Star Equity 就收购 Harte Hanks 提交初步 S-4：交易条款无变化，属预期中的审批推进

----- forms-4.htm -----
As
filed with the Securities and Exchange Commission on October 19, 2026
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-4
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
Star
Equity Holdings, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
7363
59-3547281
(State
or other jurisdiction of
Incorporation
or Organization)
(Primary
Standard Industrial
Classification
Code Number)
(I.R.S.
Employer
Identification
Number)
c/o
Star Equity Holdings, Inc.
53
Forest Avenue
,
Suite 101
Old
Greenwich
,
CT
06870
(203)
489-9500
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Jeffrey
E. Eberwein
Chief
Executive Officer
Star
Equity Holdings, Inc.
53
Forest Avenue
,
Suite 101
Old
Greenwich
,
CT
06870
(203)
489-9500
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies
to:
Adam
Finerman
Baker
& Hostetler LLP
45
Rockefeller Plaza
New
York, NY 10111
(212)
589-4233
Harte
Hanks, Inc.
1
Executive Drive, Suite 303
Chelmsford,
MA 01824
(512)
434-1100
Travis
Wofford
Carina
L. Antweil
Baker
Botts L.L.P.
910
Louisiana Street
Houston, TX 77002
(713) 229-1234
Approximate
date of commencement of proposed sale of the securities to the public:
As soon as practicable after this Registration Statement
is declared effective and upon completion of the Merger described herein.
If
the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. ☐
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
☐
Accelerated
filer
☐
Non-accelerated
filer
☒
Smaller
reporting company
☒
Emerging
growth company
☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
If
applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange
Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
☐
Exchange
Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
☐
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE
IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE U.S. SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.
The
information in this proxy statement/prospectus is not complete and may be changed. A registration statement relating to the securities
described in this proxy statement/prospectus has been filed with the U.S. Securities and Exchange Commission. These securities may not
be issued until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This proxy statement/prospectus
does not constitute an offer to sell or the solicitation of offers to buy these securities in any jurisdiction where the offer or sale
is not permitted.
PRELIMINARY - SUBJECT
TO COMPLETION - DATED
October 19, 2026
MERGER
PROPOSAL - YOUR VOTE IS VERY IMPORTANT
To
the Stockholders of Harte Hanks, Inc.:
On
behalf of the board of directors of Harte Hanks, Inc., a Delaware corporation, (“
Harte Hanks
”), we are pleased to
enclose the accompanying proxy statement/prospectus relating to the merger of Merger Sub - R, Inc., a Delaware corporation, (“
Merger
Sub
”), and a direct, wholly owned subsidiary of Star Equity Holdings, Inc., a Delaware corporation (“
Star
”),
with and into Harte Hanks, with Harte Hanks surviving and Merger Sub ceasing to exist. We are requesting that you take certain actions
as a Harte Hanks stockholder.
On
August 14, 2026, Harte Hanks, Star, and Merger Sub entered into an Agreement and Plan of Merger (as may be amended, modified or supplemented
from time to time in accordance with its terms, the “
Merger Agreement
”). Under the Merger Agreement, Merger Sub will
merge with and into Harte Hanks, with Harte Hanks surviving such Merger as a wholly owned subsidiary of Star (the “
Merger
”),
and Merger Sub will cease to exist.
Upon
the terms and subject to the conditions of the Merger Agreement, at the Effective Time of the Merger (the “
Effective Time
”),
each share of common stock, par value $1.00 per share, of Harte Hanks (“
Harte Hanks Common Stock
”) issued and outstanding
immediately prior to the Effective Time, other than shares held by Harte Hanks as treasury stock or owned by Star, Merger Sub or any
direct or indirect wholly owned subsidiary of Star or Merger Sub, will be converted into the right to receive, at the election of the
holder and subject to the proration procedures described below, either (i) $5.00 in cash, without interest (the “
Cash Consideration
”)
or (ii) 0.50 shares of Star’s 10% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share (“
Star Preferred
Stock
”) (the “
Preferred Stock Consideration
”). Harte Hanks stockholders may elect to receive Cash Consideration
for all of their shares, Preferred Stock Consideration for all of their shares, or a combination of both by electing Cash Consideration
for some shares and Preferred Stock Consideration for others, in each case subject to the proration procedures described below. Shares
of Harte Hanks Common Stock for which no election is properly made, or for which an election is revoked or deemed lost, will be converted
into the right to receive the Cash Consideration, the Preferred Stock Consideration or a combination of both, as described below. “
Merger
Consideration
” means, collectively, the Cash Consideration, the Preferred Stock Consideration, any combination thereof and
any cash paid in lieu of fractional shares of Star Preferred Stock.
The
elections of Harte Hanks stockholders are subject to proration provisions designed to ensure that the aggregate amount of cash paid in
the Merger in respect of shares of Harte Hanks Common Stock and certain Harte Hanks equity awards, together with any cash paid in lieu
of fractional shares of Star Preferred Stock, does not exceed $19.2 million (the “
Maximum Cash Amount
”). If the aggregate
amount of cash that would be paid in respect of all shares for which a cash election is properly made is less than the Maximum Cash Amount,
each share for which a cash election is properly made will receive the Cash Consideration, each share for which a preferred stock election
is properly made will receive the Preferred Stock Consideration, and each share for which no election is properly made will receive,
at Star’s election, the Cash Consideration, the Preferred Stock Consideration or a combination of both, provided that the aggregate
amount of cash paid in the Merger does not exceed the Maximum Cash Amount.
If
the aggregate amount of cash that would be paid in respect of all shares for which a cash election is properly made exceeds the Maximum
Cash Amount, each share for which a preferred stock election is properly made, and each share for which no election is properly made,
will receive Preferred Stock Consideration. Each share for which a cash election is properly made will receive a prorated portion of
the Cash Consideration, based on the ratio of the Maximum Cash Amount to the aggregate amount of cash that would otherwise be payable
if all cash-electing shares received the Cash Consideration in full, and will receive the Preferred Stock Consideration with respect
to each share not converted into the right to receive cash.
No
fractional shares of Star Preferred Stock will be issued in the Merger. In lieu of any fractional share of Star Preferred Stock that
otherwise would be issued, the holder will receive cash, without interest, in an amount equal to the applicable fractional share multiplied
by $10.00. The Merger Consideration is also subject to appropriate adjustment to reflect any stock split, reverse stock split, stock
dividend, reorganization, recapitalization, reclassification, combination, exchange of shares or similar change with respect to Harte
Hanks Common Stock occurring after the date of the Merger Agreement and prior to the Effective Time.
Because
the amount of cash and preferred stock ultimately issued in the Merger will depend on stockholder elections and the application of the
proration provisions in the Merger Agreement, the exact number of shares of Star Preferred Stock that will be issued in connection with
the Merger cannot be determined at this time. Accordingly, ownership percentages of Star’s Preferred Stock following the completion
of the Merger will depend on the final election results by the holders of Harte Hanks Common Stock and proration calculations made pursuant
to the Merger Agreement.
Due
to fluctuations in the market price of Star Preferred Stock, which may occur independently of any proration, and because the number of
shares of Star Preferred Stock that each Harte Hanks stockholder will receive may be affected by the proration calculations described
above, the market value of the Preferred Stock Consideration will not be known at the time Harte Hanks stockholders vote on the Merger.
Star Preferred Stock is currently traded on the Nasdaq Global Select Market under the symbol “STRRP.” Based on the closing
price of Star Preferred Stock of $10.14 per share on August 13, 2026, the last full trading day before the public announcement of the
merger agreement, the aggregate value of the Preferred Stock Consideration represented approximately $19.4 million, if the Maximum Cash
Amount was elected and Preferred Stock was issued for the remaining merger consideration.
The
Merger cannot be completed unless the Merger Agreement is adopted by the affirmative vote of the holders of a majority of the voting
power of the outstanding shares of Harte Hanks Common Stock entitled to vote on the Merger (the “
Requisite Stockholder Approval
”).
No vote of any other class or series of capital stock is required to adopt the Merger Agreement or approve the Merger.
A
special meeting of holders of Harte Hanks Common Stock (the “
Harte Hanks Special Meeting
”) will take place on [________],
2026 at [__]:00 p.m., Eastern Time, or at such other time as the Harte Hanks Special Meeting may be adjourned or postponed. The Harte
Hanks Special Meeting will be held at Harte Hanks’ principal executive office located at 1 Executive Drive, Suite 303, Chelmsford,
MA 01824. Holders of Harte Hanks Common Stock as of the close of business on [_________], 2026 (the “
Record Date
”)
are entitled to notice of, and to vote at, the Harte Hanks Special Meeting to approve and adopt the Merger Agreement as described in
this proxy statement/prospectus.
Your
vote is very important, regardless of the number of shares of Harte Hanks Common Stock you own.
To ensure your representation at
the Harte Hanks Special Meeting, please take time to vote by following the instructions contained in this proxy statement/prospectus
and on your proxy card. Please vote promptly whether or not you expect to attend the Harte Hanks Special Meeting. Submitting a proxy
now will not prevent you from being able to vote at the Harte Hanks Special Meeting.
The
board of directors of Harte Hanks has unanimously determined that the Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Merger, are advisable and in the best interests of Harte Hanks and its stockholders, has unanimously approved
and adopted the execution, delivery and performance by Harte Hanks of the Merger Agreement and the consummation of the transactions contemplated
thereby, including the Merger, and unanimously recommends that Harte Hanks stockholders vote “FOR” the Harte Hanks Merger
Proposal and “FOR” the Non-Binding Advisory Compensation Proposal.
This
proxy statement/prospectus provides you with detailed information about the Merger Agreement and the Merger. It also contains or references
information about Star and Harte Hanks and certain related matters. You are encouraged to read this proxy statement/prospectus carefully.
In particular, you should read the “Risk Factors” section beginning on page 42
for a discussion of the risks you should
consider in evaluating the proposed Merger and how it will affect you. You can also obtain information about Star and Harte Hanks from
documents that have been filed with the U.S. Securities and Exchange Commission.
On
behalf of the board of directors of Harte Hanks, thank you for your prompt attention to this important matter.
Sincerely,
/s/
John
H. Griffin, Jr.
/s/
David
Fisher
John
H. Griffin, Jr.
David
Fisher
Chairman
of the Board
President
Neither
the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued
in connection with the Merger or determined if this document is accurate or complete. Any representation to the contrary is a criminal
offense.
The
accompanying proxy statement/prospectus is dated [                ],
2026 and is first being mailed to holders of Harte Hanks Common Stock on or about [                ], 2026.
ADDITIONAL
INFORMATION
The
accompanying proxy statement/prospectus incorporates important business and financial information about Star from other documents that
are not included in or delivered with this document. This information is available to you without charge upon your written or oral request.
You can obtain the documents through the U.S. Securities and Exchange Commission website at http://www.sec.gov. You will also be able
to obtain these documents from Star free of charge on Star’s website, https://www.starequity.com/sec-filings. You may also request
these documents in writing or by telephone, at the address below:
53
Forest Avenue, Suite 101
Old
Greenwich, Connecticut 06870
(203)
489-9500
Attention: Corporate Secretary
You
will not be charged for any of these documents that you request.
To obtain timely delivery of these documents, you must request them
no later than five (5) business days before the date of the Harte Hanks Special Meeting. This means that holders of Harte Hanks Common
Stock requesting documents must do so by [_____], 2026, in order to receive them before the Harte Hanks Special Meeting.
No
one has been authorized to provide you with information that is different from that contained in, or referenced in, this document. This
document is dated [            ], 2026, and you should assume that the information
in this document is accurate only as of such date. You should assume that the information in this document is accurate as of the date
of such document. Neither the mailing of this document to holders of Harte Hanks Common Stock, nor the issuance by Star of shares of
Star Preferred Stock pursuant to the Merger Agreement will create any implication to the contrary.
The
information on Star’s website is not part of this document. References to Star’s website in this document are intended to
serve as textual references only.
This
document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy,
in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except
where the context otherwise indicates, information contained in, or referenced in, this document regarding Star has been provided by
Star and information contained in this document regarding Harte Hanks has been provided by Harte Hanks.
See
“Where You Can Find More Information” beginning on page 135 of the accompanying proxy statement/prospectus for further information.
Harte
Hanks, Inc.
1
Executive Drive, Suite 303
Chelmsford,
MA 01824
NOTICE
OF SPECIAL MEETING OF HARTE HANKS, INC. STOCKHOLDERS
To
Harte Hanks, Inc. Stockholders:
On
August 14, 2026, Star Equity Holdings, Inc. (“
Star
”), Merger Sub - R, Inc., a direct, wholly owned subsidiary of Star
(“
Merger Sub
”), and Harte Hanks, Inc. (“
Harte Hanks
”) entered into an Agreement and Plan of Merger
(as may be amended, modified or supplemented from time to time in accordance with its terms, the “
Merger Agreement
”).
A copy of the Merger Agreement is attached as
Annex A
to the accompanying proxy statement/prospectus.
NOTICE
IS HEREBY GIVEN
that a special meeting of holders of Harte Hanks Common Stock (the “
Harte Hanks Special Meeting
”)
will take place on [________], 2026 at [__]:00 p.m., Eastern Time, or at such other time as the Harte Hanks Special Meeting may be adjourned
or postponed. The Harte Hanks Special Meeting will be held at Harte Hanks’ principal executive office located at 1 Executive Drive,
Suite 303, Chelmsford, MA 01824. At the Harte Hanks Special Meeting, holders of Harte Hanks Common Stock will be asked to vote on the
following matters:
1.
A
proposal to approve the Agreement and Plan of Merger, dated as of August 14, 2026, by and
among Star, Merger Sub, and Harte Hanks, and the transactions contemplated by that agreement,
pursuant to which Merger Sub will merge with and into Harte Hanks, as more fully described
in the accompanying proxy statement/prospectus (the “
Harte Hanks Merger Proposal
”);
2.
A
proposal to approve, on an advisory (non-binding) basis, the compensation that will or may
become payable to Harte Hanks’ named executive officers in connection with the Merger,
as disclosed pursuant to Item 402(t) of Regulation S-K in the Golden Parachute Compensation
table and related narrative disclosures in this proxy statement/prospectus (the “
Non-Binding
Advisory Compensation Proposal
”); and
3.
To
transact such other business as may properly come before the Special Meeting or any adjournments
or postponements thereof.
The
board of directors of Harte Hanks has fixed the close of business on [_______], 2026 as the Record Date for the Harte Hanks Special Meeting.
Only holders of record of Harte Hanks Common Stock as of the close of business on the Record Date for the Harte Hanks Special Meeting
are entitled to notice of the Harte Hanks Special Meeting or any adjournment or postponement thereof. Only holders of record of Harte
Hanks Common Stock will be entitled to vote at the Harte Hanks Special Meeting or any adjournment or postponement thereof.
The
board of directors of Harte Hanks unanimously recommends that holders of Harte Hanks Common Stock vote “FOR” the Harte Hanks
Merger Proposal and “FOR” the Non-Binding Advisory Compensation Proposal.
Your
vote is important.
