response and the Company shall give due consideration to all reasonable additions, deletions
or changes suggested thereto by Parent. The Company, on the one hand, and Parent and Merger Sub, on the other hand, agree to promptly correct any information provided by it for use in the Proxy Statement if and to the extent that it shall have
become false or misleading in any material respect or as otherwise required by applicable Legal Requirements, and the Company further agrees to cause the Proxy Statement, as so corrected, to be filed with the SEC and, if any such correction is made
following the mailing of the Proxy Statement, mailed to holders of shares of Company Common Stock, in each case as and to the extent required by the Exchange Act or the SEC (or its staff). Notwithstanding the foregoing, the Company assumes no
responsibility with respect to information supplied in writing by or on behalf of Parent or Merger Sub for inclusion or incorporation by reference in the Proxy Statement.
(d)
Parent agrees to cause all shares of Company Common Stock owned by NECA, Parent or any Subsidiary of Parent to be voted in favor of
the adoption of the Agreement at the Company Shareholders Meeting.
5.2 Filings, Consents and Approvals
. In the event that
any objections are asserted with respect to the transactions contemplated hereby under any Antitrust Law or if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) by the FTC, the DOJ, any other
applicable Governmental Body or any third party challenging the Merger or any other Transactions as violative of any Legal Requirement or which would otherwise prevent, materially impede or materially delay the consummation of the Transactions, the
Company shall cooperate in all commercially reasonable respects with Parent and Merger Sub and shall use its commercially reasonable efforts to resolve any such objections or to contest and resist any such action or proceeding and have vacated,
lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the Transactions. Notwithstanding the foregoing
or any other provision of this Agreement to the contrary, in connection with efforts to effectuate this Agreement and the Transactions, neither the Acquired Corporations nor Parent and its Affiliates shall be required to, and the Acquired
Corporations may not, without the prior written consent of the Parent, sell, divest, hold separate, transfer or dispose of, before or after the Closing, any material assets, operations, rights, product lines, businesses or interest therein of
the Parent, the Company, or of any of the other Acquired Corporations (or consent to any of the foregoing actions).
5.3 Employee
Matters and Employee Plans
.
(a)
As provided in Section 1.8(b), the Company shall, and Parent shall cause the Surviving
Corporation to, terminate all Company Equity Plans effective as of the Effective Time.
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(b)
As of the date of Closing, the Company ASOP shall terminate by its terms. As soon as
reasonably practicable following the execution of this Agreement, the Company shall file all necessary documents with the IRS to request a favorable determination letter that the Company ASOP is, upon its termination (and as amended in accordance
with this Section 5.3), qualified under the provisions of Sections 401(a), 409, and 4975(e)(7) of the Code. As reasonably soon as practicable after the receipt of a final favorable determination letter from the IRS, the account balances in the
Company ASOP, including any surplus in its expense account after full payment of all of the Company ASOPs administrative expenses that are payable from the Company ASOPs related trust, shall be distributed to participants and
beneficiaries in accordance with the provisions of the Code, applicable law and the terms of the Company ASOP;
provided
,
however
, that any cash held in the Company ASOP shall be distributed to the Company in accordance with the terms
of the Company ASOP and applicable laws.
(c)
Except as provided otherwise in this Section 5.3, from and after the Effective
Time, the Company shall, and Parent shall cause the Surviving Corporation to, honor all Employee Plans (including, without limitation, the Company 401(k) Plan) in accordance with their terms as in effect immediately before the Effective Time;
provided
that, except for the Company 401(k) Plan, which, unless otherwise required by applicable Legal Requirements, shall continue in force after the Effective Time, nothing herein shall be construed as prohibiting the amendment or
termination of any of the Employee Plans after the Effective Time in accordance with their respective terms.
(d)
Subject to
Section 8.8, nothing contained in this Agreement, express or implied, is intended to confer upon any Person, any right to employment or continued employment for any period of time, or any right to a particular term or condition of employment,
or shall be construed as an amendment to any Employee Plan or other employee benefit plan or arrangement.
5.4 Indemnification of
Officers and Directors
.
(a)
All rights to indemnification by the Acquired Corporations existing in favor of those Persons who
are directors and officers of any Acquired Corporation as of the date of this Agreement (the
Indemnified Persons
) for their acts and omissions occurring prior to the Effective Time, as provided in the certificate of
formation and bylaws of any of the Acquired Corporations (as in effect as of the date of this Agreement) and as provided in the indemnification agreements between any of the Acquired Corporations and said Indemnified Persons (as in effect as of the
date of this Agreement) made available by the Company to Parent or Parents Representatives prior to the date of this Agreement, shall survive the Merger and shall be observed by the Surviving Corporation and its Subsidiaries to the fullest
extent available under, and subject to the requirements of, Texas law for a period of six years from the Effective Time.
(b)
From
the Effective Time until the sixth anniversary of the Effective Time, the Surviving Corporation shall maintain in effect, the existing policy of directors and officers liability insurance maintained by the Company as of the date of this
Agreement (an accurate copy of which has been made available by the Company to Parent or Parents Representatives prior to the date of this Agreement) for the benefit of the Indemnified Persons who are currently covered by such existing policy
with respect to their acts and omissions occurring prior to the Effective Time in their capacities as directors and officers of the Acquired Corporations (as applicable), on terms with respect to coverage, deductibles and amounts no less favorable
than the existing policy (or at or prior to the Effective Time the Company may (through a nationally recognized insurance broker approved by Parent (such approval not to be unreasonably withheld, delayed or conditioned)) purchase a six-year
tail policy for the existing policy effective as of the Effective Time) and if such tail policy has been obtained, it shall be deemed to satisfy all obligations to obtain and/or maintain insurance pursuant to this
Section 5.4(b);
provided, however
, that in no event shall the Surviving Corporation be required to expend in any one year an amount in excess of 250% of the annual premium currently payable by the Company with respect to such current
policy, it being understood that if the annual premiums payable for such insurance coverage exceeds such amount, Parent shall be obligated to cause the Surviving Corporation to obtain a policy with the greatest coverage available for a cost equal to
such amount.
5.5 Securityholder Litigation.
The Acquired Corporations shall use their commercially reasonable efforts to defend
any Legal Proceedings against any of the Acquired Corporations relating to the Transactions, this
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Agreement or the other agreements entered into in connection with this Agreement or the Transactions (including any securityholder litigation against any of the Acquired Corporations and/or its
directors relating to the Transactions or any Legal Proceeding instituted by a Governmental Body). Parent and Merger Sub shall use their commercially reasonable efforts to defend any Legal Proceedings against Parent or Merger Sub relating to the
Transactions, this Agreement or the other agreements entered into in connection with this Agreement or the Transactions (including any Legal Proceeding instituted by a Governmental Body). The Company shall give Parent the right to review and comment
on all material filings or responses to be made by the Company in connection with any securityholder litigation against the Company and/or its directors, and Parent shall give the Company the right to review and comment on all material filings or
responses to be made by Parent or Merger Sub, in connection with any securityholder litigation against the Parent or Merger Sub and/or their respective directors relating to the Transactions, and the right to consult on the settlement with respect
to such securityholder litigation, and the Company, Parent and Merger Sub will in good faith take such comments into account, and, no such settlement shall be agreed to without Parents prior written consent (such consent not to be unreasonably
withheld, conditioned or delayed).
5.6 Additional Agreements.
Subject to the terms and conditions of this Agreement (including,
without limitation, the last sentence of Section 5.2), Parent and the Company shall use commercially reasonable efforts to take, or cause to be taken, all actions necessary to consummate the Merger and make effective the other Transactions.
Without limiting the generality of the foregoing, subject to the terms and conditions of this Agreement, each Party to this Agreement (i) shall make all filings (if any) and give all material notices (if any) required to be made and given by
such Party in connection with the Merger and the other Transactions contemplated by this Agreement, (ii) shall use commercially reasonable efforts to obtain each Consent (if any) required to be obtained pursuant to any applicable Legal
Requirement or Material Contract by such Party in connection with the Transactions, (iii) shall use commercially reasonable efforts to lift any restraint, injunction or other legal bar to the Merger brought by any third Person against such
Party and (iv) shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the computation and verification of any amounts required to be deducted and withheld under Section 1.6(e), including the
provision of records and information which are reasonably relevant to any such matters and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided. The Company shall
promptly deliver to Parent a copy of each such filing made, each such notice given and each such Consent obtained by the Company during the Pre-Closing Period. Notwithstanding the foregoing, nothing in this Section 5.6 shall require the Company
to (x) give any indemnities that are effective prior to the Effective Time or (y) take any action that would unreasonably and materially interfere with the ongoing operations of the Acquired Corporations.
5.7 Disclosure.
The initial press release relating to this Agreement shall be a joint press release issued by the Company and Parent
and thereafter Parent and the Company shall consult with each other before issuing any further press release or otherwise making any public statement (to the extent not previously issued or made in accordance with this Agreement) with respect to the
Merger, this Agreement or any of the other Transactions. Notwithstanding the foregoing: (a) each Party may, without such consultation or consent, make any public statement in response to questions from the press, analysts, investors or those
attending industry conferences, make internal announcements to employees and make disclosures in Company SEC Documents, in each case so long as such statements are consistent in all material respects with previous press releases, public disclosures
or public statements made jointly by the Parties (or individually, if approved by the other Party), (b) a Party may, without the prior consent of the other Party hereto, issue any such press release or make any such public announcement or
statement as may be required by Legal Requirement (in which case the disclosing Party shall use its commercially reasonable efforts to consult with the other Party in accordance with this Section 5.7 prior to such public release); and
(c) the Company need not consult with or obtain the consent of Parent in connection with any press release, public statement or filing to be issued or made pursuant to Section 4.3(e) or with respect to any Company Adverse Change
Recommendation, Acquisition Proposal (to the extent public disclosure is permitted under this Agreement) or Superior Offer, in each case made pursuant to Section 5.1(b). For the avoidance of doubt, this Section 5.7 is subject in all
respects to the provisions contained in Section 4.3(e).
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5.8 Resignation of Directors
. The Company shall use all reasonable efforts to obtain and
deliver to Parent on or prior to the Effective Time the resignation of the Acquired Corporations respective directors.
5.9
Takeover Laws; Advice of Changes.
(a)
If any Takeover Law may become, or may purport to be, applicable to the transactions
contemplated in this Agreement, each of Parent and the Company shall use their respective reasonable best efforts to take such actions as are necessary so that the transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms and conditions contemplated hereby and otherwise act to lawfully eliminate the effect of any Takeover Law on any of the transactions contemplated by this Agreement.
(b)
The Company will give prompt notice to Parent (and will subsequently provide Parent with notice of any material developments related
to such notice) upon its becoming aware of the occurrence or existence of any fact, event or circumstance that (i) has had or would reasonably be expected to result in any Material Adverse Effect with respect to it and (ii) is reasonably
likely to result in any of the conditions set forth in Sections 6.1 and/or 6.2 not being able to be satisfied prior to the End Date. Parent will give prompt notice to the Company (and will subsequently provide the Company with notice of any material
developments related to such notice) upon its becoming aware of the occurrence or existence of any fact, event or circumstance that (i) has had or would reasonably be expected to have a Parent Material Adverse Effect or (ii) is reasonably
likely to result in any of the conditions set forth in Sections 6.1 and/or 6.3 not being able to be satisfied prior to the End Date.
5.10 Section 16 Matters.
The Company, and the Companys Board of Directors, shall, to the extent necessary, take appropriate
action, prior to or as of the Effective Time, to approve, for purposes of Section 16(b) of the Exchange Act, the deemed disposition and cancellation of shares of Company Common Stock and Company Options in the Transactions contemplated hereby
by applicable individuals and to cause such dispositions and/or cancellations to be exempt under Rule 16b-3 promulgated under the Exchange Act.
5.11 Bank of America Consent and Waiver.
Prior to the Closing Date, the Company shall use its commercially reasonable efforts to obtain
the Bank of America Consent and Waiver.
5.12 Financing.
(a)
Promptly upon request by the Company, Parent shall reimburse the Company (or pay in advance) for any reasonable and documented
out-of-pocket costs and expenses (including reasonable attorneys fees) incurred by the Company in connection with the cooperation of the Company, as requested by Parent, with respect to the Financing.
(b)
Prior to the Closing, the Acquired Corporations shall, and shall use their commercially reasonable efforts to cause the respective
Representatives of the Acquired Corporations to, cooperate as reasonably requested by Parent in connection with any debt financing sought by Parent or its Affiliates in connection with the transactions contemplated by this Agreement (the
Financing
), including, without limitation (i) assisting with the preparation of customary materials for syndication documents, including rating agency presentations, bank confidential information memoranda, business
projections and similar documents required in connection with the Financing, (ii) using commercially reasonable efforts to cause its independent accountants to provide assistance and cooperation to Parent, including participating in drafting
sessions and accounting due diligence sessions and providing consent to Parent to use their audit reports relating to the Acquired Corporations, (iii) using commercially reasonable efforts to obtain consents, approvals, authorizations,
customary payoff letters, and instruments of termination and discharge reasonably requested by Parent, (iv) preparing and furnishing all financial and other pertinent information regarding the Acquired Corporations reasonably requested by
Parent, including all financial statements, pro forma financial statements and other financial data required in connection with the Financing, (v) providing reasonable access (subject to execution of non-disclosure and confidentiality
agreements reasonably acceptable to the Company) to prospective lenders involved in the Financing to evaluate the Acquired Corporations current assets, cash management and accounting systems, policies and procedures relating thereto for
purposes of establishing collateral arrangements and
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cooperating with prospective lenders to establish bank and other accounts and blocked account agreements and lock box arrangements in connection with the foregoing; provided that no such
accounts, agreements or arrangements shall be effective prior to the Effective Time, (vi) executing and delivering definitive financing documents, including credit agreements, intercreditor agreements, pledge and security documents, and
certificates, legal opinions, or other documents, to the extent reasonably requested by Parent and otherwise reasonably facilitating the pledging of collateral, provided that no such documents or agreements shall be effective prior to the Effective
Time, (vii) reasonably assisting Parent in obtaining corporate and facilities ratings for the Financing, and (viii) furnishing Parent and any lenders involved with the Financing, with all documentation and other information required by any
Governmental Entity with respect to the Financing under applicable know your customer and anti-money laundering rules and regulations, including the PATRIOT Act. Notwithstanding the foregoing: (i) such requested cooperation shall
not unreasonably interfere with the ongoing operations of the Acquired Corporations; and (ii) no Acquired Corporation shall be required to pay any commitment or other similar fee or incur any other liability in connection with the Financing
prior to the Closing. Parent shall (A) promptly upon request by the Company, reimburse the Company for all reasonable and documented out-of-pocket fees and expenses of the Acquired Corporations and all reasonable and documented fees and
expenses of their counsel and accountants incurred in connection with such requested cooperation, and (B) indemnify the Acquired Corporations against any claim, loss, damage, injury, liability, judgment, award, penalty, fine, Tax, cost
(including cost of investigation), expense (including reasonable fees and expenses of counsel) or settlement payment incurred as a result of such cooperation (including any claim by or with respect to any such lenders, prospective lenders, agents
and arrangers and ratings agencies).
5.13 Operation of Parent and Merger Sub
. Except with respect to the Insider Agreement,
Support Agreement, Separation Agreements and employment and/or compensation arrangements with the Continuing Officers and other employees of the Company that will be effective following the Closing, during the Pre-Closing Period, without the written
consent of the Company (which consent shall not be unreasonably withheld, delayed or conditioned), Parent and Merger Sub shall not, and shall cause their respective Affiliates to not, (i) enter into discussions or negotiations regarding any
Contracts or other agreements, arrangements or understandings (whether oral or written) or commitments to enter into agreements, arrangements or understandings (whether oral or written) or (ii) amend or otherwise supplement any agreements,
arrangements or understandings (whether oral or written) in existence on the date of this Agreement, in the case of clauses (i) and (ii) that are between Parent, Merger Sub or any of their Affiliates, on the one hand, and any officer or
director of the Company, on the other hand, that relate in any way to the Company or its Subsidiary or the Transactions.
ARTICLE 6 CONDITIONS
PRECEDENT TO THE MERGER
6.1 Conditions to Each Partys Obligation To Effect the Merger.
The obligations of the Parties to
effect the Merger are subject to this Agreement having been duly approved, at or prior to the Closing, by the Required Company Shareholder Vote.
6.2 Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger are subject to
the satisfaction, at or prior to the Closing, of each of the following conditions:
(a)
The representations and warranties of the
Company set forth in Sections 2.1 (Due Organization; Subsidiaries Etc.), 2.3 (Capitalization, Etc.), 2.5 (first sentence only and not including clause (a) thereof) (Absence of Changes), 2.20 (Authority; Binding Nature of Agreement), 2.21 (Vote
Required) and 2.24 (Financial Advisor) of the Agreement shall have been accurate in all material respects as of the date of the Agreement, and shall be accurate in all material respects at and as of the Closing Date as if made on and as of such
Closing Date (it being understood that, for purposes of determining the accuracy of such representations and warranties, (i) all Material Adverse Effect qualifications and other materiality qualifications contained in such
representations and warranties shall be disregarded, (ii) any update of or modification to the Company Disclosure Schedule made or purported to have been made after the date of the Agreement shall be disregarded and (iii) the truth and
correctness of those representations or warranties that address matters only as of a specific date shall be
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measured (subject to the applicable materiality standard as set forth in this Section 6.2(a)) only as of such date). Solely for the purposes of this Section 6.2(a), if one or more
inaccuracies in the representations and warranties set forth in Sections 2.1 (Due Organization; Subsidiaries Etc.), 2.3 (Capitalization, Etc.), 2.5 (first sentence only and not including clause (a) thereof) (Absence of Changes), 2.20
(Authority; Binding Nature of Agreement), 2.21 (Vote Required) and 2.24 (Financial Advisor) would cause the aggregate amount required to be paid by Parent or Merger Sub to effectuate the Merger, consummate the Transactions to be consummated on the
Closing Date and pay all fees and expenses in connection therewith, whether pursuant to Section 1 or otherwise, to increase by $250,000 or more, such inaccuracy or inaccuracies will be considered material for purposes of this
Section 6.2(a).
(b)
The representations and warranties of the Company set forth in Section 2.5(b) (No Material Adverse
Effect) shall have been accurate in all respects as of the date of the Agreement (it being understood that, for purposes of determining the accuracy of such representations and warranties, (i) any update of or modification to the Company
Disclosure Schedule made or purported to have been made after the date of the Agreement shall be disregarded and (ii) the truth and correctness of those representations and warranties that address matters only as of a specific date shall be
measured (subject to the applicable standard as set forth in this Section 6.2(b)) as of such date).
(c)
The representations
and warranties of the Company set forth in the Agreement (other than those referred to in clauses a or b above) shall have been accurate in all respects as of the date of the Agreement, and shall be accurate in all respects
at and as of the Closing Date as if made on and as of such date, except that any inaccuracies in such representations and warranties will be disregarded if the circumstances giving rise to all such inaccuracies (considered collectively) do not
constitute, and would not reasonably be expected to have, a Material Adverse Effect (it being understood that, for purposes of determining the accuracy of such representations and warranties, (i) all Material Adverse Effect
qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded, (ii) any update of or modification to the Company Disclosure Schedule made or purported to have been made after the date
of the Agreement shall be disregarded and (iii) the truth and correctness of those representations or warranties that address matters only as of a specific date shall be measured (subject to the applicable materiality standard as set forth
above) only as of such date).
(d)
The Company shall have performed or complied in all material respects with any covenant or
obligation that the Company is required to comply with or to perform under the Agreement prior to the Closing Date, or, if not complied with or performed in all material respects, such noncompliance or failure to perform shall have been cured.
(e)
Parent and Merger Sub shall have received certificates executed on behalf of the Company by the chief executive officer or chief
financial officer of the Company, certifying that the conditions set forth in Sections 6.2(a), (b), (c), (d) and (j) have been satisfied.
(f)
Since the date of this Agreement, there shall not have occurred a Material Adverse Effect that shall be continuing as of the Closing
Date.
(g)
There shall not have been issued by any court of competent jurisdiction or remain in effect any temporary restraining
order, preliminary or permanent injunction or other order preventing the consummation of the Merger nor shall any action have been taken, or any Legal Requirement or order promulgated, entered, enforced, enacted, issued or deemed applicable to the
Merger by any Governmental Body which directly or indirectly prohibits, or makes illegal, the acceptance for payment of or payment for shares of Company Common Stock or the consummation of the Merger;
provided, however
, that Parent and Merger
Sub shall not be permitted to invoke this Section 6.2(g) unless they shall have taken all actions required under this Agreement to have any such order lifted.
(h)
There shall not be pending any Legal Proceeding by a Governmental Body having authority over Parent, Merger Sub or any Acquired
Corporation (i) challenging or seeking to restrain or prohibit the consummation of the Merger, (ii) seeking to restrain or prohibit Parents or its Affiliates ownership or operation
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of the business of the Acquired Corporations, or of Parent or its Affiliates, or to compel Parent or any of its Affiliates to dispose of or hold separate all or any portion of the business or
assets of the Acquired Corporations or of Parent or its Affiliates or (iii) seeking to impose or confirm material limitations on the ability of Parent or any of its Affiliates effectively to exercise full rights of ownership of the shares of
Company Common Stock.
(i)
Parent shall have received the Bank of America Consent and Waiver, fully executed and in a form
acceptable to Parent, and an accurate copy of each other Consent, filing and notice identified in Part 6.2(i) of the Company Disclosure Schedule hereto, each of which Consents shall be in a form reasonably acceptable to Parent.
(j)
The Amendment and Waivers and Separation Agreements shall continue to be in full force and effect as of the Effective Time.
(k)
Parent shall have received the resignations of the Acquired Corporations respective directors.
6.3 Conditions to Obligation of the Company.
The obligations of the Company to effect the Merger are subject to the satisfaction, at or
prior to the Closing, of each of the following conditions:
(a)
The representations and warranties of Parent and Merger Sub set
forth in Section 3.7 (Sufficiency of Funds) of the Agreement shall have been accurate in all material respects as of the date of the Agreement, and shall be accurate in all material respects at and as of the Closing Date as if made on and as of
such date (it being understood that, for purposes of determining the accuracy of such representations and warranties, (i) all materiality qualifications contained in such representations and warranties shall be disregarded and (ii) the
truth and correctness of those representations or warranties that address matters only as of a specific date shall be measured (subject to the applicable materiality standard as set forth above) only as of such date).
(b)
The representations and warranties of Parent and Merger Sub set forth in the Agreement (other than those referred to in clause
a above) shall have been accurate in all respects as of the date of the Agreement, and shall be accurate in all respects at and as of the Closing Date as if made on and as of such date, except that any inaccuracies in such
representations and warranties will be disregarded if the circumstances giving rise to all such inaccuracies (considered collectively) do not constitute, and would not reasonably be expected to have, a Parent Material Adverse Effect (it being
understood that, for purposes of determining the accuracy of such representations and warranties, (i) all materiality qualifications contained in such representations and warranties shall be disregarded and (ii) the truth and correctness
of those representations or warranties that address matters only as of a specific date shall be measured (subject to the applicable materiality standard as set forth above) only as of such date).
(c)
Parent and Merger Sub shall have performed or complied in all material respects with any covenant or obligation that Parent or
Merger Sub is required to comply with or to perform under the Agreement prior to the Closing Date, or, if not complied with or performed in all material respects, such noncompliance or failure to perform shall have been cured.
(d)
The Company shall have received certificates executed on behalf of Parent by the chief executive officer, chief financial officer or
member or manager of Parent, certifying that the conditions set forth in Sections 6.3(a), (b) and (c) have been satisfied.
(e)
There shall not have been issued by any court of competent jurisdiction or remain in effect any temporary restraining order,
preliminary or permanent injunction or other order preventing the consummation of the Merger or the other Transactions, nor shall any action have been taken, or any Legal Requirement or order promulgated, entered, enforced, enacted, issued or deemed
applicable to the Merger or the other Transactions by any Governmental Body which directly or indirectly prohibits, or makes illegal, the acceptance for payment of or payment for shares of Company Common Stock or the consummation of the Merger or
the other Transactions;
provided, however
, that the Company shall not be permitted to invoke this Section 6.3(e) unless it shall have taken all actions required under this Agreement to have any such order lifted.