We cannot complete the transactions contemplated by the Merger Agreement unless holders of Harte Hanks Common
Stock approve the Harte Hanks Merger Proposal. The affirmative vote of the holders of a majority of the voting power of the outstanding
shares of Harte Hanks Common Stock entitled to vote on the Merger is required to approve the Harte Hanks Merger Proposal. Approval of
the Non-Binding Advisory Compensation Proposal requires the affirmative vote of a majority of the votes cast at the Special Meeting,
provided a quorum is present. Approval of the Non-Binding Advisory Compensation Proposal is not a condition to completion of the Merger.
Whether
or not you plan to attend the Harte Hanks Special Meeting, we urge you to please promptly complete, sign, date and return the accompanying
proxy card in the enclosed postage-paid envelope or authorize the individuals named on the accompanying proxy card to vote your shares
by using the internet as described in the instructions included with the accompanying proxy card. If your shares are held in the name
of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by such bank, broker or other
nominee.
By
Order of the Board of Directors,
/s/
John
H. Griffin, Jr.
John
H. Griffin, Jr.
Chairman
of the Board
[                      ], 2026
TABLE
OF CONTENTS
QUESTIONS AND ANSWERS
1
SUMMARY
17
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
40
RISK FACTORS
42
THE HARTE HANKS SPECIAL MEETING
50
PROPOSAL 1: HARTE HANKS MERGER PROPOSAL
54
PROPOSAL 2: THE NON-BINDING ADVISORY COMPENSATION PROPOSAL
55
INFORMATION ABOUT THE COMPANIES
56
THE MERGER
67
THE MERGER AGREEMENT
98
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
114
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
117
DESCRIPTION
OF STAR 10% S
eries A Cumulative Perpetual Preferred Stock
128
COMPARISON OF THE RIGHTS OF STAR PREFERRED STOCKHOLDERS AND HARTE HANKS STOCKHOLDERS
131
LEGAL MATTERS
134
EXPERTS
134
WHERE YOU CAN FIND MORE INFORMATION
135
Annex A
136
Annex B
225
Annex C
228
Annex D
346
INFORMATION NOT REQUIRED IN PROSPECTUS
II-1
SIGNATURES
II-5
i
QUESTIONS
AND ANSWERS
The
following are some questions that you may have about the Merger and the Harte Hanks Special Meeting, and brief answers to those questions.
We urge you to read carefully the remainder of this proxy statement/prospectus because the information
in this section does not provide all of the information that might be important to you with respect to the Merger and the Harte Hanks
Special Meeting. See “Where You Can Find More Information” beginning on page
135.
In
this proxy statement/prospectus, unless the context otherwise requires:
●
“Company
Material Adverse Effect”
means any fact, change, event, violation, inaccuracy, effect, occurrence or circumstance (each, an
“Effect”) that, individually or taken together with all other Effects, has had or would reasonably be expected to have a
material adverse effect on the business, financial condition, or results of operations of Harte Hanks and its subsidiaries, taken as
a whole, or would reasonably be expected to, individually or in the aggregate, make impossible the ability of Harte Hanks to satisfy
the conditions precedent to the Merger or consummate the Merger and the other transactions contemplated by this Agreement prior to the
Termination Date; provided, however, that none of the following (by itself or when aggregated) will be deemed to be or constitute a Company
Material Adverse Effect or will be taken into account when determining whether a Company Material Adverse Effect has occurred or may,
would or could occur (subject to the limitations set forth below):
1.
changes
in general economic conditions in the United States or any other country or region in the
world, or changes in conditions in the global economy generally;
2.
changes
in conditions in the financial markets or capital markets in the United States or any other
country or region in the world, including exchange-rate changes or a suspension of securities
trading generally;
3.
changes
in conditions in the industries in which Harte Hanks conducts business;
4.
changes
in regulatory, legislative or political conditions;
5.
geopolitical
conditions, cyberattack, hostilities, war, sabotage, terrorism or military actions;
6.
natural
disasters, weather conditions, epidemics, pandemics, disease outbreaks, other force-majeure
events or acts of God;
7.
effects
resulting from the negotiation, execution, delivery, announcement, pendency, performance,
compliance with, or consummation of the Merger Agreement or Transactions, including related
relationship effects;
8.
actions
expressly required by the Merger Agreement or consented to by Star;
9.
actions
that Star expressly approves, consents to or requests in writing after signing;
10.
changes
or proposed changes in GAAP, other accounting standards, applicable laws or regulations,
or their enforcement or interpretation;
11.
changes
in the price or trading volume of Harte Hanks Common Stock or changes or prospective changes
to Harte Hanks’ credit rating, subject to the agreement’s underlying-cause qualification;
12.
failure
to meet public estimates or expectations, or internal budgets, plans, projections or forecasts,
subject to the agreement’s underlying-cause qualification;
13.
Harte
Hanks Transaction Litigation; or
14.
any
breach, violation or non-performance by Star or Merger Sub of their obligations under the
Merger Agreement.
1
The
carveouts in clauses (1)–(6) and (10) do not apply to the extent the relevant Effect has had, or would reasonably be expected to
have, a disproportionate adverse effect on Harte Hanks, taken as a whole, relative to other companies operating in the industries in
which Harte Hanks operates.
●
“
Harte Hanks
” refers to Harte Hanks, Inc., a Delaware corporation;
●
“
Harte Hanks certificate of incorporation
” refers to the Amended and Restated Certificate of Incorporation of Harte
Hanks, Inc.
●
“
Harte Hanks bylaws
” refers to the Fifth Amended and Restated bylaws of Harte Hanks, Inc.;
●
“
Harte Hanks Common Stock
” refers to the common stock of Harte Hanks, par value $1.00 per share
●
“
Harte Hanks stockholders
” refers to holders of shares of Harte Hanks Common Stock;
●
“
Harte Hanks Special Meeting
” refers to the Special Meeting of Harte Hanks stockholders to be held on [_______], 2026
to consider and vote on the Harte Hanks Merger Proposal;
●
“
Star
” refers to Star Equity Holdings, Inc., a Delaware corporation;
●
“
Star certificate of incorporation
” refers to the Amended and Restated Certificate of Incorporation of Star Equity
Holdings, Inc., as amended;
●
“
Star bylaws
” refers to the Amended and Restated bylaws of Star Equity Holdings, Inc., as amended;
●
“
Star Common Stock
” refers to the common stock of Star, $0.001 par value;
●
“
Star Preferred Stock
” refers to the 10% Series A Cumulative Perpetual Preferred Stock of Star, $0.001 par value;
●
“
Merger Sub
” refers to Merger Sub - R, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Star;
●
“
Parent Material Adverse Effect
” means any Effect that, individually or taken together with all other Effects, has
had or would reasonably be expected to have a material adverse effect on the business, financial condition, or results of operations
of Star and its subsidiaries, taken as a whole, or would reasonably be expected to, individually or in the aggregate, make impossible
the ability of Star to satisfy the conditions precedent to the Merger or consummate the Merger and the other transactions contemplated
by this Agreement prior to the Termination Date; provided, however, that none of the following (by itself or when aggregated) will be
deemed to be or constitute a Parent Material Adverse Effect or will be taken into account when determining whether a Parent Material
Adverse Effect has occurred or may, would or could occur (subject to the limitations set forth below):
1.
changes
in general economic conditions in the United States or any other country or region in the
world, or changes in the global economy generally;
2.
changes
in financial or capital-market conditions, including exchange-rate changes or a general trading
suspension;
2
3.
changes
in industries in which Star conducts business;
4.
regulatory,
legislative or political changes;
5.
geopolitical
conditions, cyberattack, hostilities, war, sabotage, terrorism or military actions;
6.
natural
disasters, weather conditions, epidemics, pandemics, disease outbreaks, force-majeure events
or acts of God;
7.
effects
resulting from the negotiation, execution, delivery, announcement, pendency, performance,
compliance with, or consummation of the Merger Agreement or Transactions, including relationship
effects;
8.
actions
expressly required by the Merger Agreement or consented to by Harte Hanks;
9.
actions
Harte Hanks expressly approves, consents to or requests in writing after signing;
10.
changes
or proposed changes in GAAP, other accounting standards, applicable laws or regulations,
or their enforcement or interpretation;
11.
changes
in the price or trading volume of Star Common Stock or changes or prospective changes to
Star’s credit rating, subject to the agreement’s underlying-cause qualification;
12.
failure
to meet public estimates or expectations, or internal budgets, plans, projections or forecasts,
subject to the agreement’s underlying-cause qualification; or
13.
any
breach, violation or non-performance by Harte Hanks of its obligations under the Merger Agreement.
The
carveouts in clauses (1)–(6) and (10) do not apply to the extent the relevant Effect has had, or would reasonably be expected to
have, a disproportionate adverse effect on Star, taken as a whole, relative to other companies operating in the industries in which Star
operates.
Q:
Why am I receiving this proxy statement/prospectus?
A:
You are receiving this proxy statement/prospectus because Star, Merger Sub and Harte Hanks have entered into an Agreement and Plan of
Merger, dated August 14, 2026 (as may be amended, modified or supplemented from time to time in accordance with its terms, the “
Merger
Agreement
”), pursuant to which Merger Sub will merge with and into Harte Hanks, with Harte Hanks surviving such Merger (the
“
Surviving Corporation
”) as a wholly owned subsidiary of Star (the “
Merger
”), and Merger Sub will
cease to exist. A copy of the Merger Agreement is attached as
Annex A
to this proxy statement/prospectus and is incorporated by
reference herein. In this proxy statement/prospectus, we refer to the closing of the Merger as the “
Closing
” and the
date on which the Closing occurs as the “
Closing Date
.” In order to complete the Merger, among other things, Harte
Hanks stockholders must approve the Merger Agreement (the “
Harte Hanks Merger Proposal
”). Harte Hanks is holding the
Harte Hanks Special Meeting to obtain approval of the Harte Hanks Merger Proposal and to submit the Non-Binding Advisory Compensation
Proposal to Harte Hanks stockholders for an advisory vote.
This
document is also a prospectus that is being delivered to Harte Hanks stockholders because, pursuant to the Merger Agreement, Star is
offering shares of Star Preferred Stock to Harte Hanks stockholders. This proxy statement/prospectus contains important information about
the Merger, the Harte Hanks Merger Proposal and the Non-Binding Advisory Compensation Proposal being voted on at the Harte Hanks Special
Meeting. You should read it carefully and in its entirety. The enclosed materials allow you to have your Harte Hanks shares of common
stock voted by proxy without attending the Harte Hanks Special Meeting.
Your vote is important and we encourage you to submit your
proxy as soon as possible.
3
Q:
What will happen in the Merger?
A:
In the Merger, Merger Sub will merge with and into Harte Hanks, with Harte Hanks surviving such Merger as a wholly owned subsidiary of
Star, and Merger Sub will cease to exist.
Upon
the terms and subject to the conditions of the Merger Agreement, at the time of filing of a certificate of merger in customary form and
substance with the Secretary of State of the State of Delaware (the “
Effective Time
”), each share of common stock,
par value $1.00 per share, of Harte Hanks (“
Harte Hanks Common Stock
”) issued and outstanding immediately prior to
the Effective Time, other than shares held by Harte Hanks as treasury stock or owned by Star, Merger Sub or any direct or indirect wholly
owned subsidiary of Star or Merger Sub, will be converted into the right to receive, subject to the proration procedures described below,
either (i) $5.00 in cash, without interest (the “
Cash Consideration
”), or (ii) 0.50 shares of Star’s 10% Series
A Cumulative Perpetual Preferred Stock, par value $0.001 per share (“
Star Preferred Stock
”) (the “
Preferred
Stock Consideration
”). Harte Hanks stockholders may elect to receive Cash Consideration for all of their shares, Preferred
Stock Consideration for all of their shares, or a combination of both by electing Cash Consideration for some shares and Preferred Stock
Consideration for others, in each case subject to the proration procedures described below. Shares of Harte Hanks Common Stock for which
no election is properly made, or for which an election is revoked or deemed lost, will be converted into the right to receive the Cash
Consideration, the Preferred Stock Consideration or a combination of both, as described below.
The
elections of Harte Hanks stockholders are subject to proration provisions designed to ensure that the aggregate amount of cash paid in
the Merger in respect of shares of Harte Hanks Common Stock and certain Harte Hanks equity awards, together with any cash paid in lieu
of fractional shares of Star Preferred Stock, does not exceed $19.2 million (the “
Maximum Cash Amount
”). If the aggregate
amount of cash that would be paid in respect of all shares for which a cash election is properly made is less than the Maximum Cash Amount,
each share for which a cash election is properly made will receive the Cash Consideration, each share for which a preferred stock election
is properly made will receive the Preferred Stock Consideration, and each share for which no election is properly made will receive,
at Star’s election, the Cash Consideration, the Preferred Stock Consideration or a combination of both, provided that the aggregate
amount of cash paid in the Merger does not exceed the Maximum Cash Amount.
If
the aggregate amount of cash that would be paid in respect of all shares for which a cash election is properly made exceeds the Maximum
Cash Amount, each share for which a preferred stock election is properly made, and each share for which no election is properly made,
will receive Preferred Stock Consideration. Each share for which a cash election is properly made will receive a prorated portion of
the Cash Consideration, based on the ratio of the Maximum Cash Amount to the aggregate amount of cash that would otherwise be payable
if all cash-electing shares received the Cash Consideration in full, and will receive the Preferred Stock Consideration with respect
to the remaining portion of that share.
No
fractional shares of Star Preferred Stock will be issued in the Merger. In lieu of any fractional share of Star Preferred Stock that
otherwise would be issued, the holder will receive cash, without interest, in an amount equal to the applicable fractional share multiplied
by $10.00. The Merger Consideration is also subject to appropriate adjustment to reflect any stock split, reverse stock split, stock
dividend, reorganization, recapitalization, reclassification, combination, exchange of shares or similar change with respect to Harte
Hanks Common Stock occurring after the date of the Merger Agreement and prior to the Effective Time.
Because
the amount of cash and preferred stock ultimately issued in the Merger will depend on stockholder elections and the application of the
proration provisions in the Merger Agreement, the exact number of shares of Star Preferred Stock that will be issued in connection with
the Merger cannot be determined at this time. Accordingly, ownership percentages of Star following the completion of the Merger will
depend on the final election results and proration calculations.
4
Due
to fluctuations in the market price of Star Preferred Stock, which may occur independently of any proration, and because the number of
shares of Star Preferred Stock that each Harte Hanks stockholder will receive may be affected by the proration calculations described
above, the market value of the Preferred Stock Consideration will not be known at the time Harte Hanks stockholders vote on the Merger.
Star Preferred Stock is currently traded on the Nasdaq Global Select Market under the symbol “STRRP.” Based on the closing
price of Star Preferred Stock of $10.14 per share on August 13, 2026, the last full trading day before the public announcement of the
merger agreement, the aggregate value of the Preferred Stock Consideration represented approximately $38.9 million, if the maximum
amount of Preferred Stock Consideration is issued.
After
the completion of the Merger, Star Preferred stockholders will continue to own their existing shares of Star Preferred Stock. See the
information provided in the section entitled “Structure of the Merger” beginning on page 98 and the Merger Agreement included
as
Annex A
for more information about the Merger.
Q:
When and where will the Harte Hanks Special Meeting take place?