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ARTICLE 7 TERMINATION
7.1 Termination
. This Agreement may be terminated prior to the Effective Time (whether before or after the adoption of this Agreement by
the Required Company Shareholder Vote, except as otherwise expressly noted):
(a)
by mutual written consent of Parent and the
Company;
(b)
by either the Company or Parent, if the Company Shareholders Meeting (including any adjournments and
postponements thereof) shall have been held and completed and the Companys shareholders shall have taken a final vote on a proposal to approve this Agreement and the Transactions, and this Agreement and the Transactions shall not have been
approved at the Company Shareholders Meeting (and shall not have been approved at any adjournment or postponement thereof) by the Required Company Shareholder Vote;
provided
that the right to terminate this Agreement pursuant to this
Section 7.1(b) shall not be available to the Company if the Company has breached any of its obligations under Section 4.3 or Section 5.1;
(c)
by either Parent or the Company if a court of competent jurisdiction or other Governmental Body shall have issued a decree or
ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the acceptance for payment of shares of Company Common Stock pursuant to the Merger or making consummation of the Merger
illegal, which order, decree, ruling or other action shall be final and nonappealable;
provided
,
however
, that a Party shall not be permitted to terminate this Agreement pursuant to this Section 7.1(c) if the issuance of such
final and nonappealable order, decree, ruling or other action is primarily attributable to a failure on the part of such Party to perform in any material respect any covenant or obligation in this Agreement required to be performed by such Party at
or prior to the Effective Time;
(d)
by Parent at any time prior to the receipt of the Required Company Shareholder Vote, if,
whether or not permitted to do so: (A) the Companys Board of Directors shall have failed to include the Company Board Recommendation in the Proxy Statement or shall have effected a Company Adverse Change Recommendation; or (B) the
Board of Directors of the Company shall have failed to publicly reaffirm its recommendation of this Agreement in accordance with Section 5.1;
(e)
by either Parent or the Company if the Effective Time shall not have occurred on or prior to the close of business on the date that
is the End Date;
provided
,
however
, that a Party shall not be permitted to terminate this Agreement pursuant to this Section 7.1(e) if the failure of the Effective Time to occur prior to the End Date was primarily due to the
failure of such Party to perform in all material respects any of its obligations under this Agreement;
(f)
by the Company at any
time prior to the receipt of the Required Company Shareholder Vote, in order to accept a Superior Offer and concurrently enter into a Company Acquisition Agreement relating to such Superior Offer, if (i) the Company has complied in all material
respects with the requirements of Section 4.3 and Section 5.1 and (ii) prior to or concurrently with such termination, the Company pays the amounts due to Parent under Section 7.3;
(g)
by Parent at any time prior to the Effective Time, if a breach of any representation or warranty or failure to perform any covenant
or obligation contained in this Agreement on the part of the Company shall have occurred that (i) except with respect to the covenants and agreements contained in Section 4.3, (A) would cause a failure of the conditions in
Section 6.2(a), (b), (c) or (d) to exist and (B) cannot be cured by the Company by the End Date, or if capable of being cured, shall not have commenced to have been cured within fifteen (15) days of the date Parent gives the
Company notice of such breach or failure to perform or (ii) with respect to the covenants and agreements contained in Section 4.3, (A) would cause a failure of the conditions in Section 6.2(a), (b), (c) or (d) to exist
and (B) cannot be cured by the Company by the End Date, or if capable of being cured, shall not have been cured (x) within five (5) business days following receipt of written notice from the Parent of such breach or (y) any
shorter period of time that remains between the date the Parent provides written notice of such breach and the End Date;
provided, however
, that Parent shall not have the right to terminate this Agreement pursuant to this Section 7.1(g)
if either Parent or Merger Sub is then in material breach of any
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representation, warranty, covenant or other agreement hereunder that would result in the conditions to Closing set forth in Section 6.1 or Section 6.3 not being satisfied; or
(h)
by the Company at any time prior to the Effective Time, if a breach of any representation or warranty or failure to perform any
covenant or obligation contained in this Agreement on the part of Parent shall have occurred that would cause a failure of the conditions in Section 6.3(a), (b) or (c) to exist and cannot be cured by Parent by the End Date, or if
capable of being cured, shall not have commenced to have been cured within fifteen (15) days of the date the Company gives Parent notice of such breach or failure to perform;
provided, however
, that, the Company shall not have the right to
terminate this Agreement pursuant to this Section 7.1(h) if it is then in material breach of any representations, warranties, covenants or other agreements hereunder that would result in the conditions to Closing set forth in Section 6.1
or Section 6.2 not being satisfied.
7.2 Effect of Termination
. In the event of the termination of this Agreement as provided
in Section 7.1, written notice thereof shall be given to the other Party or Parties, specifying the provision hereof pursuant to which such termination is made, and this Agreement shall be of no further force or effect and there shall be no
liability on the part of Parent, Merger Sub or the Company or their respective directors, officers and Affiliates following any such termination;
provided, however
, that (a) this Section 7.2, Section 7.3, and article 8 shall
survive the termination of this Agreement and shall remain in full force and effect, (b) the Confidentiality Agreement shall survive the termination of this Agreement and shall remain in full force and effect in accordance with its terms; and
(c) the termination of this Agreement shall not relieve any Party from any liability for intentional breach or fraud prior to the date of termination. Nothing shall limit or prevent any Party from exercising any rights or remedies it may have
under Section 8.5(b) in lieu of terminating this Agreement pursuant to Section 7.1.
7.3 Expenses.
(a)
Except as set forth in Section 7.3(b), all Acquisition Expenses shall be paid by the Party incurring such expenses, whether or
not the Merger is consummated.
(b)
In the event that:
(i) (A) a bona fide Acquisition Proposal shall have been publicly made, proposed or communicated (and not withdrawn) after the date hereof and
prior to the Company Shareholders Meeting (or prior to the termination of this Agreement if there has been no Company Shareholders Meeting), (B) following the occurrence of an event described in the preceding clause (A), this
Agreement is so terminated by the Company or Parent pursuant to Section 7.1(b) or Section 7.1(e) or by Parent pursuant to Section 7.1(g) and (C) within twelve (12) months of the date this Agreement is terminated, the Company
enters into a definitive agreement with respect to any Acquisition Proposal and such Acquisition Proposal is consummated (in each case whether or not the Acquisition Proposal was the same Acquisition Proposal referred to in clause (A));
provided
, that for purposes of clause (C) of this Section 7.3(b)(i), the references to 20% in the definition of Acquisition Proposal shall be deemed to be references to 50%; or
(ii) this Agreement is terminated by the Company pursuant to Section 7.1(f); or
(iii) (A) this Agreement is terminated by Parent pursuant to Section 7.1(d) or (B) this Agreement is terminated by the Company
or Parent pursuant to Section 7.1(b) and prior to the Company Shareholders Meeting the Board of Directors of the Company has made a Company Adverse Change Recommendation;
then, in any such event under clause (i), (ii) or (iii) of this Section 7.3(b), the Company shall pay to Parent or its designee the applicable
Termination Fee (as defined below) by wire transfer of same day funds (x) in the case of Section 7.3(b)(iii), within two (2) business days after such termination, (y) simultaneously with such termination if pursuant to
Section 7.1(f) or (z) in the case of Section 7.3(b)(i), two (2) business days after the consummation of an Acquisition Proposal; it being understood that in no event shall the Company be required to pay the applicable Termination
Fee on more than one occasion. As used herein,
Termination Fee
shall mean a cash amount equal to the greater of $850,000 and the Parent Expenses;
provided, that
any Parent Expenses paid
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pursuant to Section 7.3(c) shall be credited against the amount of any Termination Fee. In the event that Parent or its designee shall receive full payment pursuant to this
Section 7.3(b) and Section 7.3(c), together with reimbursement of any applicable expenses pursuant to Section 7.3(e), the receipt of the applicable Termination Fee, Parent Expenses and the expenses referred to Section 7.3(e)
shall be deemed to be liquidated damages for any and all losses or damages suffered or incurred by Parent, Merger Sub, any of their respective Affiliates or any other Person in connection with this Agreement (and the termination hereof), the
transactions contemplated hereby (and the abandonment thereof) or any matter forming the basis for such termination, and none of Parent, Merger Sub, any of their respective Affiliates or any other Person shall be entitled to bring or maintain any
claim, action or proceeding against the Company or any of its Affiliates arising out of or in connection with this Agreement, any of the transactions contemplated hereby or any matters forming the basis for such termination;
provided,
however
, that prior to the termination of this Agreement pursuant to Section 7.1 nothing in this Section 7.3(b) shall limit the rights of Parent and Merger Sub under Section 8.5(b).
(c)
Unless Parent provides the Company or its Representatives with written notice that it does not intend to pursue the Transactions
contemplated herein prior to the Company entering into discussions regarding an Alternative Transaction, in the event that:
(i) the Company shall terminate this Agreement pursuant to Section 7.1(b) (provided that NECA has voted the shares of
Company Common Stock beneficially owned by it in favor of adopting the Merger Agreement at the Company Shareholders Meeting) or Section 7.1(f); or
(ii) Parent shall terminate this Agreement pursuant to Section 7.1(b) (provided that NECA has voted the shares of Company
Common Stock beneficially owned by it in favor of adopting the Merger Agreement at the Company Shareholders Meeting), Section 7.1(d) or Section 7.1(g);
then in any such event the Company shall pay Parent or its designees, as promptly as possible (but in any event within two (2) business days) following
the delivery by Parent of an invoice therefor, all documented out-of-pocket fees and expenses incurred by Parent, Merger Sub and their respective Affiliates in connection with the transactions contemplated by this Agreement; provided that the
Company shall not be required to pay more than an aggregate of one million five hundred thousand dollars ($1,500,000) in such fees and expenses pursuant to this Section 7.3(c) (the
Parent Expenses
). The expenses
payable pursuant to this Section 7.3(c) shall be paid by wire transfer of same day funds within five (5) business days after demand therefor following the occurrence of the termination event giving rise to the payment obligation described
in this Section 7.3(c). The payment of the expense reimbursement pursuant to this Section 7.3(c) shall not relieve the Company of any subsequent obligation to pay the Termination Fee pursuant to Section 7.3(b), but shall be credited
against the Termination Fee payable pursuant to Section 7.3(b).
(d)
In the event that the Company shall terminate this
Agreement pursuant to Section 7.1(h), Parent shall pay the Company or its designees, as promptly as possible (but in any event within two (2) business days) following the delivery by the Company of an invoice therefor, all documented
out-of-pocket fees and expenses incurred by the Company in connection with the transactions contemplated by this Agreement (the
Company Expenses
);
provided
, that Parent shall not be required to pay more than an
aggregate of $1,500,000 in Company Expenses pursuant to this Section 7.3(d). The expenses payable pursuant to this Section 7.3(d) shall be paid by wire transfer of same day funds within five (5) business days after demand therefor
following the occurrence of the termination event giving rise to the payment obligation described in this Section 7.3(d). In the event that the Company or its designee shall receive full payment pursuant to this Section 7.3(d), together
with reimbursement of any applicable expenses pursuant to Section 7.3(e), the receipt of the Company Expenses and the expenses referred to Section 7.3(e) shall be deemed to be liquidated damages for any and all losses or damages suffered
or incurred by the Acquired Corporations or any of their respective Affiliates or any other Person in connection with this Agreement (and the termination hereof), the transactions contemplated hereby (and the abandonment thereof) or any matter
forming the basis for such termination, and none of the Acquired Corporations, any of their respective Affiliates or any other Person shall be entitled to bring or maintain any claim, action or proceeding against Parent, Merger Sub or any of their
Affiliates arising out of or in connection with this Agreement, any of the transactions contemplated hereby or any matters forming the basis for such termination;
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provided, however,
that prior to the termination of this Agreement pursuant to Section 7.1 nothing in this Section 7.3(d) shall limit the rights of the Company under
Section 8.5(b) or the Guaranty.
(e)
The Parties acknowledge that the agreements contained in this Section 7.3 are an
integral part of the transactions contemplated by this Agreement and that, without these agreements, the Parties would not enter into this Agreement; accordingly, if the Company or Parent, as the case may be, fails to timely pay any amount due
pursuant to this Section 7.3, and, in order to obtain the payment, Parent or the Company, as the case may be, commences a Legal Proceeding which results in a judgment against the other Party, with respect to Parent or Merger Sub, or Parties,
with respect to the Company, for the payment set forth in this Section 7.3, such paying Party shall pay the other Party or Parties, as applicable, its reasonable and documented costs and expenses (including reasonable and documented
attorneys fees) in connection with such suit, together with interest on such amount at the prime rate as published in the Wall Street Journal in effect on the date such payment was required to be made through the date such payment was actually
received.
ARTICLE 8MISCELLANEOUS PROVISIONS
8.1 Amendment
. Prior to the Effective Time, this Agreement may be amended with the approval of the Board of Directors of the Company and
the sole manager of Parent at any time (whether before or after the adoption of this Agreement by the Companys shareholders);
provided, however
, that after any such adoption of this Agreement by the Companys shareholders, no
amendment shall be made which by applicable Legal Requirements requires further approval of the shareholders of the Company without the further approval of such shareholders. Subject to the immediately preceding proviso, this Agreement may not be
amended except by an instrument in writing signed on behalf of each of the Parties hereto.
8.2 Waiver
. No failure on the part of
any Party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. No Party shall be deemed to have waived any
claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on
behalf of such Party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.
8.3 No Survival of Representations and Warranties
. None of the representations and warranties contained in this Agreement, the Company
Disclosure Schedule or in any certificate or schedule or other document delivered pursuant to this Agreement shall survive the Merger.