A:
The Harte Hanks Special Meeting will take place on [________], 2026 at [__]:00 p.m., Eastern Time, or at such other time as the Harte
Hanks Special Meeting may be adjourned or postponed. The Harte Hanks Special Meeting will be held at Harte Hanks’ principal executive
office located at 1 Executive Drive, Suite 303, Chelmsford, MA 01824. Even if you plan to attend the Harte Hanks Special Meeting, Harte
Hanks recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to
or become unable to attend the Harte Hanks Special Meeting.
Q:
What matters will be considered at the Harte Hanks Special Meeting?
A:
At the Harte Hanks Special Meeting, Harte Hanks stockholders will be asked to consider and vote on the following proposals:
●
Harte Hanks Proposal 1: The Harte Hanks Merger Proposal; and
●
Harte Hanks Proposal 2: The Non-Binding Advisory Compensation Proposal.
Q:
Why am I being asked to vote on a proposal regarding compensation of Harte Hanks’ named executive officers?
A:
Section 14A of the Exchange Act and Rule 14a-21(c) thereunder require Harte Hanks to submit to a separate stockholder advisory vote the
compensation that may be paid or become payable to its named executive officers in connection with the Merger, as disclosed pursuant
to Item 402(t) of Regulation S-K. The vote is separate and apart from the vote on the Harte Hanks Merger Proposal, is advisory only,
is not binding on Harte Hanks, the board of directors of Harte Hanks, Star or Merger Sub, and is not a condition to completion of the
Merger.
In
order to complete the Merger, among other things, Harte Hanks stockholders must approve the Harte Hanks Merger Proposal. The Non-Binding
Advisory Compensation Proposal is advisory only, is separate and apart from the Harte Hanks Merger Proposal and is not a condition to
completion of the Merger.
Q:
What will Harte Hanks stockholders receive in the Merger?
A:
Upon the terms and subject to the conditions of the Merger Agreement, at the Effective Time, each share of Harte Hanks Common Stock outstanding
immediately prior to the Effective Time, other than certain shares held by Harte Hanks, Star, Merger Sub or their wholly owned subsidiaries,
will be converted into the right to receive, at the election of the holder thereof and subject to the proration provisions described
below, either:
●
the
Cash Consideration; or
●
the
Preferred Stock Consideration.
5
Stockholders
may elect to receive Cash Consideration, Preferred Stock Consideration or a combination of both with respect to their shares, including
by electing Cash Consideration for some shares and Preferred Stock Consideration for others, subject to the proration procedures set
forth in the Merger Agreement. Shares for which no valid election is made, or for which an election is revoked or deemed lost, will be
treated as non-electing shares. If aggregate cash elections are less than the Maximum Cash Amount available under the Merger Agreement,
Star will determine whether non-electing shares receive Cash Consideration, Preferred Stock Consideration or a combination of both. If
aggregate cash elections exceed the Maximum Cash Amount (as defined below), non-electing shares will receive Preferred Stock Consideration,
and holders making cash elections will receive a prorated combination of Cash Consideration and Preferred Stock Consideration.
The
aggregate amount of cash payable in the Merger, together with cash payable in respect of certain equity awards and cash paid in lieu
of fractional shares of Star Preferred Stock, may not exceed the Maximum Cash Amount. If the aggregate amount of cash that would otherwise
be payable to stockholders electing cash is less than or equal to the Maximum Cash Amount, all stockholders making valid cash elections
will receive the full Cash Consideration, and all stockholders making valid preferred stock elections will receive the Preferred Stock
Consideration. Non-electing shares may receive cash, Preferred Stock, or a combination of both, as determined by Star, provided the Maximum
Cash Amount is not exceeded.
If
the aggregate amount of cash that would otherwise be payable to stockholders electing cash exceeds the Maximum Cash Amount, all shares
for which preferred stock elections are made and all non-electing shares will receive the Preferred Stock Consideration. Cash-electing
shares will receive a prorated portion of the Cash Consideration and the balance of the consideration will be paid in shares of Star
Preferred Stock in accordance with the Merger Agreement.
No
fractional shares of Star Preferred Stock will be issued in the Merger. In lieu of any fractional share that would otherwise be issued,
the holder will receive cash, without interest, equal to the fractional share multiplied by $10.00.
The
Merger Consideration is also subject to adjustment to reflect the effect of any stock split, reverse stock split, stock dividend, recapitalization,
reclassification, combination, exchange of shares or similar transaction affecting Harte Hanks Common Stock between the date of the Merger
Agreement and the Effective Time.
Q:
What will Star stockholders receive in the Merger?
A:
In the Merger, Star stockholders will not receive any consideration, and their shares of Star Common Stock and/or Star Preferred Stock
will remain outstanding and will constitute shares of Star following the Merger. Following the Merger, shares of Star Preferred Stock
will continue to be traded on the Nasdaq Global Select Market.
Q:
Will the value of the Merger Consideration change between the date of this proxy statement/prospectus and the time the Merger is completed?
A:
Yes. The value of the Merger Consideration may change between the date of this proxy statement/prospectus and the completion of the Merger.
Harte
Hanks stockholders may elect to receive Cash Consideration, Preferred Stock Consideration or a combination of both for their shares,
subject to the election and proration procedures set forth in the Merger Agreement. Depending on the aggregate elections made by Harte
Hanks stockholders, the application of the proration provisions and, in certain circumstances, Star’s determination of the consideration
payable in respect of non-electing shares, a holder may receive Cash Consideration, Preferred Stock Consideration or a combination of
both. Accordingly, the aggregate value of the Merger Consideration payable in the Merger cannot be determined solely by reference to
the trading price of Star Preferred Stock prior to the completion of the Merger.
6
Due
to fluctuations in the market price of Star Preferred Stock, which may occur independently of any proration, and because the number of
shares of Star Preferred Stock that each Harte Hanks stockholder will receive may be affected by the proration calculations described
above, the market value of the Preferred Stock Consideration will not be known at the time Harte Hanks stockholders vote on the Merger.
Star Preferred Stock is currently traded on the Nasdaq Global Select Market under the symbol “STRRP.” Based on the closing
price of Star Preferred Stock of $10.14 per share on August 13, 2026, the last full trading day before the public announcement of the
merger agreement, the aggregate value of the Preferred Stock Consideration represented approximately $38.9 million, if the maximum
amount of Preferred Stock Consideration is issued.
Because
the final allocation of Cash Consideration and Preferred Stock Consideration among Harte Hanks stockholders will not be known until elections
have been received and the proration calculations have been completed, it is not possible at this time to determine the aggregate value
of the Merger Consideration that will be payable to all Harte Hanks stockholders based on any particular trading price of Star Preferred
Stock.
Q:
How will the Merger affect Harte Hanks equity awards?
A:
Pursuant to the Merger Agreement, at the Effective Time, each Harte Hanks stock option that is identified on the disclosure schedules
to the Merger Agreement and is outstanding and unexercised immediately prior to the Effective Time will be cancelled and treated as an
“
Award Company Share,
” which is any share of Harte Hanks Common Stock underlying a Harte Hanks equity award that is
entitled to receive Merger Consideration. Such stock option will be converted into the right to receive Merger Consideration equal to
the product of (i) the excess, if any, of the applicable Merger Consideration over the exercise price of such stock option and (ii) the
number of shares of Harte Hanks Common Stock subject to such Harte Hanks stock option. Holders of such stock options may make elections
with respect to the form of consideration to be received, subject to the election, proration and Maximum Cash Amount provisions applicable
to holders of Harte Hanks Common Stock. Accordingly, holders may receive Cash Consideration, Preferred Stock Consideration or a combination
of both pursuant to those election and proration procedures. Any stock option with an exercise price equal to or greater than the applicable
Merger Consideration, and any stock option not identified on the disclosure schedules, will be cancelled without payment or consideration.
At
the Effective Time, each Harte Hanks restricted stock unit award (“
RSU
”) that is outstanding immediately prior to
the Effective Time and identified on the disclosure schedules will be cancelled and treated as an Award Company Share. Each such RSU
will be converted into the right to receive Merger Consideration based on the number of shares of Harte Hanks Common Stock underlying
the RSU. Holders of RSUs may make elections with respect to the form of consideration to be received, subject to the same election, proration
and Maximum Cash Amount provisions applicable to holders of Harte Hanks Common Stock. As a result, holders may receive Cash Consideration,
Preferred Stock Consideration or a combination of both pursuant to those procedures.
At
the Effective Time, each Harte Hanks performance stock unit award (“
PSU
”) outstanding immediately prior to the Effective
Time will be cancelled without payment or consideration.
Q:
How will the Merger affect the Harte Hanks 401(k) plan?
A:
The Merger Agreement provides that, if requested by Star at least ten (10) Business Days prior to the Closing Date, Harte Hanks will
take all actions reasonably necessary to terminate the Harte Hanks 401(k) plan effective no later than the day immediately preceding
the Closing Date. Any such termination would be contingent upon and effective only in connection with the consummation of the Merger.
If
the Harte Hanks 401(k) plan is terminated, Star will take all actions reasonably necessary to permit continuing employees to participate
in Star or an affiliate’s 401(k) plan (the “
Star 401(k) Plan
”) on or as soon as reasonably practicable following
the Closing Date. In addition, Star will cause the Star 401(k) Plan to accept eligible rollover distributions (within the meaning of
Section 402(c)(4) of the Internal Revenue Code of 1986, as amended (the “
Code
”)) from continuing employees with respect
to their account balances under the Harte Hanks 401(k) plan, including any participant loans, to the extent elected by the applicable
employee.
The
Merger Agreement also requires Harte Hanks and Star to cooperate in good faith with respect to the timing and implementation of any actions
relating to the Harte Hanks 401(k) plan and the Star 401(k) Plan.
7
Q:
How will Star finance the Cash Consideration and the other amounts payable in connection with the Merger?
A:
Star expects to finance the cash required to complete the Merger through the Debt Financing. Completion of the Merger is subject to the
satisfaction or waiver of the conditions to the Debt Financing or any permitted Alternative Debt Financing and to Star having at least
$15.0 million of financing proceeds available on the Closing Date.
For
additional information, see “Conditions to Complete the Merger” beginning on page 108.
Q:
How does the board of directors of Harte Hanks recommend that I vote at the Harte Hanks Special Meeting?
A:
The board of directors of Harte Hanks unanimously recommends that you vote “FOR” the Harte Hanks Merger Proposal and “FOR”
the Non-Binding Advisory Compensation Proposal.
In
considering the recommendations of the board of directors of Harte Hanks, Harte Hanks stockholders should be aware that Harte Hanks directors
and executive officers may have interests in the Merger that are different from, or in addition to, the interests of Harte Hanks stockholders
generally. For a more complete description of these interests, see the information provided in the section entitled “Interests
of Harte Hanks Directors and Executive Officers in the Merger” beginning on page 93.
Q:
Who is entitled to vote at the Harte Hanks Special Meeting?
A:
The Record Date for the Harte Hanks Special Meeting is [______], 2026. All Harte Hanks stockholders who held shares of Harte Hanks Common
Stock at the close of business on the Record Date for the Harte Hanks Special Meeting are entitled to receive notice of, and to vote
at, the Harte Hanks Special Meeting.
Each
Harte Hanks stockholder who held shares of Harte Hanks Common Stock as of the Record Date is entitled to cast one (1) vote on each matter
properly brought before the Harte Hanks Special Meeting for each share of Harte Hanks Common Stock that such holder owned of record as
of the Record Date. As of [____], 2026, there were [______] outstanding shares of Harte Hanks Common Stock.
Attendance
at the Harte Hanks Special Meeting is not required to vote. See below and the section entitled “Proxies” beginning on page
52 for instructions on how to vote your shares of Harte Hanks Common Stock without attending the Harte Hanks Special Meeting.
Q:
What constitutes a quorum for the Harte Hanks Special Meeting?
A:
The presence at the Harte Hanks Special Meeting, or by proxy, of holders of a majority of outstanding voting power of Harte Hanks Common
Stock entitled to vote at the Harte Hanks Special Meeting will constitute a quorum for the transaction of business at the Harte Hanks
Special Meeting. Abstentions will be included in determining the number of shares present at the meeting for the purpose of determining
the presence of a quorum, but not a broker non-vote or other failure to vote.
Q:
What vote is required for the approval of the proposals at the Harte Hanks Special Meeting?
A:
Harte Hanks Proposal 1: The Harte Hanks Merger Proposal.
Approval of the Harte Hanks Merger Proposal requires the affirmative
vote of the holders of a majority of the voting power of the outstanding shares of Harte Hanks Common Stock entitled to vote on the Merger.
An abstention, broker non-vote or other failure to vote will have the same effect as a vote “AGAINST” the Harte Hanks Merger
Proposal.
Harte
Hanks Proposal 2: The Non-Binding Advisory Compensation Proposal
. Approval of the Non-Binding Advisory Compensation Proposal requires
the affirmative vote of a majority of the votes cast at the Special Meeting, provided a quorum is present. Abstentions, broker non-votes
and failures to vote or submit a proxy will not be counted as votes cast and will have no effect on the outcome of the proposal. The
vote is advisory only and is not a condition to completion of the Merger.
8
Q:
Are there any Harte Hanks stockholders already committed to voting in favor of the Harte Hanks Merger Proposal?
A:
Yes. John H. Griffin, Jr., Genevieve C. Combes, Bradley L. Radoff, Elizabeth Ross, David Fisher and David A. Garrison, solely in such
director’s or executive officer’s capacity as a stockholder of Harte Hanks, have entered into a voting agreement with Star
requiring each such director or executive officer to vote all shares of Harte Hanks Common Stock owned by such director or executive
officer in favor of the Harte Hanks Merger Proposal. As of the Record Date, these directors and executive officers held [____] shares
of Harte Hanks Common Stock, which represented approximately [____]% of the outstanding shares of Harte Hanks Common Stock.
Q:
Will Star vote any shares of Harte Hanks Common Stock that it owns at the Harte Hanks Special Meeting?
A:
Yes. As of the Record Date for the Harte Hanks Special Meeting, Star beneficially owned 82,000 shares of Harte Hanks Common Stock, representing
approximately 1.1% of the outstanding shares of Harte Hanks Common Stock entitled to vote at the Special Meeting. Star intends to vote,
or cause to be voted, all such shares FOR the Harte Hanks Merger Proposal.
Q:
If I hold my Harte Hanks Common Stock in “street name” through my bank, broker or other nominee, will my broker vote my shares
for me?
A:
If you hold your shares through a bank, broker or other nominee in “street name” instead of as a stockholder of record, you
must follow the voting instructions provided by your intermediary in order to vote your shares.
Broker
non-votes are votes that are not cast (and are not permitted to be cast) on a non-routine matter because the broker has not received
voting instructions from the beneficial owner. On routine matters, brokers have discretionary authority to cast a vote in the absence
of voting instructions from the beneficial owner. However, because all of the proposals in this proxy statement/prospectus are considered
non-routine matters, shares held in “street name” will not be counted as present for the purpose of determining the existence
of a quorum unless the Harte Hanks stockholder provides their intermediary with voting instructions for the proposal before the Special
Meeting. Further, intermediaries who hold Harte Hanks Common Stock in “street name” for their customers do not have discretionary
authority to vote such shares with respect to the Merger Proposal. Accordingly, if intermediaries do not receive specific voting instructions
from the beneficial owner of such shares, they may not vote such shares with respect to the Merger Proposal. It is therefore critical
that you cast your vote by instructing your intermediary on how to vote.
Street-name
holders who wish to attend and vote at the Special Meeting must follow the voting instructions provided by their intermediary in order
to vote their shares.
Q:
How can I attend the Harte Hanks Special Meeting?
A:
You may attend the Harte Hanks Special Meeting in-person, which will take place on [________], 2026 at [__]:00 p.m., Eastern Time, or
at such other time as the Harte Hanks Special Meeting may be adjourned or postponed. The Harte Hanks Special Meeting will be held at
Harte Hanks’ principal executive office located at 1 Executive Drive, Suite 303, Chelmsford, MA 01824.
Registration
and check-in for the Harte Hanks Special Meeting will begin at approximately [___]:00 p.m., Eastern Time. Harte Hanks encourages stockholders
to arrive sufficiently in advance of the scheduled meeting time to complete the check-in process.
9
To
attend the Harte Hanks Special Meeting, you should be prepared to present valid government-issued photo identification and proof that
you owned shares of Harte Hanks Common Stock as of the Record Date. If your shares are held in “street name,” acceptable
proof of ownership may include a brokerage statement or letter from your bank, broker, trustee or other nominee showing that you beneficially
owned shares as of the Record Date. To vote in person, you must also obtain and present a valid legal proxy from your bank, broker, trustee
or other nominee.
If
you hold shares of Harte Hanks Common Stock in “street name” through a bank, broker, trustee or other nominee and wish to
vote your shares in person at the Harte Hanks Special Meeting, you must obtain a valid legal proxy from your bank, broker, trustee or
other nominee and present it at the Harte Hanks Special Meeting. You should contact your bank, broker, trustee or other nominee for instructions
regarding how to obtain a legal proxy.
Even
if you plan to attend the Harte Hanks Special Meeting, Harte Hanks recommends that you vote in advance by following the instructions
on your proxy card or voting instruction form so that your vote will be counted if you later decide not to attend.
Q:
How may I submit questions during the Harte Hanks Special Meeting?
A:
Stockholders who are entitled to attend the Harte Hanks Special Meeting in person may submit questions during the meeting. Instructions
regarding the submission of questions and the rules of conduct for the meeting will be provided at the Special Meeting.
Questions
should relate directly to the business of the Harte Hanks Special Meeting. Harte Hanks intends to answer questions that comply with the
meeting’s rules of conduct, subject to time constraints. Questions that are substantially similar may be grouped and answered together.
If
you hold your shares through a bank, broker, trustee or other nominee, you should follow the instructions provided by your intermediary
regarding obtaining a legal proxy or other documentation necessary to attend and vote at the Harte Hanks Special Meeting in person.
Q:
Whom do I contact if I have questions about the Harte Hanks Special Meeting or the Merger?
A:
If you are a Harte Hanks stockholder and have questions about the Harte Hanks Special Meeting or the Merger, or desire additional copies
of this proxy statement/prospectus or additional proxy cards, you may contact:
Harte
Hanks, Inc., at the following address, phone number or e-mail address:
Harte
Hanks, Inc. (Attention: General Counsel)
1
Executive Drive, Suite 303
Chelmsford,
MA 01824
general.counsel@hartehanks.com
1-512-434-1100
Q:
Who will solicit and pay the cost of soliciting proxies in connection with the Harte Hanks Special Meeting?
A:
The board of directors of Harte Hanks is soliciting the Harte Hanks stockholders’ proxies in connection with the Harte Hanks Special
Meeting. Star is responsible for the expenses incurred in connection with the printing and mailing of this proxy statement/prospectus.
Harte Hanks has retained [_____] as proxy solicitor to assist with the solicitation of proxies in connection with the Harte Hanks Special
Meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through banks, brokers
and other nominees to the beneficial owners of shares of Harte Hanks Common Stock, in which case these parties will be reimbursed for
their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other
electronic medium by directors, officers and employees of Harte Hanks, without additional compensation.
Harte
Hanks may also request banks, brokers, trustees and other intermediaries holding shares of Harte Hanks Common Stock beneficially owned
by others to send this document to, and obtain proxies from, the beneficial owners and may reimburse such record holders for their reasonable
out-of-pocket expenses in so doing.
10
Q:
How can I vote my shares without attending the Harte Hanks Special Meeting?
A:
Whether you hold your shares of Harte Hanks Common Stock directly as the holder of record of Harte Hanks Common Stock or beneficially
in “street name,” you may direct your vote by proxy without attending the Harte Hanks Special Meeting.
If
you are a record holder of Harte Hanks Common Stock, you can vote your shares by mail by following the instructions provided in the enclosed
proxy card (or cast your vote by internet as provided on the proxy card). If you hold shares beneficially in “street name”
as a beneficial owner of Harte Hanks Common Stock, you should follow the voting instructions provided by your bank, broker, trustee or
other nominee. Additional information on voting procedures can be found under the section entitled “The Harte Hanks Special Meeting - Voting
at the Harte Hanks Special Meeting” on page 51.
Q:
What happens if there is not a quorum or Harte Hanks has not received enough proxies to approve the Merger Proposal?
A:
If a quorum is not present at the Harte Hanks Special Meeting or Harte Hanks has not received proxies representing a sufficient number
of shares to approve the Merger Proposal, the meeting may be adjourned. Harte Hanks is not asking stockholders to vote on a separate
adjournment proposal because, under the Harte Hanks bylaws, the presiding officer of the Harte Hanks Special Meeting has authority to
adjourn the meeting without obtaining additional stockholder approval.
Q:
What do I need to do now?
A:
After carefully reading and considering the information contained in this document, please vote as soon as possible. If you hold shares
of Harte Hanks Common Stock, please respond by completing, signing and dating the accompanying proxy card and returning it in the enclosed
postage-paid envelope or authorize the individuals named on the accompanying proxy card to vote your shares by using the internet as
described in the instructions included with the accompanying proxy card as soon as possible so that your shares may be represented at
the Harte Hanks Special Meeting. Please note that if you are a beneficial owner with shares held in “street name,” you should
follow the voting instructions provided by your bank, broker, trustee or other nominee.
Q:
What will happen to Harte Hanks Common Stock if the Merger is completed?
A:
If the Merger is completed, Harte Hanks will become a wholly owned subsidiary of Star, and Harte Hanks Common Stock will cease to be
publicly traded. Harte Hanks Common Stock will be delisted from Nasdaq and deregistered under the Exchange Act as promptly as practicable
following the completion of the Merger. Harte Hanks stockholders will cease to have any rights as Harte Hanks stockholders, other than
the right to receive the Merger Consideration to which they are entitled under the Merger Agreement.
Q:
What is a “broker non-vote”?
A:
A broker non-vote generally occurs when a bank, broker, trustee or other nominee holding shares in street name does not receive voting
instructions from the beneficial owner and does not have discretionary authority to vote on the matter being considered.
The
Harte Hanks Merger Proposal and the Non-Binding Advisory Compensation Proposal are expected to be non-routine matters. As a result, banks,
brokers, trustees and other nominees will not have discretionary authority to vote shares held in street name on either proposal. Accordingly,
if you hold your shares through a bank, broker, trustee or other nominee, you must provide voting instructions to your bank, broker,
trustee or other nominee in order for your shares to be voted at the Harte Hanks Special Meeting.
Because
no routine proposals are expected to be presented at the Harte Hanks Special Meeting, broker non-votes are not expected. However, if
you fail to provide voting instructions to your bank, broker, trustee or other nominee, your shares will not be voted on the proposals
to be considered at the Harte Hanks Special Meeting. Since approval of the Harte Hanks Merger Proposal requires the affirmative vote
of a majority of the outstanding voting power of Harte Hanks Common Stock entitled to vote on the proposal, a failure to vote will have
the same effect as a vote “AGAINST” the Harte Hanks Merger Proposal. The vote on the Non-Binding Advisory Compensation Proposal
is advisory only and is not a condition to completion of the Merger.
11
Q:
What if I fail to vote or abstain?
A:
An abstention occurs when a Harte Hanks stockholder attends the Harte Hanks Special Meeting and does not vote or returns a proxy with
an “abstain” instruction. An abstention will have the same effect as a vote “AGAINST” the Harte Hanks Merger
Proposal. If a Harte Hanks stockholder is not present at the Harte Hanks Special Meeting and does not respond by proxy, it will also
have the same effect as a vote “AGAINST” the Harte Hanks Merger Proposal.
Q:
Why is my vote important?
A:
If you do not vote, it will be more difficult for Harte Hanks to obtain the necessary quorum to hold the Harte Hanks Special Meeting
and to obtain the stockholder approval that its board of directors is recommending and seeking. Approval of the Harte Hanks Merger Proposal
requires the affirmative vote of the holders of a majority of the voting power of the outstanding shares of Harte Hanks Common Stock
entitled to vote on the Merger. Your failure to submit a proxy or vote at the Harte Hanks Special Meeting, or failure to instruct your
bank, broker, trustee or other nominee how to vote, will prevent your shares of Harte Hanks Common Stock from being counted toward the
quorum for the Harte Hanks Special Meeting and will have the same effect as a vote “AGAINST” the Harte Hanks Merger Proposal.
The
board of directors of Harte Hanks unanimously recommends that you vote “FOR” the Harte Hanks Merger Proposal.
Q:
What will happen if I return my proxy card without indicating how to vote?
A:
If you sign and return your proxy card without indicating how to vote on any particular proposal, the shares of Harte Hanks Common Stock
represented by your proxy will be voted as recommended by the board of directors of Harte Hanks with respect to such proposal.
Q:
Can I change my vote after I have delivered my proxy or voting instruction card?
A:
If you directly hold shares of Harte Hanks Common Stock in your name as a record holder, you can change your vote at any time before
your proxy is voted at the Harte Hanks Special Meeting. You can do this by:
●
submitting a written statement that you would like to revoke your proxy to the corporate secretary of Harte Hanks;
●
casting your vote by internet as provided on the proxy card;
●
signing and returning a proxy card with a later date; or
●
attending the Harte Hanks Special Meeting and voting at the Harte Hanks Special Meeting.
If
you are a beneficial owner and your shares are held by a bank, broker, trustee or other nominee, you may change your vote by:
●
contacting your bank, broker, trustee or other nominee and following its procedures for changing your voting instructions; or
●
obtaining a legal proxy from your bank, broker, trustee or other nominee and voting in accordance with the procedures described in the
proxy statement/prospectus for beneficial owners.
12
Please
contact your bank, broker, trustee or other nominee for additional information regarding how to change your voting instructions and,
if applicable, how to obtain a legal proxy to vote your shares at the Harte Hanks Special Meeting.
Q:
Will Harte Hanks be required to submit the Harte Hanks Merger Proposal to its stockholders even if the board of directors of Harte Hanks
has withdrawn, modified or qualified its recommendation?
A:
Yes. Unless the Merger Agreement has been validly terminated prior to the Harte Hanks Special Meeting, Harte Hanks is required to submit
the Merger Agreement and the Merger to its stockholders for approval, even if the board of directors of Harte Hanks has withdrawn, modified
or qualified its recommendation in favor of the Merger or otherwise effected a change in recommendation regarding the Merger.
Q:
Are Harte Hanks stockholders entitled to dissenters’ rights of appraisal?
A:
No. Holders of Harte Hanks Common Stock are not entitled to appraisal rights in connection with the Merger under the Delaware General
Corporation Law.
Q:
Are there any risks that I should consider in deciding whether to vote for the Harte Hanks Merger Proposal at the Harte Hanks Special
Meeting?
A:
Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on
page 42. You also should read and carefully consider the risk factors of Star contained in the documents that are incorporated by reference
into this proxy statement/prospectus.
Q:
What are the material U.S. federal income tax consequences of the Merger to Harte Hanks stockholders?
A:
The Merger will be treated as a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder (as defined below)
that exchanges its shares of Harte Hanks Common Stock for the Merger Consideration in the Merger generally will recognize gain or loss
equal to the difference, if any, between (i) the sum of the cash (including cash in lieu of any fractional share of Star Preferred Stock)
and the fair market value of the Star Preferred Stock received in the Merger and (ii) the U.S. holder’s adjusted tax basis in the
Harte Hanks Common Stock surrendered in exchange therefor.
A
non-U.S. holder (as defined below) will generally not be subject to U.S. federal income tax with respect to the exchange of shares of
Harte Hanks Common Stock for the Merger Consideration in the Merger unless such non-U.S. holder has certain connections to the United
States as described in “Material U.S. Federal Income Tax Consequences of the Merger”.
The
tax consequences of the Merger will depend on each Harte Hanks stockholder’s particular circumstances. In addition, Harte Hanks
stockholders may be subject to state, local and non-U.S. tax laws that are not discussed in this proxy statement/prospectus. Accordingly,
Harte Hanks stockholders should consult their own tax advisors regarding the tax consequences of the Merger. See the section entitled
“Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 114 for a more complete discussion of the
U.S. federal income tax consequences of the Merger.
Q:
When is the Merger expected to be completed?
A:
Neither Star nor Harte Hanks can predict the actual date on which the Merger will be completed, or if the Merger will be completed at
all, because completion is subject to conditions and factors outside the control of both companies. Harte Hanks must first obtain the
approval of Harte Hanks stockholders for the Harte Hanks Merger Proposal, and Star and Harte Hanks must satisfy certain other closing
conditions. Star and Harte Hanks expect the Merger to be completed promptly once Harte Hanks has obtained its stockholders’ approval
as noted above, and Star and Harte Hanks have satisfied certain other closing conditions.
13
Q:
What are the conditions to complete the Merger?
A:
The obligations of Star and Harte Hanks to complete the Merger are subject to the satisfaction or waiver of certain closing conditions
contained in the Merger Agreement, including:
●
receipt of the requisite approval of the Harte Hanks stockholders;
●
the registration statement on Form S-4 having been declared effective by the Securities and Exchange Commission and not being subject
to any stop order or proceeding seeking a stop order;
●
the absence of any law, order, injunction or other legal restraint prohibiting or making illegal the consummation of the Merger;
●
the accuracy of the representations and warranties of the parties, subject to the materiality standards set forth in the Merger Agreement;
●
compliance in all material respects by each party with its covenants and obligations under the Merger Agreement
●
delivery of customary officer’s certificates by the parties;
●
the absence of a Company Material Adverse Effect with respect to Harte Hanks and the absence of a Parent Material Adverse Effect with
respect to Star, in each case continuing through Closing;
●
delivery to Star of the ABL Loan Agreement Amendment (as defined in the Merger Agreement) required under the Merger Agreement;
●
satisfaction or waiver of all conditions to the Debt Financing (or Alternative Debt Financing) and availability of not less than $15.0
million under such financing arrangements on the Closing Date; and
●
receipt of certain required third-party consents, waivers, approvals and notices identified in the Merger Agreement.
For
more information, see “Conditions to Complete the Merger” beginning on page 108.
Q:
What happens if the Merger is not completed?