8.4 Entire Agreement; Counterparts
. This Agreement and the other agreements and disclosure schedules referred to herein constitute the
entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the Parties and their Affiliates, or any of them, with respect to the subject matter hereof and thereof;
provided, however
,
that the Confidentiality Agreement shall not be superseded and shall remain in full force and effect;
provided, further, that
, if the Effective Time occurs, the Confidentiality Agreement shall automatically terminate and be of no further
force and effect. For the avoidance of doubt, the Insider Agreement, Separation Agreements and Amendment and Waivers shall survive the Effective Time in accordance with their respective terms. This Agreement may be executed in several counterparts,
each of which shall be deemed an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by PDF shall be sufficient to bind the Parties to the terms and
conditions of this Agreement and shall be treated as originals for all purposes.
8.5 Applicable Legal Requirements; Jurisdiction;
Specific Performance; Remedies.
(a)
This Agreement shall be governed by, and construed in accordance with, the laws of the
State of Texas, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
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Subject to Section 8.5(c), in any action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement: (i) each of the Parties
irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in Potter County, Texas and irrevocably waives, to the fullest extent permitted by law, any objection that it may
now or hereafter have to the laying of the venue of any such action or proceeding in any such court or that any such action or proceeding brought in any such court has been brought in an inconvenient forum; (ii) if any such action is commenced
in a state court, then, subject to applicable Legal Requirements, any Party may petition for the removal of such action to any federal court located in the Northern District of Texas; and (iii) each of the Parties irrevocably consents to
service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which such Party is to receive notice in accordance with Section 8.9. The Parties hereto agree that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Legal Requirements;
provided
,
however
, that nothing in the foregoing shall
restrict any Partys rights to seek any post-judgment relief regarding, or any appeal from, such final trial court judgment.
(b)
The Parties agree that irreparable damage for which monetary damages, even if available, would not be an adequate remedy, would occur in the event that the Parties hereto do not perform their obligations under the provisions of this Agreement
(including failing to take such actions as are required of them hereunder to consummate the Transactions) in accordance with its specified terms or otherwise breach such provisions. Subject to the following sentence, the Parties acknowledge and
agree that (a) each of the Parties shall be entitled to an injunction or injunctions, specific performance, or other equitable relief, to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in the
courts described in Section 8.5(a) without proof of damages or otherwise, this being in addition to any other remedy to which they are entitled under this Agreement, (b) the provisions set forth in Section 7.3 (i) are not
intended to and do not adequately compensate for the harm that would result from a breach of this Agreement and shall not be construed to diminish or otherwise impair in any respect any Partys right to specific enforcement as set forth in the
immediately preceding clause (a) and (c) the right of specific performance is an integral part of the transactions contemplated by this Agreement and without that right, neither the Company nor Parent would have entered into this
Agreement. The Parties hereto acknowledge and agree that any Party seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in accordance with this
Section 8.5(b) shall not be required to provide any bond or other security in connection with any such order or injunction.
(c)
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING BETWEEN THE PARTIES HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
8.6 Attorneys Fees
. In any action at law or suit in equity to enforce this Agreement or the rights of any of the Parties
hereunder, the prevailing party in such action or suit shall be entitled to receive a sum for its reasonable attorneys fees and all other reasonable costs and expenses incurred in such action or suit.
8.7 Assignability; Successors and Assigns
. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and
their successors and permitted assigns (if any). Prior to the Effective Time, neither the Company nor Parent shall assign this Agreement or any rights or obligations hereunder (by operation of law or otherwise) to any Person, it being understood
that nothing in this Section 8.7 shall prohibit Parent or Merger Sub from consummating any merger, acquisition or similar transaction with any Affiliate of Parent.
8.8 No Third Party Beneficiaries
. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person (other
than the Parties hereto) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement; except, for if the Effective Time occurs, (A) the right of the Companys shareholders and holders of Company Options to
receive the Merger Consideration following the Effective Time pursuant to Sections 1.5 and 1.8, respectively, and (B) the rights of Indemnified Persons set forth in Section 5.4.
A-41
8.9 Notices
. Any notice or other communication required or permitted to be delivered to
any Party under this Agreement shall be in writing and shall be deemed properly delivered, given and received (a) upon receipt when delivered by hand, (b) two business days after sent by registered mail or by courier or express delivery
service, (c) if sent by email transmission prior to 6:00 p.m. recipients local time, upon transmission when receipt is confirmed, or (d) if sent by email transmission after 6:00 p.m. recipients local time and receipt is
confirmed, the business day following the date of transmission;
provided
that in each case the notice or other communication is sent to the physical address or email address set forth beneath the name of such Party below (or to such other
physical address or email address as such Party shall have specified in a written notice given to the other Parties hereto):
if to Parent
or Merger Sub (or following the Effective Time, the Company):
Draw Another Circle, LLC
Attn: Joel Weinshanker
c/o
National Entertainment Collectibles Association, Inc.
603 Sweetland Avenue
Hillside, NJ 07205
E-mail:
joelw@necaonline.com
with a copy to (which shall not constitute notice):
Cooley
LLP
Attn:
Cathy Hershcopf, Esq.
1114 Avenue of Americas
New York, NY 10036
Email:
chershcopf@cooley.com
Cooley
LLP
Attn: Barbara Borden, Esq.
4401
Eastgate Mall
San Diego, CA 92121
Email: bordenbl@cooley.com
if to
the Company (prior to the Effective Time):
Hastings Entertainment, Inc.
Attn: Dan Crow
3601 Plains
Boulevard
Amarillo, Texas 79102
Email: dan.crow@gohastings.com
with a copy to (which shall not constitute notice):
Kelly Hart & Hallman LLP
Attn: S. Benton Cantey
201 Main
Street, Suite 2500
Fort Worth, Texas 76102
Email: benton.cantey@kellyhart.com
and
Haynes and Boone, LLP
Attn: W. Scott Wallace
2323
Victory Avenue, Suite 700
Dallas, Texas 75219
Email: scott.wallace@haynesboone.com
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8.10 Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions of this Agreement or the validity or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If a final judgment of a court of competent jurisdiction declares that any term or provision of this Agreement is invalid or unenforceable, the Parties hereto agree that the court making such determination shall have the
power to limit such term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be valid and enforceable as
so modified. In the event such court does not exercise the power granted to it in the prior sentence, the Parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will
achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term or provision.
8.11
Obligation of Parent
. Parent shall ensure that each of Merger Sub and the Surviving Corporation duly performs, satisfies and discharges on a timely basis each of the covenants, obligations and liabilities of Merger Sub and the Surviving
Corporation under this Agreement, and Parent shall be jointly and severally liable with Merger Sub and the Surviving Corporation for the due and timely performance and satisfaction of each of said covenants, obligations and liabilities.
8.12 Disclaimer of Representations and Warranties
.
(a)
Except for the representations and warranties set forth in article 2, each of Parent and Merger Sub acknowledges and agrees that no
representation or warranty of any kind whatsoever, express or implied, at law or in equity, is made or shall be deemed to have been made by or on behalf of the Company to Parent or Merger Sub, and the Company hereby disclaims, and Parent and Merger
Sub hereby disclaim any reliance upon, any such representation or warranty, whether by or on behalf of the Company, and notwithstanding the delivery or disclosure to Parent or Merger Sub, or any of their Representatives or Affiliates, of any
documentation or other information by the Company or any of its Representatives or Affiliates with respect to any one or more of the foregoing. In particular, without limiting the foregoing disclaimer, neither the Company nor any other Person makes
or has made any representation or warranty to Parent, Merger Sub, or any of their Affiliates or Representatives, and Parent and Merger Sub hereby disclaim any reliance upon, any representation or warranty with respect to any financial projection,
forecast, estimate, budget or prospect information relating to the Company, its Subsidiary or their respective businesses.
(b)
Except for the representations and warranties set forth in Section 3, the Company acknowledges and agrees that no representation or warranty of any kind whatsoever, express or implied, at law or in equity, is made or shall be deemed to have
been made by or on behalf of Parent or Merger Sub, and Parent and Merger Sub hereby disclaim, and the Company hereby disclaims any reliance upon, any such representation or warranty, whether by or on behalf of Parent or Merger Sub, and
notwithstanding the delivery or disclosure to the Company, or any of their Representatives or Affiliates of any documentation or other information by Parent or Merger Sub or any of their respective Representatives or Affiliates with respect to any
one or more of the foregoing. In particular, without limiting the foregoing disclaimer, neither Parent, Merger Sub nor any other Person makes or has made any representation or warranty to the Company, or any of its Affiliates or Representatives, and
the Company hereby disclaims any reliance upon, any representation or warranty with respect to any financial projection, forecast, estimate, budget or prospect information relating to the Surviving Corporation, its Subsidiary or their respective
businesses after the Closing.
8.13 Construction.
(a)
For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.
(b)
The Parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting Party
shall not be applied in the construction or interpretation of this Agreement.
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(c)
As used in this Agreement, the words include and including,
and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words without limitation.
(d)
Except as otherwise indicated, all references in this Agreement to Sections, Exhibits, Annexes
and Schedules are intended to refer to Sections of this Agreement and Exhibits, Annexes or Schedules to this Agreement.
(e)
If any calendar day period referenced in this Agreement includes a day that is a U.S. national holiday, then any such period means
such period as extended by the number of days during such period that are U.S. national holidays. A calendar day period shall consist of a period of twenty-four (24) hours from the time that such period started.
(f)
The bold-faced headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
[Signature page
follows]
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I
N
W
ITNESS
W
HEREOF
, the
parties have caused this Agreement to be executed as of the date first above written.
|
|
|
H
ASTINGS
E
NTERTAINMENT
, I
NC
.
|
|
|
By:
|
|
/s/ Dan Crow
|
Name:
|
|
Dan Crow
|
Title:
|
|
Chief Financial Officer
|
Signature Page to
Agreement and Plan of Merger
I
N
W
ITNESS
W
HEREOF
, the
parties have caused this Agreement to be executed as of the date first above written.
|
|
|
D
RAW
A
NOTHER
C
IRCLE
, LLC
|
|
|
By:
|
|
/s/ Joel Weinshanker
|
Name:
|
|
Joel Weinshanker
|
Title:
|
|
Manager
|
|
H
ENDRIX
A
CQUISITION
C
ORP
.
|
|
|
By:
|
|
/s/ Joel Weinshanker
|
Name:
|
|
Joel Weinshanker
|
Title:
|
|
President
|
Signature Page to
Agreement and Plan of Merger
Exhibit A
E
XHIBIT
A
C
ERTAIN
D
EFINITIONS
For purposes of the Agreement (including this
Exhibit A
):
1994 Plan
means the Companys 1994 Stock Option Plan, as amended.
1996 Plan
means the Companys 1996 Incentive Stock Plan, as amended.
2002 Director Option Plan
means the Companys 2002 Stock Option Plan for Outside Directors, as amended.
2002 Director Stock Plan
means the Companys 2002 Stock Grant Plan for Outside Directors, as amended.
2002 Plan
means the Companys 2002 Incentive Stock Plan, as amended.
2006 Plan
means the Companys 2006 Incentive Stock Plan, as amended.
2010 Plan
means the Companys 2010 Incentive Stock Plan, as amended.
2012 Director Option Plan
means the Companys 2012 Stock Option Plan for Outside Directors, as amended.
Acceptable Confidentiality Agreement
is defined in Section 4.3(a) of the Agreement.
Acquired Corporations
means the Company and its Subsidiary, collectively.
Acquisition Expenses
means all out-of-pocket expenses incurred in connection with negotiating and drafting the
definitive documentation in connection with the Transactions (including conducting the business, financial and legal due diligence) and any other related expenses (including, without limitation, reasonable attorney, accountant and consultant fee
expenses).
Acquisition Proposal
means any proposal or offer from any Person (other than Parent and its
Affiliates) or group, within the meaning of Section 13(d) of the Exchange Act, relating to, in a single transaction or series of related transactions, any (A) acquisition of assets of the Company and its Subsidiary equal to
twenty percent (20%) or more of the Companys consolidated assets or to which twenty percent (20%) or more of the Companys revenues or earnings on a consolidated basis are attributable, (B) issuance or acquisition of twenty
percent (20%) or more of any outstanding class of the Company Common Stock (or instruments convertible to or exchangeable for twenty percent (20%) or more of any such class), (C) recapitalization, tender offer or exchange offer that
if consummated would result in any Person beneficially owning twenty percent (20%) or more of any outstanding class of the Company Common Stock (or instruments convertible to or exchangeable for twenty percent (20%) or more of any such
class) or (D) merger, consolidation, amalgamation, share exchange, business combination, recapitalization, liquidation, dissolution, joint venture or similar transaction involving the Company that if consummated would result in any Person
beneficially owning twenty percent (20%) or more of any class of the outstanding Company Common Stock, in each case other than the Transactions (or instruments convertible to or exchangeable for twenty percent (20%) or more of any such
class).