A:
If the Merger is not completed, Harte Hanks stockholders will not receive any Cash Consideration or shares of Star Preferred Stock in
connection with the Merger. Instead, Harte Hanks will remain an independent company and Star will not acquire Harte Hanks pursuant to
the Merger Agreement.
The
Merger Agreement may be terminated by Harte Hanks or Star under certain circumstances described in the Merger Agreement, including by
mutual written consent, if the Merger has not been completed by the outside date of 11:59 p.m. Eastern Time, on March 1, 2027, if a governmental
authority permanently prohibits the Merger, or, in certain circumstances, following a failure of Harte Hanks stockholders to approve
the Merger Agreement.
14
In
addition, under certain specified circumstances, Harte Hanks may be required to pay Star a termination fee. Generally, the termination
fee is $1,152,000. The Merger Agreement provided for a reduced $576,000 fee only if Harte Hanks terminated the Merger Agreement to enter
into a definitive Alternative Acquisition Agreement with an Exempted Party and that agreement was entered into on or prior to the No-Shop
Period Start Date, which occurred at 11:59 p.m., Eastern Time, on September 13, 2026 which is the thirtieth day after August 14, 2026
(the “
Go-Shop Period
”). Because no Alternative Acquisition Agreement was entered into on or prior to that date, the
reduced fee is a historical possibility that is no longer available; any later termination to enter into an Alternative Acquisition Agreement
with an Exempted Party would require payment of the full $1,152,000 Company Termination Fee. The termination fee may become payable if,
among other circumstances, the board of directors of Harte Hanks changes its recommendation in favor of the Merger, Harte Hanks terminates
the Merger Agreement to enter into a definitive agreement with respect to a Superior Proposal, or the Merger Agreement is terminated
in certain circumstances involving any bona fide offer or proposal (other than an offer or proposal by Star or Merger Sub) to engage
in an Acquisition Transaction (an “
Acquisition Proposal
”) and a subsequent alternative transaction. See “Termination
of the Merger Agreement,” “Star Termination Fee,” and “Harte Hanks Termination Fee” beginning on page 112.
In
certain specified circumstances, Star may be required to pay Harte Hanks a termination fee of $1,152,000, including if the Merger Agreement
is terminated because Star breaches the Merger Agreement in a manner that causes certain closing conditions to fail or if Star fails
to complete the Merger when required under the Merger Agreement.
For
a more complete description of the circumstances under which the Merger Agreement may be terminated and the fees and expenses that may
become payable, see the sections entitled “Termination of the Merger Agreement,” “Star Termination Fee,” and
“Harte Hanks Termination Fee” beginning on page 112.
Q:
What happens if I sell my shares after the Harte Hanks Record Date but before Harte Hanks’ Special Meeting?
A:
The Harte Hanks Record Date is earlier than the date of the Harte Hanks Special Meeting, and earlier than the date that the Merger is
expected to be completed. If you sell or otherwise transfer your shares of Harte Hanks Common Stock after the Harte Hanks Record Date
but before the date of the Harte Hanks Special Meeting, you will retain your right to vote at the Harte Hanks Special Meeting (provided
that such shares remain outstanding on the date of such Harte Hanks Special Meeting), but you will not have the right to receive the
Merger Consideration to be received by Harte Hanks stockholders in connection with the Merger. In order to receive the Merger Consideration,
you must hold your shares of Harte Hanks Common Stock through the completion of the Merger.
Q:
How do I elect the form of Merger Consideration I wish to receive?
A:
To make a valid election, you must properly complete and sign the election form and deliver it, together with any other required materials,
to the payment agent in accordance with the instructions included with the election form. The payment agent must receive your properly
completed election materials no later than 5:00 p.m., Eastern Time, on the Election Date.
If
you hold shares of Harte Hanks Common Stock in “street name” through a bank, broker, trustee or other nominee, you should
follow the election instructions provided by that intermediary. Your intermediary may establish an earlier deadline for receiving your
election instructions so that it has sufficient time to submit an election on your behalf by the Election Date.
A
vote in favor of the Harte Hanks Merger Proposal does not constitute an election as to the form of Merger Consideration you wish to receive.
You must separately submit a valid election in accordance with the election materials if you wish to elect Cash Consideration, Preferred
Stock Consideration or a combination of both.
For
additional information, see “Election Procedures” beginning on page 100.
Q:
What will happen if I do not make a valid election by the Election Date?
A:
If you do not make a valid election by the Election Date, or if your election is revoked, lost or otherwise deemed invalid, your shares
will be treated as non-electing shares. You will not have the right to determine the form of Merger Consideration paid for non-electing
shares.
If
valid cash elections would require payment of less than the Maximum Cash Amount, Star will determine whether non-electing shares receive
Cash Consideration, Preferred Stock Consideration or a combination of both, subject to the Maximum Cash Amount. If valid cash elections
would require payment of more than the Maximum Cash Amount, non-electing shares will receive Preferred Stock Consideration.
15
Accordingly,
the form of Merger Consideration you receive may not reflect your liquidity needs, investment objectives or tax preferences if you do
not make a valid election by the Election Date.
Q:
May I change or revoke my election regarding the form of Merger Consideration?
A:
Yes. You may change or revoke your election, in whole or in part, by delivering a properly completed written notice or revised election
form to the payment agent before 5:00 p.m., Eastern Time, on the Election Date, in accordance with the instructions contained in the
election materials.
After
the Election Date, you may not change or revoke your election. All elections will be automatically revoked if the Merger Agreement is
terminated. Shares subject to a revoked, lost, untimely or otherwise invalid election will be treated as non-electing shares.
Q:
Is my election regarding the form of Merger Consideration the same as my vote on the Harte Hanks Merger Proposal?
A:
No. Your vote on the Harte Hanks Merger Proposal and your election regarding the form of Merger Consideration are separate.
Your
proxy card or voting instruction form allows you to vote “FOR,” “AGAINST” or “ABSTAIN” on the Harte
Hanks Merger Proposal. Your election form allows you to indicate whether you prefer to receive Cash Consideration, Preferred Stock Consideration
or a combination of both for your shares, subject to the Maximum Cash Amount and the proration procedures in the Merger Agreement.
Submitting
an election form will not constitute a vote on the Harte Hanks Merger Proposal, and submitting a proxy or voting instruction form will
not constitute an election as to the form of Merger Consideration. You should complete and return each applicable form in accordance
with its separate instructions and deadline.
Q:
What are the material terms of the Star Preferred Stock that I may receive in the Merger?
A:
Each share of Star Preferred Stock has a liquidation preference of $10.00 per share and is entitled to cumulative cash dividends at an
annual rate of 10% of the liquidation preference, equivalent to $1.00 per share annually, when and as authorized by the Star board of
directors and declared by Star out of funds legally available for payment. Dividends are payable quarterly in arrears, subject to the
terms of the Certificate of Designations.
The
Star Preferred Stock is perpetual, has no stated maturity date, is not subject to a mandatory redemption right or sinking fund and is
not convertible into or exchangeable for Star Common Stock. Holders generally do not have voting rights, except for limited voting rights
relating to specified amendments that materially and adversely affect the Star Preferred Stock and the right, together with holders of
applicable parity preferred stock, to elect two additional directors if dividends are in arrears for six or more consecutive quarterly
dividend periods.
The
Star Preferred Stock ranks senior to Star Common Stock with respect to dividend and liquidation rights, on parity with equity securities
expressly designated as parity securities, and junior to all of Star’s existing and future indebtedness and any equity securities
expressly designated as senior securities.
The
Star Preferred Stock is currently traded on the Nasdaq Global Select Market under the symbol “STRRP.” For additional information,
see “Description of Star 10% Series A Cumulative Perpetual Preferred Stock” beginning on page 128.
Q:
Will I receive fractional shares of Star Preferred Stock in the Merger?
A:
No. Star will not issue fractional shares of Star Preferred Stock in the Merger. Instead, a holder otherwise entitled to receive a fractional
share will receive cash, without interest, equal to the fractional share multiplied by $10.00.
Cash
paid in lieu of fractional shares is included in determining whether the Maximum Cash Amount has been reached. The receipt of cash in
lieu of a fractional share generally may have U.S. federal income tax consequences. You should consult your tax advisor regarding the
tax consequences applicable to your particular circumstances.
Q:
What should I do if I receive more than one set of voting materials for the Harte Hanks Special Meeting?
A:
If you are a beneficial owner and hold shares of Harte Hanks Common Stock in “street name” and also are a record holder and
hold shares directly in your name or otherwise or if you hold shares of Harte Hanks Common Stock in more than one (1) brokerage account,
you may receive more than one (1) set of voting materials relating to the Harte Hanks Special Meeting.
Record
Holders.
For shares held directly, please complete, sign, date and return each proxy card, or follow the instructions on the proxy
card or otherwise follow the voting instructions provided in this proxy statement/prospectus in order to ensure that all of your shares
of Harte Hanks Common Stock are voted.
Beneficial
Owners.
For shares held in “street name” through a bank, broker, trustee or other nominee, you should follow the procedures
provided by your bank, broker, trustee or other nominee in order to vote your shares.
Q:
Where can I find more information about Star and Harte Hanks?
A:
You can find more information about Star and Harte Hanks from the various sources described under “Where You Can Find More Information”
beginning on page 135.
16
SUMMARY
This
summary highlights selected information in this proxy statement/prospectus and may not contain all of the information that is important
to you. You should carefully read this entire proxy statement/prospectus and the other documents we refer you to for a more complete
understanding of the matters being considered at the Harte Hanks Special Meeting. In addition, we incorporate by reference important
business and financial information about Star into this proxy statement/prospectus. You may obtain the information incorporated by reference
into or otherwise included with this proxy statement/prospectus without charge by following the instructions in the section entitled
“Where You Can Find More Information” beginning on page 135 of this proxy statement/prospectus.
Information
about the Companies (page
56)
Star
Equity Holdings, Inc.
Star
Equity Holdings, Inc. is a multi-industry diversified holding company with four segments: Building Solutions, Business Services, Energy
Services, and Investments. Star’s Common Stock and Preferred Stock are listed on the Nasdaq Global Select Market exchange as “STRR”
and “STRRP,” respectively.
Star’s
Building Solutions segment is currently made up of the following operating businesses: KBS Builders, Inc. (“
KBS
”);
EdgeBuilder, Inc. (“
EdgeBuilder
”), and Glenbrook Building Supply, Inc. (“
Glenbrook
”), with the
latter two managed together and referred to jointly as “
EBGL
,” and Timber Technologies Solutions, Inc. (“
TT
”).
KBS is based in Maine and manufactures modular buildings, typically in the single and multi-family residential segments, servicing principally
the New England market. EBGL is based in the Minneapolis-Saint Paul area and principally serves the Upper Midwest region. EBGL manufactures
and delivers structural wall panels for single and multi-family residential buildings, and other engineered wood-based products. EBGL
also distributes building materials from two lumberyard locations primarily focused on professional builder customers. TT is based outside
the Minneapolis-St. Paul area and manufactures glue-laminated timber products for various end markets and applications, including agriculture,
industrial, infrastructure, and building construction (commercial and residential).
Star’s
Business Services segment, which consists of Hudson Talent Solutions, LLC (“
HTS
”), delivers customized recruitment
and contracting solutions to mid-to-large multinational companies, including Recruitment Process Outsourcing (“
RPO
”),
project-based RPO, contingent workforce solutions, recruitment consulting, outsourced professional contract staffing, and managed service
provider (“
MSP
”) services across eighteen countries across three geographic regions: the Americas, Asia Pacific, and
Europe, Middle East, and Africa. Star Equity’s RPO delivery teams utilize recruitment process methodologies and project management
expertise to meet clients’ ongoing business needs. Star Equity’s RPO services include complete recruitment outsourcing, project-based
outsourcing, contingent workforce solutions, and recruitment consulting for clients’ permanent staff hires. RPO services leverage
Star Equity’s consultants, supported by Star Equity’s specialists, in the delivery of its proprietary methods to identify,
select, and engage the best-fit talent for critical client roles. In addition, Star Equity provides RPO clients with a range of outsourced
professional contract staffing services and managed service provider services offered sometimes on a standalone basis and sometimes as
part of a blended total talent solution. These services draw upon a combination of specialized recruiting and project management competencies
to deliver a wide range of solutions. HTS RPO-employed professionals - either individually or as a team - are placed with client organizations
for a defined period of time based on specific business needs of the client.
Star’s
Energy Services segment currently consists of Alliance Drilling Tools, Inc. (“
ADT
”), a Wyoming and Texas based provider
of drilling tools and services to the Energy industry, a key sector of the economy. ADT is a full-service downhole drilling tool company
which provides sale and rental tools in the Oil & Gas, Geothermal, Mining, and Waterwells sectors. ADT is strategically located near
premier oilfields in the Rockies, a geothermal and mining hub, and in Midland, TX within the Permian Basin. ADT’s business model
allows for the majority of costs, such as freight, repairs, and damages, to be passed directly to customers.
17
Star’s
Investments segment holds and manages certain of its own corporate-owned real estate, including a manufacturing facility in Maine that
is leased to KBS and a manufacturing facility in Wisconsin that is leased to TT. In addition, the Investments segment manages internally
funded, concentrated minority investments in a small number of public companies. It also holds and manages a promissory note and a private
equity stake in Catalyst MedTech LLC, a provider of medical imaging equipment and services (“
Catalyst
”). These interests
were acquired in May 2023 as a result of the sale of Digirad Health.
As
of June 30, 2026, Star had total consolidated assets of approximately $108.2 million, total liabilities of approximately $48.4 million
and total consolidated stockholders’ equity of approximately $59.8 million.
Star’s
principal executive offices are located at 53 Forest Avenue, Suite 101, Old Greenwich, CT 06870, its phone number is (203) 489-9500 and
its website is https://www.starequity.com/. Additional information about Star and its subsidiaries is included in the documents contained
or incorporated by reference in this proxy statement/prospectus.
Merger
Sub
Merger
Sub, a direct, wholly owned subsidiary of Star, is a Delaware corporation that was incorporated for the sole purpose of effecting the
Merger. In the Merger, Merger Sub will merge with and into Harte Hanks, with Harte Hanks surviving as a direct, wholly owned subsidiary
of Star and the separate corporate existence of Merger Sub will cease.
Merger
Sub’s principal administrative office is located at 53 Forest Avenue, Suite 101, Old Greenwich, CT 06870 and its phone number is
(203) 489-9500.
Harte
Hanks, Inc.
Harte
Hanks, Inc., together with its subsidiaries (“
Harte Hanks
”) is a global Business Experience Outsourcing company. Harte
Hanks operates at the intersection of data, marketing, sales, customer care, fulfillment, and logistics integrating front office revenue
growth and customer experience operations with back office execution to deliver measurable business outcomes. With offices in North America,
Asia-Pacific and Europe, Harte Hanks serves leading global brands enabling them to design, activate and optimize the full customer and
product lifecycle.
Harte
Hanks is a leading customer and brand experience company operating in six service categories - data, marketing, sales, customer care,
fulfillment and logistics. In and across these service categories, Harte Hanks addresses today’s biggest growth and customer experience
challenges for B2B and B2C businesses across the world in the new era of intelligence and artificial intelligence (“
AI
”),
by being a modern journey enabler. These challenges Harte Hanks solves include:
●
Grappling with data, AI and technology in a cookie-restricted digital environment;
●
Growing awareness, demand and sales for products;
●
Storing, fulfilling and delivering samples, kits, materials and products direct to the door of consumers, influencers or
businesses;
●
Delivering better customer experience and support across multiple channels; and
●
Delivering effectively with tighter budgets and talent shortages.
18
Harte
Hanks’ clients need help enabling their journey to growth, to transformation, to customer centricity, to product success and to
AI powered approaches and solutions to marketing, sales, fulfillment and customer care. At the core of how Harte Hanks addresses this
is a concentration on its clients’ key audiences - prospects, customers, patients, members, partners, employees and influencers
- and how Harte Hanks helps align its clients’ brands and products to these different audiences along journeys. This includes the
product journey, e.g., product innovation, build, strategy, launch, sell, deliver, support and recall and the customer journey, e.g.,
how customers become aware of their needs, how they buy, making the purchase, using the product or service, advocacy and renewal. Harte
Hanks is focused on helping its clients better understand, engage, acquire, deliver to, service, support and retain these audiences.
Harte Hanks starts by understanding and architecting the journey in focus, and then enables, delivers and manages some or all aspects
along this journey. Harte Hanks’ alignment of customers and products on behalf of brands along the entire lifecycle distinguishes
it from most other agencies and competitors in its service categories.
Harte
Hanks offers a uniquely diverse range of services and solutions in and across its service categories to businesses in the following industries:
●
B2B Technology & Services including cloud, SaaS, hardware, software, semiconductors, health technology, fintech, electronics,
distributors and telecommunications
●
Healthcare, Pharmaceuticals & Health Insurance
●
Consumer Products including health, well-being and beauty; consumer tech/electronics; domestic appliances
●
Travel, Hospitality, Streaming & Entertainment
●
QSRs (Quick Service Restaurants)
●
Financial Services and Fintech
●
Automotive
●
Retail
Harte
Hanks works in partnership with its clients to provide them with: data-driven analytics and actionable insights from research; robust
customer-experience (“
CX
”), marketing or sales strategies; and the data, content & technology to enable delivery.
Harte Hanks then combines these insights with seamless program execution, fulfillment, service and delivery on a project or ongoing service
basis to meet its clients’ goals. In essence Harte Hanks offers services along the customer & product lifecycle - from Data
to Demand, to Deal, to Delivery, and everything in between.
Operationally,
starting in 2024, Harte Hanks’ services are organized into three business units that span the end to end customer and product lifecycles:
●
Data, marketing, demand generation and managed marketing services (“
Revenue Solutions
”)
●
Customer Care
●
Fulfillment & Logistics
Data,
Marketing, Demand Generation and Managed Marketing Services (Revenue Solutions)
Harte
Hanks helps its clients determine, detect and activate their audiences through traditional, digital, and emerging channels. Harte Hanks
provides full service multi-channel marketing from strategy to campaign execution. This includes the support of its customers’
sales teams in their continued pursuit of excellence, delivering specialized outsourcing, optimization, lead nurturing and messaging
development services to global and national partners. Harte Hanks leverages data, insights, technology, and award-winning creative solutions
to meet and exceed its clients’ business objectives and optimize its clients’ return on investment.
19
Harte
Hanks’ key offerings under this business unit include:
●
Data & Analytics
– In-depth data and analytics including audience identification, profiling, segmentation and
prioritization, predictive modeling and data strategy. Harte Hanks provides data hygiene and cleansing to ensure the best possible
results. Harte Hanks accesses broad first-party and third-party data sources, search and social media, and research through
syndicated, primary and secondary sources, and Harte Hanks leverages its proprietary DataView tool, a comprehensive, aggregate data
mart for B2C (USA) and B2B (Global) that provides a 360-degree customer view, with over 1,500 attributes enabling accurate
predictive marketing to its clients. Harte Hanks also offers a unique intent data solution called Audience Finder for detecting
in-market prospects.
●
Research & Intelligence
– Primary and secondary research to help its clients understand their customers, category,
competitors and capabilities, either as a standalone deliverable or to inform the development of strategies for campaigns and
programs.
●
Strategy
– Provide strategic guidance to help clients efficiently and effectively plan and execute omnichannel marketing, demand
generation and customer experience programs that deliver business results. Harte Hanks leverages data and insights to enhance its
clients’ understanding of their consumers, competitors and category dynamics, then applies those insights to develop the
strategies to fuel activities such as customer acquisition, engagement, purchase behavior, loyalty and advocacy. Harte Hanks’
expertise spans the range of strategies including targeting, Go-To-Market, commercial, product launch, customer experience,
campaign, content, ABM (Account Based Marketing) and demand strategy.
●
Creative & Content
- Full-service creative and content design, development and execution spanning traditional and digital
channels, including creative concepts, messaging and content assets for print, broadcast, direct mail, website, app, display,
social, mobile, search engine marketing, and voice.
●
Marketing Technology
– Website and app development, e-commerce development and enablement, database building and
management, platform architecture creation, and marketing automation to serve as the foundation for digital and multi-channel
marketing execution.
●
Digital and Multi-channel Marketing Execution & Advertising
– Orchestration and execution of programs and campaigns
across multiple channels, territories and audiences, using data, strategies, content and Marketing technology, or
“MarTech,” provided either by Harte Hanks or by its clients. Setup and management of digital advertising programs and
campaigns across the latest advertising channels (e.g., Google, Meta, LinkedIn, TikTok) and platforms (DSPs, ABM advertising,
industry networks).
●
Demand Generation and ABM
– Providing intelligence-based B2B solutions that understand audiences and their behaviors, and
then inspire and drive action to deliver results. These solutions help companies understand which accounts, sectors and persons to
target, and then generate marketing qualified leads (“
MQLs
”) and pipelines for their marketing and sales team,
through combining data, strategy, content, MarTech and digital/multi-channel execution.
●
Managed Marketing Services
– Also referred to as “Marketing as a Service”. A flexible outsourcing marketing
operations solution, that works as a highly integrated extension of a client’s own marketing function by blending the best of
agency and business outsourcing processes and capabilities. Marketing as a Service operationalizes, manages and delivers some or all
of: data operations, marketing technology, analytics, demand generation, and staff augmentation.
●
Inside
Sales Outsourcing
– Combining best-in-class analytics, accomplished sales professionals and full-cycle experimentation
Harte Hanks provides B2B enterprises, and Small to Midsized Businesses with a fully outsourced sales service, that can work
alongside or in lieu of an internal sales function.
20
●
Lead Generation
– Combining data, lead generation resources and technology, Harte Hanks provides turnkey lead generation
and development that converts interested or good fit prospects into leads for sales to qualify, nurture and sell to.
●
Sales
Play Development
– Designing sales plays and cadences to enable sales teams to find, plan, engage, nurture and convert
prospects into sales opportunities.
Customer
Care
Harte
Hanks’ customer care services are customized to meet the needs of its partners’ customer, helping them attract new buyers
and turn existing patrons into loyal brand advocates. Harte Hanks supports its clients by addressing their end customers’ urgent
needs, navigating an increasingly-complex technology landscape, and integrating AI technology and automation — while maintaining
a fierce devotion to reducing customer effort, for the benefit of both the business and the buyer. This approach to “effortless
customer experience” not only drives better service results but is also designed to lower its clients’ operational costs.
Harte
Hanks’ global, omnichannel delivery model is focused on providing its clients three key services:
●
Customer Service Outsourcing
– Harte Hanks’ accomplished customer care associates interact and resolve consumer
queries and complaints across hardware and software platforms, healthcare benefit plans, product recalls and/or a myriad of other
customer service issues. Harte Hanks leverages technology to help reduce customer effort while providing a human touch to increase
customer satisfaction.
●
Customer Care Technology and AI Transformation
– Harte Hanks’ solution services teams configures various CRM
solutions (e.g., Salesforce, Zendesk) and channel /AI technology including Amazon Connect to create meaningful customer interactions
by connecting content between agent, AI-driven interfaces and web-based self-help tools and community forums.
●
Self-Service
Technology
– Harte Hanks provides and maintains self-service solutions through Interactive Voice Response
(“
IVR
”), Help Centers, online, and via apps and channel technology.
Harte
Hanks also analyzes a significant amount of aggregated data obtained from customer interactions on behalf of its clients. Harte Hanks
leverages information gained from this analysis and end customer-driven feedback to drive efficiencies, provide insights on predictive
behaviors that lead to lower customer churn and help its clients innovate their core product offerings and develop innovative product
features.
Fulfillment
& Logistics Services
Harte
Hanks’ fulfillment and logistics services are designed to meet the diverse and dynamic needs of businesses across industries, ensuring
that products, promotional materials, and essential items are delivered efficiently, accurately, and on time. Harte Hanks fulfillment
unlocks critical sales enablement, value-added product fulfillment, and eCommerce channels for its clients. Harte Hanks logistics supports
the supply chain needs of its clients in everything from time-sensitive deliveries to full scale supply chain management. By leveraging
its modern infrastructure, advanced technology, and industry expertise, Harte Hanks helps its clients streamline their operations, enhance
customer experience, and optimize cost efficiencies. Harte Hanks supports enterprise-level supply chain management, executes precise
time-sensitive deliveries, and enables eCommerce scalability.
End
to End Product, Print-On-Demand, and Mail Fulfillment Services
Harte
Hanks’ extensive fulfillment capabilities include:
●
Print-On-Demand & Literature Distribution
– Harte Hanks facilitates the seamless production and distribution of
marketing materials, sales collateral, and product literature, ensuring businesses can effectively engage with customers, prospects,
and partners.
21
●
Promotional & Branded Product Distribution
– Harte Hanks manages and distributes promotional products, trade show
materials, and corporate gifts to enhance brand awareness and customer engagement.
●
Custom Kitting & Event Fulfillment
– Harte Hanks’ curated kitting solutions support corporate events, influencer
marketing programs, employee appreciation campaigns, and conference giveaways, ensuring that clients can create impactful brand
experiences.
●
Product Recall Management
– Harte Hanks assists in efficient product recalls, ensuring regulatory compliance, customer
safety, and brand reputation protection.
●
Temperature-Controlled & FDA-Registered Fulfillment Centers
– Harte Hanks has strategically located fulfillment
centers across the United States, that provide temperature-controlled storage and are FDA-registered to handle sensitive products
such as:
○
Nutritional supplements, medical foods, and baby formulas
○
Chocolates, coffee, tea, snack foods, nuts, and seeds
○
Pet food, treats, and nutritional supplements
●
Scalable Global Fulfillment
– Harte Hanks’ fulfillment network spans the U.S., with capabilities in Europe and
additional support from regional logistics partners that ensure efficient international product distribution.
Through
its upgraded order management platform, Harte Hanks can now streamline order processing, facilitate seamless integration with various
data sources and eCommerce platforms, and ensure real-time visibility into inventory and shipment status.
Third-Party
Logistics & Freight Optimization
Harte
Hanks logistics services help businesses achieve supply chain excellence by ensuring efficient transportation, freight optimization,
and timely product delivery. Harte Hanks’ logistics expertise enables businesses to reduce costs, improve delivery speed, and optimize
their supply chain operations—whether managing individual shipments or full-scale supply chain management. Harte Hanks’ comprehensive
logistics solutions include:
●
Nationwide & Regional Shipping – Harte Hanks facilitates the shipping of millions of time-sensitive materials annually,
leveraging its nationwide logistics network.
●
Certified Fleet & Expedited Shipping
– With access to a contracted fleet of over 15,000 trucks, Harte Hanks provides
clients with scalable third-party logistics (3PL) services tailored to their needs.
●
Allink®360: Proprietary Logistics Technology
– Harte Hanks’ proprietary rate-shopping system, Allink 360,
optimizes freight costs and delivery timelines, ensuring shipments arrive on time and within budget.
●
Flexible & Scalable Logistics Solutions
– Harte Hanks offers customized logistics solutions designed to accommodate
businesses of all sizes, from startups to Fortune 500 enterprises.
Client
Relationship
Harte
Hanks is known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every
customer touch point in order to deliver desired business outcomes. Realizing Harte Hanks’ clients’ success is the only valid
measure of Harte Hanks’ own success. Harte Hanks ensures all its efforts are aligned with its clients’ business objectives
and measured against defined performance metrics. It is this commitment to its clients and their businesses that allows Harte Hanks to
build meaningful relationships with them. Harte Hanks’ client engagements may consist of one or a few of Harte Hanks’ service
offerings – with a goal toward continuously expanding its relationships. Harte Hanks provides cross-service client management along
with continuous business reviews to ensure its clients receive value from our partnerships.
22
Use
of Subcontractors
Certain
segments of Harte Hanks’ business rely on subcontractors and other third parties to provide a portion of Harte Hanks’ overall
services in certain engagements. Over the years Harte Hanks has established strong relationships with subcontractors that translate into
high level service and favorable prices for its customers.
Restructuring
Activities
Harte
Hanks’ management team continuously reviews and adjusts its cost structure and operating footprint to optimize its operations,
and invest in improved technology. The program named “Project Elevate” involved the optimization and rationalization of its
business resources as well as the partial reinvestment of savings into Harte Hanks’ sales and marketing team, technology, and strategy.
Reorganization cost reductions from Project Elevate during 2024 through 2025 were estimated to be $16.0 million. In connection with its
cost-saving and restructuring initiatives, Harte Hanks incurred total restructuring charges of $1.8 million and $2.4 million in 2025
and 2024, respectively. This program has resulted in ongoing cost optimization and rationalization initiatives across the organization.
Customers
Harte
Hanks’ clients include large multinational enterprises, small and medium-sized businesses and government organizations. Harte Hanks’
largest client in terms of revenue generated 10.5% of total revenues in 2025. Harte Hanks’ largest 25 clients in terms of revenue
generated 68.3% of total revenue in 2025. Harte Hanks’ clients span a wide range of industries including but not limited to retail,
travel, streaming, healthcare, financial services, and technology, which reduced the concentration risk of Harte Hanks in any one sector.
Harte Hanks generally enters into long-term contracts with its clients ranging in duration from one to three years. Most of its contracts
do not require its customers to purchase a minimum amount of services from Harte Hanks. In general, Harte Hanks’ contracts with
our customers are terminable on short notice with little or no penalty payable on termination.
Sales
and Marketing
Harte
Hanks operates a modern sales and marketing growth engine to generate awareness, create demand and convert this demand into new business,
as well as support existing client growth and retention. As a B2B services company Harte Hanks practices the marketing and sales methodology
and tactics it offers to its clients, including ABM, demand generation, content marketing, inside sales and enterprise sales. Harte Hanks
also leverages partnerships to extend its reach and broaden its solutions.
For
marketing, Harte Hanks leverages a combination of corporate marketing resources, marketing services resources and a modern MarTech stack
including CRM, content management, SEO/digital advertising tools to support targeting, account-based marketing, demand creation and awareness.