Affiliate
means, as to any Person, any other Person that, directly or indirectly, controls, or is
controlled by, or is under common control with, such Person. For this purpose, control (including, with its
correlative meanings, controlled by and under common control with) means the possession, directly or indirectly, of the power to direct or cause the direction of
management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise.
Agreement
means this Agreement and Plan of Merger to which this
Exhibit A
is attached, as it may be amended
from time to time.
Amendment and Waivers
is defined in Recital B of the Agreement.
Antitrust Laws
means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, all applicable foreign anti-trust laws and all other applicable Legal Requirements issued by a Governmental Body that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade or lessening of competition through merger or acquisition.
Balance Sheet
is defined in Section 2.6 of the Agreement.
Bank of America Consent and Waiver
means a consent and waiver
acknowledging the Transactions and agreeing that any provisions in the Loan Facility which conflict with or are contrary to the terms and conditions of this Agreement or other documents executed in connection with the Transactions shall be waived
and any benefits enjoyed by the Acquired Corporations pursuant to the Loan Facility shall be enjoyed and remain available to the Surviving Corporation on the same terms and conditions after the Closing.
Book-Entry Shares
means non-certificated shares of Company Common Stock represented by book-entry.
business day
means a day except a Saturday, a Sunday or other day on which banks in the City of New York are
authorized or required by Legal Requirements to be closed.
Certificate
is defined in Section 1.5(b) of the
Agreement.
Change of Control Payment
is defined in Section 2.9(a)(vii) of the Agreement.
Closing
is defined in Section 1.3 of the Agreement.
Closing Date
is defined in Section 1.3 of the Agreement.
Code
means the Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder.
Company
is defined in the preamble to the Agreement.
Company 401(k) Plan
means the Hastings Entertaining, Inc. Associates 401(k) Plan, effective as of June 1, 1993,
as amended.
Company Acquisition Agreement
means any letter of intent, agreement or agreement in principle with
respect to any Acquisition Proposal (other than an Acceptable Confidentiality Agreement).
Company Adverse Change
Recommendation
is defined in Section 5.1(a) of the Agreement.
Company ASOP
means the
Hastings Entertainment, Inc. Associates Ownership Plan, effective as of June 1, 1993, as amended.
Company Associate
means each officer or other employee, or individual
who is an independent contractor, consultant or director, of or to any of the Acquired Corporations.
Company Board
Recommendation
is defined in Recital D of the Agreement.
Company Common Stock
means the common
stock, no par value, of the Company.
Company Contract
means any Contract to which any of the Acquired
Corporations is a party.
Company Disclosure Schedule
means the disclosure schedule that has been prepared by the
Company in accordance with the requirements of this Agreement and that has been delivered by the Company to Parent on the date of this Agreement.
Company Employee Agreement
means each management, employment, severance, retention, transaction bonus, change in
control, consulting, relocation, repatriation or expatriation agreement or other Contract between: (a) any of the Acquired Corporations; and (b) any Company Associate (other than any Company Associate that is part time or paid on an hourly
basis), other than any such Contract that is terminable at will (or following a notice period imposed by applicable Legal Requirements) without any obligation on the part of any Acquired Corporation to make any severance, termination,
change in control or similar payment or to provide any benefit.
Company Equity Award
means any award of
compensation (including deferred compensation) that is required under the terms of such existing award to be or may be paid or settled in Company Common Stock.
Company Equity Plans
means the 1996 Director Option Plan, the 2002 Director Option Plan, the 2002 Director Stock
Plan, the 2002 Plan, the 2006 Plan, the 2010 Plan, the 2012 Director Option Plan and the 2012 Director Stock Plan.
Company
Expenses
is defined in Section 7.3(d) of the Agreement.
Company IP
means (a) all
Intellectual Property Rights that are owned or purported to be owned by the Acquired Corporations, (b) all Intellectual Property Rights in or pertaining to the Proprietary Software, and (c) all material Intellectual Property Rights
licensed by the Acquired Corporations.
Company IT Systems
mean the hardware, software, network and
telecommunications equipment and Internet-related information technology infrastructure owned or leased by any of the Acquired Corporations and used in their respective businesses.
Company Lease
means any Company Contract pursuant to which the Acquired Corporations lease or sublease Leased Real
Property from another Person.
Company Option
means an option to purchase shares of Company Common Stock
(whether granted by the Company pursuant to the Companys Equity Plans, assumed by the Company in connection with any merger, acquisition or similar transaction or otherwise issued or granted).
Company Preferred Stock
means the preferred stock, par value one cent ($0.01) per share, of the Company.
Company Privacy Policy
means each external or internal privacy policy of each Acquired Corporation, including any
policy relating to (i) the privacy of users of any Company Website, (ii) the collection, storage, disclosure, and transfer of any User Data or Personal Data, and (iii) any employee information.
Company SEC Documents
is defined in Section 2.4(a) of the Agreement.
Company SERP
means the Hastings Entertainment, Inc. Supplemental
Executive Retirement Plan, as amended.
Company Shareholders Meeting
is defined in Section 5.1(c) of
the Agreement.
Company Website
means any public or private website owned, maintained, or operated at any time
by or on behalf of any Acquired Corporation.
Confidentiality Agreement
is defined in Section 4.1 of the
Agreement.
Consent
means any approval, consent, ratification, permission, waiver or authorization (including
any Governmental Authorization).
Continuing Officer
means each of Alan Van Ongevalle and Philip McConnell.
Contract
means any written, oral or other agreement, contract, subcontract, lease, understanding, instrument, bond,
debenture, note, option, warrant, warranty, purchase order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature (except, in each case, purchase orders).
Determination Notice
is defined in Section 5.1(b) of the Agreement.
Dissenting Shares
is defined in Section 1.7 of the Agreement.
DOJ
means the U.S. Department of Justice.
Effective Time
is defined in Section 1.3 of the Agreement.
Employee Plan
means any salary, bonus, vacation, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, death and disability benefits, hospitalization, medical, life or other insurance, flexible benefits, supplemental unemployment benefits, profit-sharing, pension or retirement plan, policy, program,
agreement or arrangement and each other employee benefit plan, or arrangement sponsored, maintained, contributed to or required to be contributed to by any of the Acquired Corporations for the benefit of any current or former employee of any of the
Acquired Corporations or for which the Acquired Corporations may have any material liability.
Encumbrance
means
any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any asset).
End Date
means
September 17, 2014.
Entity
means any corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association,
organization or entity.
Environmental Law
means any federal, state, local or foreign Legal Requirement relating
to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including any law or regulation relating to emissions, discharges, releases or threatened releases
of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.
ERISA
means the Employee Retirement Income Security Act of 1974, as
amended.
Exchange Act
means the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
FCPA
is defined in Section 2.13 of the Agreement.
Financing
is defined in Section 5.12(b) of the Agreement.
FTC
means the U.S. Federal Trade Commission.
GAAP
is defined in Section 2.4(b) of the Agreement.
Governmental Authorization
means any: (a) permit, license, certificate, franchise, permission, variance,
clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under any Contract with any
Governmental Body.
Governmental Body
means any: (a) nation, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity and any court or other tribunal).
Guarantor
means Joel Weinshanker, an individual.
Guaranty
is defined in the Preamble of the Agreement.
Hazardous Materials
means any waste, material, or substance that is listed, regulated or defined under any
Environmental Law and includes any pollutant, chemical substance, hazardous substance, hazardous waste, special waste, solid waste, asbestos, mold, radioactive material, polychlorinated biphenyls, petroleum or petroleum-derived substance or waste.
HSR Act
means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Indebtedness
means (i) any indebtedness for borrowed money (including the issuance of any debt security) to any
Person other than the Company or its Subsidiary, (ii) any obligations evidenced by notes, bonds, debentures or similar Contracts to any Person other than the Company or its Subsidiary, (iii) any obligations for the deferred purchase price
of property, goods or services to any Person other than the Company or its Subsidiary, (iv) any capital lease obligations to any Person other than the Company or its Subsidiary, (v) any obligations in respect of letters of credit and
bankers acceptances, or (vi) any guaranty of any such obligations described in clauses (i) through (v) of any Person other than the Company or its Subsidiary (other than, in the case of clauses (i), (ii) and (iii), accounts
payable to trade creditors and accrued expenses, in each case arising in the ordinary course of business).
Indemnified
Persons
is defined in Section 5.4(a) of the Agreement.
Insiders
means John Marmaduke, Dan
Crow, Alan Van Ongevalle and Philip McConnell.
Insider Agreement
is defined in Recital B to the Agreement.
Insurance Policies
is defined in Section 2.18 of the Agreement.
Intellectual Property Rights
means and includes all past, present, and
future rights of the following types, which may exist or be created under the laws of any jurisdiction in the world: (a) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights, software,
databases, and mask works; (b) trademarks, service marks, trade dress, logos, trade names and other source identifiers, domain names and URLs, and similar rights; (c) rights associated with trade secrets, know how, inventions, invention
disclosures, methods, processes, protocols, specifications, techniques and other forms of technology; (d) patents and industrial property rights; (e) other proprietary rights in intellectual property of every kind and nature;
(f) rights of privacy and publicity; and (g) all registrations, renewals, extensions, combinations, statutory invention registrations, provisionals, continuations, continuations-in-part, provisionals, divisions, or reissues of, and
applications for, any of the rights referred to in clauses (a) through (f) above (whether or not in tangible form and including all tangible embodiments of any of the foregoing, such as samples, studies and summaries), along with all
rights to prosecute and perfect the same through administrative prosecution, registration, recordation or other administrative proceeding, and all causes of action and rights to sue or seek other remedies arising from or relating to the foregoing.
Inventories
mean the inventories of raw materials, work-in-process (including semi-finished goods) and finished
goods or products (including in-transit inventory) used, useable or otherwise saleable in the ordinary course of the business of the Acquired Corporations.
IRS
means the Internal Revenue Service.
knowledge
with respect to an Entity means, with respect to any matter in question, the actual knowledge of such
Entitys executive officers, after making a reasonable inquiry to obtain such knowledge.
Leased Real
Property
is defined in Section 2.7(b) of the Agreement.
Legal Proceeding
means any action,
suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise
involving, any court or other Governmental Body or any arbitrator or arbitration panel.
Legal Requirement
means
any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Body (or under the authority of NASDAQ), including, without limitation, Environmental Laws, energy, motor vehicle safety, public utility, zoning, building and health codes,
occupational safety and health, privacy and security of personally identifiable information, the sending of commercial emails, and laws respecting employment practices, employee documentation, terms and conditions of employment and wages and hours.
Loan Facility
means that certain Loan and Security Agreement, dated July 22, 2010, by and among the
Company, Bank of America, NA and Banc of America Securities, as amended on July 21, 2011 and January 4, 2013.
The Company shall
be deemed to have
made available
any unredacted materials filed on the EDGAR system to the extent such may be viewed by the public and any materials posted in the Intralinks electronic data room established in connection
with the Transactions.
An event, occurrence, violation, inaccuracy, circumstance or other matter will be deemed to have a
Material Adverse Effect
on the Acquired Corporations if such event, violation, inaccuracy, circumstance or other matter (whether or not any such matter, considered together with all other matters, would constitute a breach
to the representations, warranties, covenants or agreements of the Company set forth in the Agreement) had, individually or in the aggregate, a material adverse effect on (a) the business, financial condition or results of operations of the
Acquired Corporations taken as a whole or (b) the ability of the Company to consummate the
Transactions;
provided, however
, that none of the following shall be deemed in and of themselves, either alone or in combination, to constitute, and none of the following shall be taken
into account in determining whether there is, or would reasonably likely to be, a Material Adverse Effect on the Acquired Corporations: (i) any change in the market price or trading volume of the Companys stock; (ii) any event,
violation, inaccuracy, circumstance or other matter resulting directly from the announcement or pendency of the Transactions (other than for purposes of any representation or warranty contained in Section 2.22); (iii) any event,
circumstance, change or effect in the industries in which the Acquired Corporations operate or in the economy generally or other general business, financial or market conditions, except to the extent that the Acquired Corporations are adversely
affected disproportionately relative to the other participants in such industries or the economy generally, as applicable; (iv) any event, circumstance, change or effect arising directly or indirectly from or otherwise relating to fluctuations
in the value of any currency; (v) any event, circumstance, change or effect arising directly or indirectly from or otherwise relating to any act of terrorism, war, national or international calamity or any other similar event, except to the
extent that such event, circumstance, change or effect disproportionately affects the Acquired Corporations relative to other participants in the industries in which the Acquired Corporations operate or the economy generally, as applicable;
(vi) the failure of the Acquired Corporations to meet internal or analysts expectations or projections, or (vii) any event, circumstance, change or effect arising directly or indirectly from or otherwise relating to any change in, or
any compliance with or action taken for the purpose of complying with, any Legal Requirement or GAAP (or interpretations of any Legal Requirement or GAAP); it being understood that the exceptions in clauses (i) and (vi) shall not prevent
or otherwise affect a determination that the underlying cause of any such decline or failure referred to therein (if not otherwise falling within any of the exceptions provided by clauses (ii) through (vii) hereof) is itself a Material
Adverse Effect.