For
sales, Harte Hanks relies on its enterprise and solution sellers, combined with an internal sales team, to sell its products and services
to new clients and task its employees supporting existing clients to expand its client relationship through additional solutions and
products. Harte Hanks has expanded its sales team coverage internationally to support its global client and prospect network. Its sales
force sells a variety of solutions and services to address its clients’ cross-selling targeted marketing needs. Harte Hanks also
maintains solution-specific experts in its sales force and sales groups to sell it individual products and solutions, with expertise
by target industries including B2B, Health and B2C.
Harte
Hanks had 12 employees in our corporate sales and marketing function as of December 31, 2025.
23
Competition
Harte
Hanks’ competition comes from local, national, and international marketing, advertising, customer care, print fulfillment, smaller
3PL, logistics companies, and internal client resources, against whom it competes for individual projects, entire client relationships,
and marketing expenditures. The principal competitive factors in Harte Hanks’ industry are the breadth, depth and quality of service
offerings, technical and strategic expertise, the perceived value of the services provided, reputation, pricing, and brand recognition.
Harte Hanks also competes against social, mobile, web-based, email, print, broadcast, and other forms of advertising for marketing and
advertising dollars in general.
Furthermore,
competition may begin to emerge as a result of the availability of in-house information technology solutions that can replicate some
of Harte Hanks’ services. Harte Hanks expects its clients to continue to improve their information technology systems and offerings
and, in some circumstances, move the services Harte Hanks provides in-house.
Seasonality
Some
of Harte Hanks’ revenue streams tend to be higher in the fourth quarter than in other quarters during a given year. This increased
revenue is a result of overall increased activity prior to the holiday season in the retail vertical, and due to the open enrollment
period in the healthcare vertical.
As
of June 30, 2026, Harte Hanks had total consolidated assets of approximately $88.1 million, total liabilities of approximately $72.7
million and total consolidated stockholders’ equity of approximately $15.4 million.
Harte
Hanks’ principal executive offices are located at 1 Executive Drive, Chelmsford, MA 01824, its phone number is (512) 434-1100 and
its website is https://www.hartehanks.com.
The
Merger and the Merger Agreement (pages 67
and 98)
The
terms and conditions of the Merger are contained in the Merger Agreement, a copy of which is attached as
Annex A
to this proxy
statement/prospectus. You are encouraged to read the Merger Agreement carefully and in its entirety, as it is the primary legal document
that governs the Merger.
Pursuant
to the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time of the Merger, Merger Sub will merge
with and into Harte Hanks, with Harte Hanks surviving such Merger as a wholly owned subsidiary of Star, and Merger Sub will cease to
exist.
This
summary and the copy of the Merger Agreement attached to this document as
Annex A
are included solely to provide investors with
information regarding the terms of the Merger Agreement. They are not intended to provide factual information about the parties or any
of their respective subsidiaries or affiliates.
Merger
Consideration (page 99)
Upon
the terms and subject to the conditions of the Merger Agreement, at the Effective Time, each share of Harte Hanks Common Stock issued
and outstanding immediately prior to the Effective Time, other than shares owned by Harte Hanks, Star, Merger Sub or any of their respective
wholly owned subsidiaries, will be converted into the right to receive, at the election of the holder thereof and subject to the election
and proration procedures described below, either (i) the Cash Consideration, or (ii) the Preferred Stock Consideration.
Harte
Hanks stockholders may elect to receive Cash Consideration, Preferred Stock Consideration or a combination of both for their shares of
Harte Hanks Common Stock, including by electing Cash Consideration for some shares and Preferred Stock Consideration for others. However,
the aggregate amount of cash payable in the Merger is subject to an overall cap. Specifically, the aggregate amount of cash payable in
the Merger, together with cash paid with respect to certain Harte Hanks equity awards and cash paid in lieu of fractional shares of Star
Preferred Stock, may not exceed the Maximum Cash Amount. Accordingly, the form of consideration ultimately received by a stockholder
may differ from that stockholder’s election as a result of the proration provisions contained in the Merger Agreement.
24
If
the aggregate amount of cash that would otherwise be payable to all stockholders making valid cash elections is less than or equal to
the Maximum Cash Amount, each stockholder making a valid cash election will receive the full Cash Consideration for all shares subject
to that election, and each stockholder making a valid preferred stock election will receive the Preferred Stock Consideration for all
shares subject to that election. Shares for which no valid election is made will receive the Cash Consideration, the Preferred Stock
Consideration or a combination of both, as determined by Star, provided that the Maximum Cash Amount is not exceeded.
If
the aggregate amount of cash that would otherwise be payable to all stockholders making valid cash elections exceeds the Maximum Cash
Amount, all shares subject to preferred stock elections and all non-electing shares will receive the Preferred Stock Consideration. Shares
subject to cash elections will receive cash and preferred stock on a prorated basis, such that the aggregate cash paid in the Merger
does not exceed the Maximum Cash Amount. In that circumstance, each cash-electing stockholder will receive a proportionate share of the
available cash, with the balance of the Merger Consideration payable in shares of Star Preferred Stock pursuant to the allocation procedures
set forth in the Merger Agreement.
Because
the Merger Consideration consists of a fixed cash amount and a fixed number of shares of Star Preferred Stock, the Merger Agreement does
not provide for a floating exchange ratio based on the trading price of Star common stock. The amount of consideration payable for each
share of Harte Hanks Common Stock is fixed at $5.00 in cash or 0.50 shares of Star Preferred Stock, as applicable, subject only to the
election and proration procedures described above.
The
market value of any portion of the Merger Consideration payable in Star Preferred Stock will fluctuate based on the market price of Star
Preferred Stock, which is currently traded on the Nasdaq Global Select Market under the symbol “STRRP.” As a result, the
value of the stock portion of the Merger Consideration, if any, that a Harte Hanks stockholder ultimately receives will depend on the
market price of Star Preferred Stock at the time the Merger is completed and the form of consideration ultimately received by such stockholder
pursuant to the election and proration procedures described in the Merger Agreement.
No
fractional shares of Star Preferred Stock will be issued in the Merger. Instead, any holder who would otherwise be entitled to receive
a fractional share of Star Preferred Stock will receive cash, without interest, equal to the applicable fractional share multiplied by
$10.00.
The
Merger Consideration is also subject to appropriate adjustment to reflect the effect of any stock split, reverse stock split, stock dividend,
recapitalization, reclassification, combination, exchange of shares or similar transaction affecting Harte Hanks Common Stock occurring
between the date of the Merger Agreement and the Effective Time.
For
more information, see the section entitled “Terms of the Merger” beginning on page 67 and “Merger Consideration”
beginning on page 99.
Treatment
of Harte Hanks Equity Awards (page
101)
The
Merger Agreement provides for the treatment of Harte Hanks equity awards outstanding immediately prior to the Effective Time, including
stock options, restricted stock units (“
RSUs
”) and performance stock units (“
PSUs
”). At the Effective
Time, such awards will be cancelled and converted into the rights described below.
25
●
Stock Options.
At the Effective Time, each Harte Hanks stock option identified on the disclosure schedules to the Merger
Agreement that is outstanding and unexercised immediately prior to the Effective Time will automatically be cancelled and converted
into the right to receive Merger Consideration based on the in-the-money value of such option. Specifically, each eligible option
holder will be entitled to receive consideration equal to the product of (i) the excess, if any, of the applicable Merger
Consideration over the exercise price per share of such option and (ii) the number of shares subject to such option immediately
prior to the Effective Time. Holders of eligible options will be permitted to elect to receive Cash Consideration, Preferred Stock
Consideration or a combination of both, subject to the same election procedures, proration provisions and Maximum Cash Amount
limitations applicable to holders of Harte Hanks Common Stock. Any option with an exercise price equal to or greater than the
applicable Merger Consideration, and any option not specifically identified on the disclosure schedules to the Merger Agreement,
will be cancelled at the Effective Time without payment of any consideration. All payments will be subject to applicable withholding
taxes.
●
Restricted Stock Units.
At the Effective Time, each RSU identified on the disclosure schedules to the Merger Agreement that remains
outstanding immediately prior to the Effective Time will be cancelled and converted into the right to receive Merger Consideration with
respect to each share of Harte Hanks Common Stock underlying such RSU. RSU holders will be entitled to elect to receive Cash Consideration,
Preferred Stock Consideration or a combination of both, subject to the same election, proration and Maximum Cash Amount provisions applicable
to Harte Hanks stockholders. Any resulting payments will be subject to applicable tax withholding.
●
Performance Stock Units.
At the Effective Time, each outstanding PSU will be cancelled and terminated without payment of any consideration.
PSU holders will not receive cash, preferred stock or any other compensation in respect of such awards as a result of the Merger.
The
treatment of equity awards is tied to the overall Merger Consideration structure. Accordingly, holders of eligible company Options
and RSUs who elect Cash Consideration may have a portion of such consideration converted into shares of Star’s Preferred Stock
if cash elections exceed the Maximum Cash Amount and the proration provisions of the Merger Agreement are triggered. Likewise, if cash
elections do not exceed the Maximum Cash Amount, cash elections generally will be honored in full, subject to the terms and conditions
of the Merger Agreement.
For
more information see “Treatment of Harte Hanks Equity Awards” beginning on page 101.
Material
U.S. Federal Income Tax Consequences of the Merger (page
114)
The
receipt of Star Preferred Stock and/or cash in exchange for Harte Hanks Common Stock pursuant to the Merger will be a taxable transaction
for Harte Hanks stockholders for U.S. federal income tax purposes.
A
U.S. holder will generally recognize taxable gain or loss with respect to the exchange of shares of Harte Hanks Common Stock for the
Merger Consideration in the Merger equal to the difference, if any, between (i) the sum of the cash (including cash in lieu of any fractional
share of Star Preferred Stock) and the fair market value of the Star Preferred Stock received in the Merger and (ii) the U.S. holder’s
adjusted tax basis in the Harte Hanks Common Stock surrendered in exchange therefor. Such gain or loss recognized will generally be taxable
as capital gain or loss. A non-U.S. holder will generally not be subject to U.S. federal income tax with respect to the exchange of shares
of Harte Hanks Common Stock for the Merger Consideration in the Merger unless such non-U.S. holder has certain connections to the United
States as described in “Material U.S. Federal Income Tax Consequences of the Merger”.
See
“Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of the U.S. federal income tax
consequences of the Merger. Each Harte Hanks stockholder is strongly urged to consult with and rely upon its own tax advisor as to the
specific U.S. federal, state or local or non-U.S. tax consequences to such Harte Hanks stockholder of the Merger.
The
discussion in this proxy statement/prospectus is a summary only and does not address all U.S. federal income tax consequences that may
be relevant to a particular holder. In addition, holders may be subject to state, local, non-U.S. and other tax laws that are not discussed
in this proxy statement/prospectus. Accordingly, holders are urged to consult their own tax advisors regarding the particular tax consequences
of the Merger in light of their specific circumstances.
26
Harte
Hanks’ Reasons for the Merger; Recommendation of Board of Directors of Harte Hanks (page
82)
The
board of directors of Harte Hanks has (a) determined that the Merger Agreement and Merger were advisable and in the best interests of
Harte Hanks and its stockholders, (b) approved the execution and delivery of the Merger Agreement, the performance of Harte Hanks’
obligations thereunder, and the consummation of the Merger, (c) directed that the Merger Agreement be submitted to Harte Hanks stockholders
for adoption at a special meeting, (d) recommended that Harte Hanks stockholders vote in favor of adopting the Merger Agreement, (e)
approved the form of Voting and Support Agreement and entry into such agreements by Harte Hanks’ directors and officers, (f) approved
the form of the other transaction documents referenced in the Merger Agreement and the Company Disclosure Letter and the entry into such
agreements by Harte Hanks, (g) approved the transaction bonuses to Harte Hanks’ management, including David Fisher and David A.
Garrison, upon the consummation of the transaction, and (h) authorized Harte Hanks’ officers to execute and deliver the Merger
Agreement, the Voting and Support Agreements, and all ancillary documents, and to take all actions necessary or advisable to consummate
the transactions contemplated thereby. Accordingly, the board of directors of Harte Hanks recommends that Harte Hanks stockholders vote
“FOR” the Harte Hanks Merger Proposal.
For
a more detailed discussion of the board of directors of Harte Hanks’ recommendation, see “Harte Hanks’ Reasons for
the Merger; Recommendation of Board of Directors of Harte Hanks” beginning on page 82
.
Non-Binding
Advisory Compensation Proposal (page 55)
Harte
Hanks stockholders will also be asked to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable
to Harte Hanks’ named executive officers in connection with the Merger, as disclosed under “Interests of Harte Hanks Directors
and Executive Officers in the Merger,” including the Golden Parachute Compensation table and related narrative disclosures required
pursuant to Item 402(t) of Regulation S-K. The vote is separate and apart from the Harte Hanks Merger Proposal, is advisory only and
is not a condition to completion of the Merger. If the Merger is completed, the merger-related compensation may be paid in accordance
with the applicable compensation agreements and arrangements even if stockholders vote against the proposal.
Vote
Required
: Approval of the Non-Binding Advisory Compensation Proposal requires the affirmative vote of a majority of the votes cast
at the Special Meeting, provided a quorum is present.
Board
Recommendation
: The board of directors of Harte Hanks recommends that holders of Harte Hanks Common Stock vote “FOR”
the Non-Binding Advisory Compensation Proposal.
Opinion
of Harte Hanks’ Financial Advisor (page
86)
Citizens
JMP Securities, LLC (“
Citizens
”) was retained by Harte Hanks to act as its financial advisor in connection with the
Merger and, upon Harte Hanks’ request, to render its fairness opinion to the board of directors of Harte Hanks in connection therewith.
Harte Hanks selected Citizens to act as its financial advisor based on Citizens’ qualifications, expertise and reputation, its
knowledge of Harte Hanks’ industry and its knowledge and understanding of the business and affairs of Harte Hanks.
At
a meeting of the board of directors of Harte Hanks on August 12, 2026, Citizens rendered its oral opinion, subsequently confirmed in
its written opinion dated August 12, 2026, to the board of directors of Harte Hanks that, as of the date thereof and based upon and subject
to, among other things, the assumptions made, procedures
followed,
matters considered, and qualifications and limitations on the review undertaken by Citizens in connection with the opinion (which are
stated in its written opinion), the Merger Consideration to be received by the holders of Harte Hanks Common Stock (other than Owned
Company Shares (as defined in the Merger Agreement)) in the Merger was fair to such holders from a financial point of view.
The
full text of Citizens’ written opinion delivered to the board of directors of Harte Hanks , dated August 12, 2026, is attached
as
Annex B
to this proxy statement/prospectus and incorporated into this proxy statement/prospectus by reference in its entirety.
Citizens’ written opinion has been provided by Citizens at the request of the board of directors of Harte Hanks and is subject
to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review
undertaken by Citizens in connection with the opinion (which are stated therein). You are encouraged to read the opinion carefully in
its entirety.
27
Citizens
provided its opinion to the board of directors of Harte Hanks, in its capacity as such, in connection with and for purposes of its evaluation
of the Merger only and Citizens’ opinion does not constitute a recommendation as to any action the board of directors of Harte
Hanks should take with respect to the Merger or how any holder of Harte Hanks Common Stock should vote or act with respect to the Merger
or any other matter.