Material Contract
is defined in Section 2.9(a) of the Agreement.
Merger
is defined in Recital A of the Agreement.
Merger Consideration
is defined in Section 1.5(a)(iii) of the Agreement.
Merger Sub
is defined in the preamble to the Agreement.
NASDAQ
means The NASDAQ Global Market.
NECA
means National Entertainment Collectibles Association, a New Jersey corporation.
NECA Agreements
is defined in Section 3.7(b) of the Agreement.
NECA Shares
is defined in Section 3.7(b) of the Agreement.
Officers
means each of John H. Marmaduke, Alan Van Ongevalle, Dan Crow and Phillip McConnell.
Parent
is defined in the preamble to the Agreement.
Parent Expenses
is defined in Section 7.3(c) of the Agreement.
Parent Material Adverse Effect
means any effect, change, event or occurrence that would individually or in the
aggregate, prevent, materially delay or materially impair the ability of Parent or Merger Sub to consummate the Transactions contemplated by this Agreement.
Parties
means Parent, Merger Sub and the Company.
Paying Agent
is defined in Section 1.6(a) of the Agreement.
Payment Fund
is defined in Section 1.6(a) of the Agreement.
Permitted Encumbrance
means (a) any Encumbrance that arises out of
Taxes not in default and payable without penalty or interest or the validity of which is being contested in good faith by appropriate proceedings for which there are adequate reserves, (b) any Encumbrance representing the rights of customers,
suppliers and subcontractors in the ordinary course of business under the terms of any Contracts to which the relevant party is a party or under general principles of commercial or government contract law (including without limitation
mechanics, materialmens, carriers, workmens, warehousemans, repairmens, landlords and similar liens granted or which arise in the ordinary course of business) and (c) any Encumbrance arising out of, or
in connection with, the Loan Facility.
Person
means any individual, Entity or Governmental Body.
Personal Data
means a natural persons name, street address, telephone number,
e-mail
address, photograph, social security number, drivers license number, passport number, or customer or account number, or any other piece of information that allows the identification of a natural
person.
Pre-Closing Period
is defined in Section 4.1 of the Agreement.
Proprietary Software
is defined in Section 2.8(f) of the Agreement.
Proxy Statement
means the proxy or information statement of the Company to be sent to the Companys
shareholders in connection with the Company Shareholders Meeting.
Record Date
is defined in
Section 5.1(c) of the Agreement.
Registered IP
means all Intellectual Property Rights that are registered,
filed, or issued under the authority of any Governmental Body, including all patents, registered copyrights, registered mask works, and registered trademarks, service marks and trade dress, registered domain names, and all applications for any of
the foregoing.
Release
means any presence, emission, spill, seepage, leak, escape, leaching, discharge,
injection, pumping, pouring, emptying, dumping, disposal, migration, or release of Hazardous Materials from any source into or upon the environment, including the air, soil, improvements, surface water, groundwater, the sewer, septic system, storm
drain, publicly owned treatment works, or waste treatment, storage, or disposal systems in violation of any Environmental Law.
Representatives
means officers, directors, members, managers, employees, attorneys, accountants, investment bankers,
consultants, agents, financial advisors, other advisors, Affiliates and other representatives.
Required Company Shareholder
Vote
means the affirmative vote of the holders of at least two-thirds of the shares of Company Common Stock outstanding on the record date for the Company Shareholders Meeting.
Resigning Officer
means each of John H. Marmaduke and Dan Crow.
Restricted Securities
means shares of Company Common Stock granted subject to vesting or other lapse restrictions.
SEC
means the United States Securities and Exchange Commission.
SEC Clearance Date
is defined in Section 5.1(c).
Section 382 and Related Provisions
means collectively Section 382, 383 or 1502 of the Code (or any
corresponding or similar U.S. state or local or non-U.S. Legal Requirement which, with Sections 382, 383 and 1502 of the Code.
Securities Act
means the Securities Act of 1933, as amended.
Separation Agreement
is defined in Recital B of the Agreement.
Solvent
is defined in Section 3.8 of the Agreement.
An Entity shall be deemed to be a
Subsidiary
of another Person if such Person directly or indirectly owns or
purports to own, beneficially or of record, (a) an amount of voting securities or other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entitys Board of Directors or
other governing body, or (b) at least fifty percent (50%) of the outstanding equity or financial interests of such Entity.
Superior Offer
means a bona fide written Acquisition Proposal that the Board of Directors of the Company determines,
in its good faith judgment, after consultation with its outside legal counsel and its financial advisor of nationally recognized reputation, is reasonably likely to be consummated in accordance with its terms, taking into account all legal,
regulatory and financing aspects (including certainty of closing) of the proposal and the Person making the proposal and other aspects of the Acquisition Proposal that the Companys Board of Directors deems relevant, and if consummated, would
result in a transaction more favorable to the Companys shareholders (solely in their capacity as such) from a financial point of view than the transaction contemplated by this Agreement;
provided
that for purposes of the definition of
Superior Offer, the references to 20% in the definition of Acquisition Proposal shall be deemed to be references to 50%.
Support Agreements
is defined in Recital B to the Agreement.
Surviving Corporation
is defined in Recital A of the Agreement.
Surviving Corporation Shares
mean the total number of shares of the Surviving Corporations (i) common
stock (including common stock issuable upon the exercise or conversion of any option, warrant or other right to acquire common stock of the Surviving Corporation) and (ii) preferred stock (determined on an as converted to common stock basis and
including preferred stock issuable upon the exercise or conversion of any option, warrant or other right to acquire preferred stock of the Surviving Corporation determined on an as converted to common stock basis).
Takeover Laws
means any moratorium, control share acquisition, fair price,
supermajority, affiliate transactions, or business combination statute or regulation or other similar state anti-takeover laws and regulations;
provided
,
however
, that the provisions contained in
Subchapter J of Chapter 21 of the TBOC shall not be deemed, individually or in the aggregate, to constitute Takeover Laws.
Tax
means any tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax,
surtax, estimated tax, unemployment tax, national health insurance tax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), escheat obligation, levy, assessment,
tariff, duty (including any customs duty), and any charge or amount (including any fine, penalty or interest) related to any tax, imposed, assessed or collected by or under the authority of any Governmental Body.
Tax Return
means any return (including any information return), report, statement, declaration, estimate, schedule,
notice, notification, form, election, certificate or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or
payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.
TBOC
means the Texas Business Organizations Code, as amended.
Termination Fee
is defined in Section 7.3(b) of the Agreement.
Third Party
means any Person, including as defined in
Section 13(d) of the Exchange Act, other than Parent or any of its Affiliates.
Transactions
means
(a) the execution and delivery of the Agreement and (b) all of the transactions contemplated by this Agreement, including the Merger.
User Data
means any Personal Data or other data or information collected by or on behalf of the Acquired
Corporations from its customers or users of any Company Website.
WARN Act
is defined in Section 2.16(c) of
the Agreement.
Annex B
March 16, 2014
Special Committee of the Board of
Directors
Hastings Entertainment, Inc.
3601 Plains Blvd.
Amarillo, TX 79102-1098
Members of the Special Committee
of the Board of Directors:
We understand that Hastings Entertainment, Inc. (the Company) proposes to enter into an Agreement
and Plan of Merger (the Agreement) by and among the Company, Draw Another Circle, LLC (the Purchaser) and Hendrix Acquisition Corp., a wholly-owned subsidiary of Purchaser (Merger Sub), pursuant to which, among
other things, Merger Sub will be merged with and into the Company (the Transaction) and that in connection with the Transaction (a) each issued and outstanding share of common stock, par value $0.01 per share, of the Company (the
Company Common Stock) not beneficially owned by National Entertainment Collectibles Association (NECA) or any other shareholder of the Purchaser, the Purchaser, Merger Sub or the Company, or any of their respective
affiliates, will be converted into the right to receive $3.00 in cash, without interest (the Common Stock Consideration); and (b) the Company will become a wholly-owned subsidiary of the Purchaser.
You have requested that SunTrust Robinson Humphrey, Inc. (STRH) render its opinion (this Opinion) to the Special
Committee of the Board of Directors of the Company (solely in its capacity as such) (the Special Committee) with respect to the fairness, from a financial point of view, of the Common Stock Consideration to be received in the Transaction
pursuant to the Agreement by the holders of the Company Common Stock (but excluding NECA or any other shareholder of the Purchaser, the Purchaser, Merger Sub, and their respective affiliates and associates).
In connection with this Opinion, we have conducted such reviews, analyses and inquiries as we have deemed necessary and appropriate under the
circumstances. Among other things, we have reviewed an execution version draft, dated March 14, 2014, of the Agreement; certain publicly available business and financial information relating to the Company; the historical reported price and
historical trading activity for the shares of Company Common Stock; certain other information relating to the historical, current and future business, financial condition, results of operations and prospects of the Company made available to us by
the Company, including certain financial projections prepared by the management of the Company relating to the Company (the Projections); the current and projected financial and operating performance of the Company as compared to that of
other companies with publicly traded equity securities that we deemed relevant; and the publicly available financial terms of certain transactions that we deemed relevant. We also have had discussions with certain members of the management of the
Company regarding the business, financial condition, results of operations, and prospects of the Company and the Transaction and have undertaken such other studies, analyses and investigations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information
furnished, or otherwise made available, to us, discussed with or reviewed by us, or publicly available, and do not assume any responsibility with respect to such data, material and other information. Our role in reviewing such data, material and
other information was limited solely to performing such review as we deemed necessary and appropriate to support this Opinion. In addition, management of the Company has advised us, and we have assumed, that the Projections have been reasonably
prepared in good faith on bases reflecting the best currently available estimates and judgments of management of the Company as to the future financial results and condition of the Company. We express no opinion with respect to the Projections or
the assumptions on which they are based, or any other assumptions discussed herein. We have relied upon and
B-1
assumed, without independent verification, that there has been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company
since the date of the most recent financial statements and other information, financial or otherwise, provided to us and that there is no information, facts or circumstances that would make any of the information discussed with or reviewed by us
inaccurate, incomplete or misleading.
We also have relied upon and assumed without independent verification that (a) the
representations and warranties of all parties to the Agreement are true and correct; (b) each party to the Agreement will fully and timely perform all of the covenants and agreements required to be performed by such party under the Agreement;
(c) all conditions to the consummation of the Transaction will be satisfied without waiver thereof; (d) the Transaction will be consummated in accordance with the terms of the Agreement without waiver, modification or amendment of any
term, condition or agreement therein; and (e) in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the Transaction, no delay, limitation, restriction or condition will be imposed that
would have an adverse effect on the Company or the expected benefits of the Transaction. In addition, we have assumed that the Agreement, when executed by the parties thereto, will conform to the draft reviewed by us in all respects material to our
analysis and this Opinion.
Furthermore, in connection with this Opinion, we have not been requested to make, and have not made, any
physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company or any other person or entity, nor were we provided with any
such appraisal or evaluation. We have undertaken no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities to which the Company or any other person or entity is or
may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject.
This Opinion is necessarily based on financial, economic, monetary, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. We have no obligation to update, revise, reaffirm or withdraw this Opinion or otherwise comment upon events occurring or information that becomes available after the date hereof.
This Opinion only addresses the fairness, from a financial point of view of the Common Stock Consideration to be received in the Transaction
pursuant to the Agreement by the holders of the Company Common Stock (but excluding NECA or any other shareholder of the Purchaser, the Purchaser, Merger Sub, and their respective affiliates and associates) and does not address any other term,
aspect or implication of the Transaction or any agreement, arrangement or understanding entered into in connection therewith or otherwise. We have not been requested to opine as to, and this Opinion does not express an opinion as to or otherwise
address, among other things: (i) the underlying business decision of the Company, its security holders or any other person or entity to proceed with or effect the Transaction; (ii) the form, structure or any other portion or aspect of, the
Transaction; (iii) the fairness of any portion, term, aspect or implication of the Transaction to the holders of debt of the Company, or any particular holder of securities, creditors or other constituencies of the Company, or to any other
person or entity, except as expressly set forth in the last paragraph of this Opinion; (iv) the relative merits of the Transaction as compared to any alternative business strategies that might exist for the Company or any other person or entity
or the effect of any other transaction in which the Company or any other person or entity might engage; (v) whether or not the Purchaser, the Company, its security holders or any other person or entity is receiving or paying reasonably
equivalent value in the Transaction; (vi) the solvency, creditworthiness, viability, ability to pay debts when due, or fair value of the Company or any other participant in the Transaction, or any of their respective assets, including under any
applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or the impact of the Transaction on such matters; (vii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any
compensation to or consideration payable to or received by any officers, directors or employees of any party to the Transaction or any class of such persons; or (viii) the fairness of any term or aspect of the Transaction to any one class of
the
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Companys security holders relative to any other class of the Companys security holders, including the allocation of any consideration among or within such classes. Furthermore, no
opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It is assumed that such opinions, counsel or interpretations have been or will be obtained
from appropriate professional sources. Furthermore, we have relied, with your consent, on the assessments by the Company and the Special Committee and their respective advisors as to all legal, regulatory, accounting, insurance and tax matters with
respect to the Company and the Transaction.
We have acted as financial advisor to the Special Committee in connection with the
Transaction and will receive a fee for our services, a portion of which is payable upon delivery of this Opinion and a portion of which is contingent upon the consummation of the Transaction. In addition, the Company has agreed to reimburse certain
of our expenses and to indemnify us and certain related parties for certain liabilities arising out of our engagement. We and our affiliates (including SunTrust Bank) may have in the past provided, are currently providing, and may in the future
provide, investment banking, investment management, treasury management, wealth management and other financial services to the Company and its affiliates and associates (and NECA, the Purchaser and their respective affiliates and associates) for
which we and our affiliates have received and would expect to receive compensation. SunTrust Bank has entered into a commitment, subject to the terms and conditions contained therein, to provide NECA and another affiliate of the Purchaser with a
revolving credit and term loan facility pursuant to which SunTrust Bank would receive customary fees as well as interest and other customary returns on committed capital.
We are a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other
financial services. In the ordinary course of business, we and our affiliates (including SunTrust Bank) may acquire, hold or sell, for our and our affiliates own accounts and the accounts of customers, equity, debt and other securities and
financial instruments (including bank loans and other obligations) of the Company, NECA, the Purchaser, their respective affiliates and any other party that may be involved in the Transaction, as well as provide investment banking and other
financial services to such persons or entities, including for which we and our affiliates would expect to receive compensation. In addition, we and our affiliates (including SunTrust Bank) may have other financing and business relationships with the
Company, NECA, the Purchaser, their respective affiliates and associates and any other person or entity that may be involved with the Transaction.
This Opinion is furnished solely for the use of the Special Committee (solely in its capacity as such) in connection with its evaluation of
the Transaction and may not be used for any other purpose (or by any other person or entity for any purpose) without our prior written consent. This Opinion should not be construed as creating any fiduciary duty on the part of STRH to any person or
entity. This Opinion is not intended to be, and does not constitute, a recommendation to the Special Committee, the Board of Directors of the Company, the Company, any security holder of the Company or any other person or entity as to how to act or
vote with respect to any matter relating to the Transaction or otherwise. The issuance of this Opinion has been approved by an internal committee of STRH authorized to approve opinions of this nature.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Common Stock Consideration to be received in the
Transaction pursuant to the Agreement by the holders of the Company Common Stock is fair, from a financial point of view, to the holders of the Company Common Stock (but excluding NECA or any other shareholder of the Purchaser, the Purchaser, Merger
Sub, and their respective affiliates and associates).
SUNTRUST ROBINSON HUMPHREY, INC.
/s/ SunTrust Robinson Humphrey, Inc.
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Annex C
Texas Business Organizations Code
Title 1. General Provisions
Chapter 10. Mergers, Interest Exchanges, Conversions, and Sales of Assets
Subchapter H. Rights of Dissenting Owners
§ 10.351. Applicability of Subchapter
(a) This subchapter does not apply to a fundamental business transaction of a domestic entity if, immediately before the effective date of the
fundamental business transaction, all of the ownership interests of the entity otherwise entitled to rights to dissent and appraisal under this code are held by one owner or only by the owners who approved the fundamental business transaction.
(b) This subchapter applies only to a domestic entity subject to dissenters rights, as defined in Section 1.002. That
term includes a domestic for-profit corporation, professional corporation, professional association, and real estate investment trust. Except as provided in Subsection (c), that term does not include a partnership or limited liability company.
(c) The governing documents of a partnership or a limited liability company may provide that its owners are entitled to the rights of dissent
and appraisal provided by this subchapter, subject to any modification to those rights as provided by the entitys governing documents.
§ 10.352. Definitions
In this subchapter:
(1)
Dissenting owner means an owner of an ownership interest in a domestic entity subject to dissenters rights who:
(A)
provides notice under Section 10.356; and
(B) complies with the requirements for perfecting that owners right to dissent under
this subchapter.
(2) Responsible organization means:
(A) the organization responsible for:
(i) the provision of notices under this subchapter; and
(ii) the primary obligation of paying the fair value for an ownership interest held by a dissenting owner;
(B) with respect to a merger or conversion:
(i) for matters occurring before the merger or conversion, the organization that is merging or converting; and
(ii) for matters occurring after the merger or conversion, the surviving or new organization that is primarily obligated for the payment of the
fair value of the dissenting owners ownership interest in the merger or conversion;
(C) with respect to an interest exchange, the
organization the ownership interests of which are being acquired in the interest exchange; and
(D) with respect to the sale of all or
substantially all of the assets of an organization, the organization the assets of which are to be transferred by sale or in another manner.
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§ 10.353. Form and Validity of Notice
(a) Notice required under this subchapter:
(1) must be in writing; and
(2)
may be mailed, hand-delivered, or delivered by courier or electronic transmission.
(b) Failure to provide notice as required by this
subchapter does not invalidate any action taken.
§ 10.354. Rights of Dissent and Appraisal
(a) Subject to Subsection (b), an owner of an ownership interest in a domestic entity subject to dissenters rights is entitled to:
(1) dissent from:
(A) a plan of
merger to which the domestic entity is a party if owner approval is required by this code and the owner owns in the domestic entity an ownership interest that was entitled to vote on the plan of merger;
(B) a sale of all or substantially all of the assets of the domestic entity if owner approval is required by this code and the owner owns in
the domestic entity an ownership interest that was entitled to vote on the sale;
(C) a plan of exchange in which the ownership interest of
the owner is to be acquired;
(D) a plan of conversion in which the domestic entity is the converting entity if owner approval is required
by this code and the owner owns in the domestic entity an ownership interest that was entitled to vote on the plan of conversion; or
(E) a
merger effected under Section 10.006 in which:
(i) the owner is entitled to vote on the merger; or
(ii) the ownership interest of the owner is converted or exchanged; and
(2) subject to compliance with the procedures set forth in this subchapter, obtain the fair value of that ownership interest through an
appraisal.
(b) Notwithstanding Subsection (a), subject to Subsection (c), an owner may not dissent from a plan of merger or conversion in
which there is a single surviving or new domestic entity or non-code organization, or from a plan of exchange, if:
(1) the ownership
interest, or a depository receipt in respect of the ownership interest, held by the owner is part of a class or series of ownership interests, or depository receipts in respect of ownership interests, that are, on the record date set for purposes of
determining which owners are entitled to vote on the plan of merger, conversion, or exchange, as appropriate:
(A) listed on a national
securities exchange; or
(B) held of record by at least 2,000 owners;
(2) the owner is not required by the terms of the plan of merger, conversion, or exchange, as appropriate, to accept for the owners
ownership interest any consideration that is different from the consideration to be provided to any other holder of an ownership interest of the same class or series as the ownership interest held by the owner, other than cash instead of fractional
shares or interests the owner would otherwise be entitled to receive; and
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(3) the owner is not required by the terms of the plan of merger, conversion, or exchange, as
appropriate, to accept for the owners ownership interest any consideration other than:
(A) ownership interests, or depository
receipts in respect of ownership interests, of a domestic entity or non-code organization of the same general organizational type that, immediately after the effective date of the merger, conversion, or exchange, as appropriate, will be part of a
class or series of ownership interests, or depository receipts in respect of ownership interests, that are:
(i) listed on a national
securities exchange or authorized for listing on the exchange on official notice of issuance; or
(ii) held of record by at least 2,000
owners;
(B) cash instead of fractional ownership interests the owner would otherwise be entitled to receive; or
(C) any combination of the ownership interests and cash described by Paragraphs (A) and (B).
(c) Subsection (b) shall not apply to a domestic entity that is a subsidiary with respect to a merger under Section 10.006.
§ 10.355. Notice of Right of Dissent and Appraisal
(a) A domestic entity subject to dissenters rights that takes or proposes to take an action regarding which an owner has a right to
dissent and obtain an appraisal under Section 10.354 shall notify each affected owner of the owners rights under that section if:
(1) the action or proposed action is submitted to a vote of the owners at a meeting; or
(2) approval of the action or proposed action is obtained by written consent of the owners instead of being submitted to a vote of the owners.
(b) If a parent organization effects a merger under Section 10.006 and a subsidiary organization that is a party to the merger is a
domestic entity subject to dissenters rights, the responsible organization shall notify the owners of that subsidiary organization who have a right to dissent to the merger under Section 10.354 of their rights under this subchapter not
later than the 10th day after the effective date of the merger. The notice must also include a copy of the certificate of merger and a statement that the merger has become effective.
(c) A notice required to be provided under Subsection (a) or (b) must:
(1) be accompanied by a copy of this subchapter; and
(2) advise the owner of the location of the responsible organizations principal executive offices to which a notice required under
Section 10.356(b)(1) or (3) may be provided.
(d) In addition to the requirements prescribed by Subsection (c), a notice required
to be provided under Subsection (a)(1) must accompany the notice of the meeting to consider the action, and a notice required under Subsection (a)(2) must be provided to:
(1) each owner who consents in writing to the action before the owner delivers the written consent; and
(2) each owner who is entitled to vote on the action and does not consent in writing to the action before the 11th day after the date the
action takes effect.
(e) Not later than the 10th day after the date an action described by Subsection (a)(1) takes effect, the responsible
organization shall give notice that the action has been effected to each owner who voted against the action and sent notice under Section 10.356(b)(1).
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§ 10.356. Procedure for Dissent by Owners as to Actions;
Perfection of Right of Dissent and Appraisal
(a) An owner of an ownership interest of a domestic entity subject to dissenters rights who has the right to dissent and appraisal from
any of the actions referred to in Section 10.354 may exercise that right to dissent and appraisal only by complying with the procedures specified in this subchapter. An owners right of dissent and appraisal under Section 10.354 may
be exercised by an owner only with respect to an ownership interest that is not voted in favor of the action.
(b) To perfect the
owners rights of dissent and appraisal under Section 10.354, an owner:
(1) if the proposed action is to be submitted to a vote
of the owners at a meeting, must give to the domestic entity a written notice of objection to the action that:
(A) is addressed to the
entitys president and secretary;
(B) states that the owners right to dissent will be exercised if the action takes effect;
(C) provides an address to which notice of effectiveness of the action should be delivered or mailed; and
(D) is delivered to the entitys principal executive offices before the meeting;
(2) with respect to the ownership interest for which the rights of dissent and appraisal are sought:
(A) must vote against the action if the owner is entitled to vote on the action and the action is approved at a meeting of the owners; and
(B) may not consent to the action if the action is approved by written consent; and
(3) must give to the responsible organization a demand in writing that:
(A) is addressed to the president and secretary of the responsible organization;
(B) demands payment of the fair value of the ownership interests for which the rights of dissent and appraisal are sought;
(C) provides to the responsible organization an address to which a notice relating to the dissent and appraisal procedures under this
subchapter may be sent;
(D) states the number and class of the ownership interests of the domestic entity owned by the owner and the fair
value of the ownership interests as estimated by the owner; and
(E) is delivered to the responsible organization at its principal
executive offices at the following time:
(i) not later than the 20th day after the date the responsible organization sends to the owner
the notice required by Section 10.355(e) that the action has taken effect, if the action was approved by a vote of the owners at a meeting;
(ii) not later than the 20th day after the date the responsible organization sends to the owner the notice required by
Section 10.355(d)(2) that the action has taken effect, if the action was approved by the written consent of the owners; or
(iii) not
later than the 20th day after the date the responsible organization sends to the owner a notice that the merger was effected, if the action is a merger effected under Section 10.006.
(c) An owner who does not make a demand within the period required by Subsection (b)(3)(E) or, if Subsection (b)(1) is applicable, does not
give the notice of objection before the meeting of the owners is bound by the action and is not entitled to exercise the rights of dissent and appraisal under Section 10.354.
(d) Not later than the 20th day after the date an owner makes a demand under Subsection (b)(3), the owner must submit to the responsible
organization any certificates representing the ownership interest to which the
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demand relates for purposes of making a notation on the certificates that a demand for the payment of the fair value of an ownership interest has been made under this section. An owners
failure to submit the certificates within the required period has the effect of terminating, at the option of the responsible organization, the owners rights to dissent and appraisal under Section 10.354 unless a court, for good cause
shown, directs otherwise.
(e) If a domestic entity and responsible organization satisfy the requirements of this subchapter relating to
the rights of owners of ownership interests in the entity to dissent to an action and seek appraisal of those ownership interests, an owner of an ownership interest who fails to perfect that owners right of dissent in accordance with this
subchapter may not bring suit to recover the value of the ownership interest or money damages relating to the action.
§ 10.357.
Withdrawal of Demand for Fair Value of Ownership Interest
(a) An owner may withdraw a demand for the payment of the fair value of an
ownership interest made under Section 10.356 before:
(1) payment for the ownership interest has been made under Sections 10.358 and
10.361; or
(2) a petition has been filed under Section 10.361.
(b) Unless the responsible organization consents to the withdrawal of the demand, an owner may not withdraw a demand for payment under
Subsection (a) after either of the events specified in Subsections (a)(1) and (2).
§ 10.358. Response by Organization to
Notice of Dissent and
Demand for Fair Value by Dissenting Owner
(a) Not later than the 20th day after the date a responsible organization receives a demand for payment made by a dissenting owner in
accordance with Section 10.356(b)(3), the responsible organization shall respond to the dissenting owner in writing by:
(1) accepting
the amount claimed in the demand as the fair value of the ownership interests specified in the notice; or
(2) rejecting the demand and
including in the response the requirements prescribed by Subsection (c).
(b) If the responsible organization accepts the amount claimed in
the demand, the responsible organization shall pay the amount not later than the 90th day after the date the action that is the subject of the demand was effected if the owner delivers to the responsible organization:
(1) endorsed certificates representing the ownership interests if the ownership interests are certificated; or
(2) signed assignments of the ownership interests if the ownership interests are uncertificated.
(c) If the responsible organization rejects the amount claimed in the demand, the responsible organization shall provide to the owner:
(1) an estimate by the responsible organization of the fair value of the ownership interests; and
(2) an offer to pay the amount of the estimate provided under Subdivision (1).
(d) If the dissenting owner decides to accept the offer made by the responsible organization under Subsection (c)(2), the owner must provide to
the responsible organization notice of the acceptance of the offer not later than the 90th day after the date the action that is the subject of the demand took effect.
(e) If, not later than the 90th day after the date the action that is the subject of the demand took effect, a dissenting owner accepts an
offer made by a responsible organization under Subsection (c)(2) or a dissenting
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owner and a responsible organization reach an agreement on the fair value of the ownership interests, the responsible organization shall pay the agreed amount not later than the 120th day after
the date the action that is the subject of the demand took effect, if the dissenting owner delivers to the responsible organization:
(1)
endorsed certificates representing the ownership interests if the ownership interests are certificated; or
(2) signed assignments of the
ownership interests if the ownership interests are uncertificated.
§ 10.359. Record of Demand for Fair Value of Ownership Interest
(a) A responsible organization shall note in the organizations ownership interest records maintained under Section 3.151
the receipt of a demand for payment from any dissenting owner made under Section 10.356.
(b) If an ownership interest that is the
subject of a demand for payment made under Section 10.356 is transferred, a new certificate representing that ownership interest must contain:
(1) a reference to the demand; and
(2) the name of the original dissenting owner of the ownership interest.
§ 10.360. Rights of Transferee of Certain Ownership Interest
A transferee of an ownership interest that is the subject of a demand for payment made under Section 10.356 does not acquire additional
rights with respect to the responsible organization following the transfer. The transferee has only the rights the original dissenting owner had with respect to the responsible organization after making the demand.
§ 10.361. Proceeding to Determine Fair Value of Ownership Interest
and Owners Entitled to Payment; Appointment of Appraisers
(a) If a responsible organization rejects the amount demanded by a dissenting owner under Section 10.358 and the dissenting owner and
responsible organization are unable to reach an agreement relating to the fair value of the ownership interests within the period prescribed by Section 10.358(d), the dissenting owner or responsible organization may file a petition requesting a
finding and determination of the fair value of the owners ownership interests in a court in:
(1) the county in which the
organizations principal office is located in this state; or
(2) the county in which the organizations registered office is
located in this state, if the organization does not have a business office in this state.
(b) A petition described by Subsection
(a) must be filed not later than the 60th day after the expiration of the period required by Section 10.358(d).
(c) On the
filing of a petition by an owner under Subsection (a), service of a copy of the petition shall be made to the responsible organization. Not later than the 10th day after the date a responsible organization receives service under this subsection, the
responsible organization shall file with the clerk of the court in which the petition was filed a list containing the names and addresses of each owner of the organization who has demanded payment for ownership interests under Section 10.356
and with whom agreement as to the value of the ownership interests has not been reached with the responsible organization. If the responsible organization files a petition under Subsection (a), the petition must be accompanied by this list.
(d) The clerk of the court in which a petition is filed under this section shall provide by registered mail notice of the time and place set
for the hearing to:
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(1) the responsible organization; and
(2) each owner named on the list described by Subsection (c) at the address shown for the owner on the list.
(e) The court shall:
(1)
determine which owners have:
(A) perfected their rights by complying with this subchapter; and
(B) become subsequently entitled to receive payment for the fair value of their ownership interests; and
(2) appoint one or more qualified appraisers to determine the fair value of the ownership interests of the owners described by Subdivision (1).
(f) The court shall approve the form of a notice required to be provided under this section. The judgment of the court is final and
binding on the responsible organization, any other organization obligated to make payment under this subchapter for an ownership interest, and each owner who is notified as required by this section.
(g) The beneficial owner of an ownership interest subject to dissenters rights held in a voting trust or by a nominee on the beneficial
owners behalf may file a petition described by Subsection (a) if no agreement between the dissenting owner of the ownership interest and the responsible organization has been reached within the period prescribed by Section 10.358(d).
When the beneficial owner files a petition described by Subsection (a):
(1) the beneficial owner shall at that time be considered, for
purposes of this subchapter, the owner, the dissenting owner, and the holder of the ownership interest subject to the petition; and
(2)
the dissenting owner who demanded payment under Section 10.356 has no further rights regarding the ownership interest subject to the petition.
§ 10.362. Computation and Determination of Fair Value of Ownership Interest
(a) For purposes of this subchapter, the fair value of an ownership interest of a domestic entity subject to dissenters rights is the
value of the ownership interest on the date preceding the date of the action that is the subject of the appraisal. Any appreciation or depreciation in the value of the ownership interest occurring in anticipation of the proposed action or as a
result of the action must be specifically excluded from the computation of the fair value of the ownership interest.
(b) In computing the
fair value of an ownership interest under this subchapter, consideration must be given to the value of the domestic entity as a going concern without including in the computation of value any control premium, any minority ownership discount, or any
discount for lack of marketability. If the domestic entity has different classes or series of ownership interests, the relative rights and preferences of and limitations placed on the class or series of ownership interests, other than relative
voting rights, held by the dissenting owner must be taken into account in the computation of value.
(c) The determination of the fair
value of an ownership interest made for purposes of this subchapter may not be used for purposes of making a determination of the fair value of that ownership interest for another purpose or of the fair value of another ownership interest, including
for purposes of determining any minority or liquidity discount that might apply to a sale of an ownership interest.
§ 10.363.
Powers and Duties of Appraiser; Appraisal Procedures
(a) An appraiser appointed under Section 10.361 has the power and authority
that:
(1) is granted by the court in the order appointing the appraiser; and
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(2) may be conferred by a court to a master in chancery as provided by Rule 171, Texas Rules of
Civil Procedure.
(b) The appraiser shall:
(1) determine the fair value of an ownership interest of an owner adjudged by the court to be entitled to payment for the ownership interest;
and
(2) file with the court a report of that determination.
(c) The appraiser is entitled to examine the books and records of a responsible organization and may conduct investigations as the appraiser
considers appropriate. A dissenting owner or responsible organization may submit to an appraiser evidence or other information relevant to the determination of the fair value of the ownership interest required by Subsection (b)(1).
(d) The clerk of the court appointing the appraiser shall provide notice of the filing of the report under Subsection (b) to each
dissenting owner named in the list filed under Section 10.361 and the responsible organization.
§ 10.364. Objection to
Appraisal; Hearing
(a) A dissenting owner or responsible organization may object, based on the law or the facts, to all or part of an
appraisal report containing the fair value of an ownership interest determined under Section 10.363(b).
(b) If an objection to a
report is raised under Subsection (a), the court shall hold a hearing to determine the fair value of the ownership interest that is the subject of the report. After the hearing, the court shall require the responsible organization to pay to the
holders of the ownership interest the amount of the determined value with interest, accruing from the 91st day after the date the applicable action for which the owner elected to dissent was effected until the date of the judgment.
(c) Interest under Subsection (b) accrues at the same rate as is provided for the accrual of prejudgment interest in civil cases.
(d) The responsible organization shall:
(1) immediately pay the amount of the judgment to a holder of an uncertificated ownership interest; and
(2) pay the amount of the judgment to a holder of a certificated ownership interest immediately after the certificate holder surrenders to the
responsible organization an endorsed certificate representing the ownership interest.
(e) On payment of the judgment, the dissenting owner
does not have an interest in the:
(1) ownership interest for which the payment is made; or
(2) responsible organization with respect to that ownership interest.
§ 10.365. Court Costs; Compensation for Appraiser
(a) An appraiser appointed under Section 10.361 is entitled to a reasonable fee payable from court costs.
(b) All court costs shall be allocated between the responsible organization and the dissenting owners in the manner that the court determines
to be fair and equitable.
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§ 10.366. Status of Ownership Interest Held or Formerly Held by Dissenting Owner
(a) An ownership interest of an organization acquired by a responsible organization under this subchapter:
(1) in the case of a merger, conversion, or interest exchange, shall be held or disposed of as provided in the plan of merger, conversion, or
interest exchange; and
(2) in any other case, may be held or disposed of by the responsible organization in the same manner as other
ownership interests acquired by the organization or held in its treasury.
(b) An owner who has demanded payment for the owners
ownership interest under Section 10.356 is not entitled to vote or exercise any other rights of an owner with respect to the ownership interest except the right to:
(1) receive payment for the ownership interest under this subchapter; and
(2) bring an appropriate action to obtain relief on the ground that the action to which the demand relates would be or was fraudulent.
(c) An ownership interest for which payment has been demanded under Section 10.356 may not be considered outstanding for purposes of any
subsequent vote or action.
§ 10.367. Rights of Owners Following Termination of Right of Dissent
(a) The rights of a dissenting owner terminate if:
(1) the owner withdraws the demand under Section 10.356;
(2) the owners right of dissent is terminated under Section 10.356;
(3) a petition is not filed within the period required by Section 10.361; or
(4) after a hearing held under Section 10.361, the court adjudges that the owner is not entitled to elect to dissent from an action under
this subchapter.
(b) On termination of the right of dissent under this section:
(1) the dissenting owner and all persons claiming a right under the owner are conclusively presumed to have approved and ratified the action to
which the owner dissented and are bound by that action;
(2) the owners right to be paid the fair value of the owners ownership
interests ceases;
(3) the owners status as an owner of those ownership interests is restored, as if the owners demand for
payment of the fair value of the ownership interests had not been made under Section 10.356, if the owners ownership interests were not canceled, converted, or exchanged as a result of the action or a subsequent action;
(4) the dissenting owner is entitled to receive the same cash, property, rights, and other consideration received by owners of the same class
and series of ownership interests held by the owner, as if the owners demand for payment of the fair value of the ownership interests had not been made under Section 10.356, if the owners ownership interests were canceled,
converted, or exchanged as a result of the action or a subsequent action;
(5) any action of the domestic entity taken after the date of
the demand for payment by the owner under Section 10.356 will not be considered ineffective or invalid because of the restoration of the owners ownership interests or the other rights or entitlements of the owner under this subsection;
and
(6) the dissenting owner is entitled to receive dividends or other distributions made after the date of the owners payment
demand under Section 10.356, to owners of the same class and series of ownership interests held by the owner as if the demand had not been made, subject to any change in or adjustment to the ownership interests because of an action taken by the
domestic entity after the date of the demand.
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§ 10.368. Exclusivity of Remedy of Dissent and Appraisal
In the absence of fraud in the transaction, any right of an owner of an ownership interest to dissent from an action and obtain the fair value
of the ownership interest under this subchapter is the exclusive remedy for recovery of:
(1) the value of the ownership interest; or
(2) money damages to the owner with respect to the action.
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