The
following is a summary of Citizens’ opinion and the methodology that Citizens used to render its opinion. This summary of Citizens’
opinion contained in this proxy statement is qualified in its entirety by reference to the full text of Citizens’ written opinion.
In
arriving at its opinion, Citizens, among other things:
(i)
reviewed
certain publicly available financial statements and certain other business and financial
information relating to Harte Hanks furnished to Citizens;
(ii)
reviewed
certain internal financial statements and other financial and operating data concerning Harte
Hanks prepared by the management of Harte Hanks;
(iii)
reviewed
certain financial forecasts prepared by the management of Harte Hanks;
(iv)
compared
the financial performance of Harte Hanks with that of certain other publicly-traded companies
that Citizens believed were generally comparable to Harte Hanks;
(v)
reviewed
the financial terms, to the extent publicly available, of certain acquisition transactions
involving companies in lines of business that Citizens believed were generally comparable
to Harte Hanks;
(vi)
participated
in discussions with members of the senior management of Harte Hanks with respect to the business
prospects and financial outlook of Harte Hanks;
(vii)
reviewed
the Merger Agreement draft dated as of August 10, 2026 and certain related documents; and
(viii)
performed
such other analysis and considered such other factors as Citizens deemed appropriate.
In
conducting its review and arriving at its opinion, Citizens has assumed and relied, without independent verification, upon the accuracy
and completeness of all information and data that was publicly available or furnished to or otherwise reviewed by or discussed with Citizens.
Citizens has further relied upon the assurance of the management of Harte Hanks that they are not aware of any facts or circumstances
that would make such information inaccurate or misleading. With respect to the financial forecasts of Harte Hanks, the management of
Harte Hanks has advised Citizens, and Citizens has assumed, that they have been reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the management of Harte Hanks as to the future financial performance of Harte Hanks and
other matters covered thereby. Citizens has not been engaged to assess the reasonableness or achievability of such forecasts or the assumptions
on which they were based and express no view as to such forecasts or assumptions.
For
purposes of rendering its opinion, Citizens has assumed that the representations and warranties of each party contained in the Merger
Agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under
the Merger Agreement and that all conditions to the consummation of the Merger will be satisfied without waiver thereof. Citizens has
assumed that the final form of the Merger Agreement will not vary materially from the last draft Merger Agreement reviewed by Citizens
and that the Merger will be consummated substantially on the terms described in such draft, without any amendment or waiver of material
terms or conditions. Citizens has also assumed that all necessary governmental, regulatory and other consents and approvals contemplated
by the Merger Agreement will be obtained and that in the course of obtaining those consents and approvals no costs or restrictions will
be imposed or waivers made that would have an adverse effect on the contemplated benefits of the Merger.
28
Company
Financial Analyses
In
connection with rendering its opinion, Citizens performed certain financial, comparative and other analyses as summarized below. In arriving
at its opinion, Citizens did not ascribe a specific range of values to the shares of Harte Hanks Common Stock but rather made its determination
as to fairness, from a financial point of view, to the holders of shares of Harte Hanks Common Stock (other than Owned Company Shares)
of the Merger Consideration to be received by such holders pursuant to the Merger Agreement on the basis of various financial and comparative
analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and
relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore,
a fairness opinion is not readily susceptible to summary description.
In
arriving at its opinion, Citizens did not attribute any particular weight to any single analysis or factor considered by it but rather
made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors
performed and considered by it and in the context of the circumstances of the Merger. Accordingly, Citizens believes that its analyses
must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors
as a whole, could create a misleading or incomplete view of the process underlying its opinion. The following is a summary of the material
financial analyses used by Citizens in preparing its opinion to the board of directors of Harte Hanks . Certain financial analyses summarized
below include information presented in tabular format. In order to fully understand the financial analyses used by Citizens, the tables
must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses.
In
performing its analyses, Citizens made numerous assumptions with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Harte Hanks, Star or any other parties to the Merger. None of Harte Hanks,
Star, Citizens or any other person assumes responsibility if future results are materially different from those discussed. Any estimates
contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly
more or less favorable than as set forth below. In addition, analyses relating to the value of businesses do not purport to be appraisals
or reflect the prices at which the businesses may actually be sold.
Selected
Public Companies Analysis
Citizens
reviewed and compared specific financial, operating and public trading data relating to Harte Hanks with selected publicly traded companies
that Citizens deemed comparable to Harte Hanks. Using publicly available financial data and closing stock prices as of August 7, 2026,
Citizens calculated, among other things, total enterprise value (calculated as the equity value based on fully diluted shares outstanding,
plus debt and less cash and cash equivalents) (“
TEV
”) as a multiple of estimated calendar year 2026 adjusted EBITDA
(“
EV/CY2026E EBITDA
”) and estimated calendar year 2027 adjusted EBITDA (“
EV/CY2027E EBITDA
”). Estimated
financial data of the selected companies were based on publicly available research analysts’ estimates. A summary of the selected
companies and the relevant metrics is set forth below:
EV/CY2026E EBITDA
EV/CY2027E EBITDA
YOC AG
5.3
x
4.0
x
Vianet Group
4.2
x
4.1
x
Microlise Group
3.4
x
2.8
x
Mean
4.3
x
3.6
x
Median
4.2
x
4.0
x
29
Citizens,
based on its professional judgment, selected the comparable companies because Citizens believed their businesses and operating profiles
are reasonably similar to that of Harte Hanks. However, because of the inherent differences between the businesses, operations and prospects
of Harte Hanks and those of the comparable companies, Citizens believed that it was inappropriate to, and therefore did not, rely solely
on the quantitative results of the selected comparable company analysis. Accordingly, Citizens also made qualitative judgments concerning
differences between the businesses, financial and operating characteristics and prospects of Harte Hanks and the comparable companies
that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative
analysis. After reviewing the above analyses, Citizens selected a representative range of multiples and applied these ranges to Harte
Hanks’ estimated adjusted EBITDA for calendar years 2026 and 2027 based on the forecasts to calculate a range of implied total
enterprise values, from which Citizens subtracted Harte Hanks’ estimated net debt to calculate a range of implied equity values,
and divided the resulting amounts by the number of fully diluted shares of Harte Hanks Common Stock outstanding as provided by Harte
Hanks management, to calculate a range of implied prices per share of Harte Hanks Common Stock. The following summarizes the results
of these calculations:
Multiples
Implied
prices per
share of Harte Hanks
Common Stock
EV/CY2026E
EBITDA:
3.8x
- 4.7x
$1.84
– $2.70
EV/CY2027E
EBITDA:
3.6x
- 4.4x
$1.77
– $2.60
Selected
Precedent Transactions Analysis
Citizens
reviewed, to the extent publicly available, and analyzed the valuation and financial metrics relating to selected transactions involving
target companies in lines of business that Citizens believed were generally comparable to Harte Hanks, including companies providing
outsourced business services, customer experience management, business process outsourcing and logistics services. For each precedent
transaction, Citizens reviewed the TEV of the target company in the transaction as a multiple of the target company’s trailing
twelve months adjusted EBITDA at the time of the announcement of the relevant transaction (“
EV/TTM EBITDA
”). Estimated
financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant
transaction. A summary of the selected transactions and the relevant metrics is set forth below:
Year Announced
Target
Acquiror
EV/TTM EBITDA
2025
Burroughs
Loomis
6.5
x
2023
CBW Resources
Super Group Holdings
4.2
x
2022
HyperPointe
XpresSpa Group
5.4
x
2020
Personiv
eClerx
4.7
x
Mean
5.2
x
Median
5.1
x
Citizens,
based on its professional judgment, selected the comparable transactions because Citizens believed their businesses and operating profiles
are reasonably similar to that of Harte Hanks. However, because of the inherent differences between the businesses, operations and prospects
of Harte Hanks and those of the companies involved in the selected transactions, Citizens believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the selected precedent transaction analysis. Accordingly, Citizens also
made qualitative judgments concerning differences between the selected precedent transactions and the Merger that would affect the acquisition
values of the selected target companies and Harte Hanks. After reviewing the above analyses, Citizens selected a representative range
of EV/EBITDA multiples and applied this range to Harte Hanks’ estimated adjusted EBITDA for calendar years 2026 and 2027 as provided
by Harte Hanks’ management to calculate a range of implied total enterprise values, from which Citizens subtracted Harte Hanks’
estimated net debt, and divided the resulting amounts by the number of fully diluted shares of Harte Hanks Common Stock outstanding as
provided by Harte Hanks management, to calculate a range of implied prices per share of Harte Hanks Common Stock. The following summarizes
the results of these calculations:
Multiples
Implied
prices per
share of Harte Hanks
Common Stock
EV/CY2026E
EBITDA:
4.6x
- 5.6x
$2.61
- $3.64
EV/CY2027E
EBITDA:
4.6x
– 5.6x
$2.81
- $3.88
30
Discounted
Cash Flow Analysis
In
order to estimate the present value of Harte Hanks Common Stock, Citizens performed a discounted cash flow analysis of Harte Hanks. A
discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present
value” of estimated future cash flows generated by the asset. “
Present value
” refers to the current value of
future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account
macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.
To
calculate the estimated enterprise value of Harte Hanks using the discounted cash flow method, Citizens added (a) Harte Hanks’
projected after-tax unlevered free cash flows for fiscal years 2026 through 2029 based on the forecasts, to (b) a range of “terminal
values” of Harte Hanks, and discounted such amounts to their present value using a range of selected discount rates of 14.5% to
16.5%. The after-tax unlevered free cash flows were calculated by taking the tax-affected adjusted EBIT (defined as adjusted EBITDA less
depreciation and amortization), adding depreciation and amortization, subtracting changes in net working capital, capital expenditures
and severance costs. The residual value of Harte Hanks at the end of the projection period, or “terminal value,” was estimated
by applying an exit EBITDA multiple range of 3.6x to 4.4x to Harte Hanks’ terminal year 2029 adjusted EBITDA of approximately $12.2
million from the forecasts. The range of exit EBITA multiples of 3.6x to 4.4x was selected based on Citizens analysis of the selected
companies and its’ professional judgement. The range of after-tax discount rates of 14.5% to 16.5% was selected based on Citizens’
analysis of the weighted average cost of capital of Harte Hanks, derived by application of the capital asset pricing model, taking into
account, among other things, the risk-free rate based on the yield on ten-year U.S. Treasury securities, an equity risk premium, the
relevered beta for Harte Hanks derived from the comparable public companies, and a size premium reflective of Harte Hanks’ market
capitalization.
Citizens
then calculated a range of implied values per share of Harte Hanks Common Stock by subtracting Harte Hanks’ estimated net debt
from the estimated enterprise value derived using the discounted cash flow method and dividing such amount by the number of fully diluted
shares of Harte Hanks Common Stock outstanding as provided by Harte Hanks management. The following summarizes the results of these calculations:
Implied
prices per share of Harte Hanks Common Stock:
Discounted
Cash Flow Analysis: $3.57 – $4.44
Star
Preferred Stock Analysis
Citizens
analyzed the Star Preferred Stock to be issued as Merger Consideration at various reference prices, including the current trading price
of $10.06, the liquidation preference of $10.00, the 30-day VWAP of $10.04, the 10-day VWAP of $10.11, the 52 week high of $10.92 and
the 52 week low of $8.75, calculating the implied value of the preferred stock consideration and the aggregate implied purchase price
at each reference price, which ranged from $4.69 to $5.23.
31
General
Citizens
is not a legal, tax or regulatory advisor and relied upon, without independent verification, the assessment of Harte Hanks and its legal,
tax or regulatory advisors with respect to legal, tax or regulatory matters. Citizens is not in the business of appraising tangible assets
and has not made any independent valuation or appraisal of any or all of the assets or liabilities (including any contingent, derivative
or off-balance-sheet assets or liabilities) of Harte Hanks, nor has Citizens been furnished with any such valuations or appraisals. In
addition, Citizens has not evaluated the solvency of any party to the Merger Agreement under any state or federal laws relating to bankruptcy,
insolvency or similar matters. Citizens’ opinion is necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to Citizens as of, the date of the agreement. Events occurring after the date of the opinion
may affect the opinion and the assumptions used in preparing it, and Citizens does not assume any obligation to update, revise or reaffirm
the opinion.
Citizens
was not requested to consider, and its opinion does not address, Harte Hanks’ underlying business decision to enter into the Merger
Agreement and pursue the Merger, or the relative merits of the Merger as compared to any alternative business strategies that might exist
for Harte Hanks or the effect of any other transaction in which Harte Hanks might engage. Citizens is not requested to consider, and
its opinion does not address, the non-financial terms of the Merger Agreement or the Merger, nor does it address the terms of any of
the related agreements to be entered into by the parties. Its opinion addresses only the Merger Consideration to be received by the holders
of Harte Hanks Common Stock (other than Owned Company Shares) in the Merger. Citizens was not requested to consider, and its opinion
does not address, the fairness of any consideration to be received in the Merger by the holders of any other class or series of capital
stock, creditors or other constituencies of Harte Hanks, the allocation of the Merger Consideration amongst the holders of any class
or series of capital stock, creditors or other constituencies of Harte Hanks, the conversion ratio pursuant to the Merger Agreement for
any class or series of capital stock or any election, proration or adjustment of the Merger Consideration. Citizens has assumed that
the value of the Star Preferred Stock is the liquidation preference of $10.00 per share, and Citizens expressed no opinion as to the
price at which the Star Preferred Stock may be sold at in the future. Furthermore, Citizens expressed no opinion with respect to the
amount or nature of any compensation to be received by any officers, directors or employees of any party to the Merger, or any class
of such persons, relative to the Merger Consideration to be paid to the holders of Harte Hanks Common Stock in the Merger or otherwise,
or with respect to the fairness of any such compensation.
Citizens,
as part of its investment banking business, is customarily engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of securities, private placements
and valuations for estate, corporate and other purposes.
Citizens
has acted as financial advisor to Harte Hanks in connection with the Merger and will receive a fee for its services, a portion of which
is payable for providing the opinion and a significant portion of which will become payable only if the Merger is consummated. In addition,
Harte Hanks has agreed to indemnify Citizens against certain liabilities arising out of its engagement. Citizens has not otherwise had
a material relationship with, nor otherwise received fees from, Harte Hanks or any other party to the Merger during the two years preceding
the date of the opinion.
In
the ordinary course of its trading, brokerage, investment management and financing activities, Citizens or its affiliates may at any
time hold long or short positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers,
in debt or equity securities of other companies or any currency that may be involved in the Merger. In the future, Citizens may maintain
other relationships with, and provide advisory and other services to Harte Hanks, Star and their respective affiliates, and may receive
fees for providing such services.
The
opinion was given at the request of, and was intended for the benefit and use of, the board of directors of Harte Hanks in connection
with its consideration of the Merger, and it is not intended to be and does not constitute a recommendation to any stockholder of Harte
Hanks as to how such stockholder should vote or act on any matter relating to the Merger.
For
more information, see “Opinion of Harte Hanks’ Financial Advisor,” beginning on page 86, and
Annex B
.
32
Interests
of Harte Hanks Directors and Executive Officers in the Merger (page
93)
Voting
and Support Agreement
Immediately
following the execution of the Merger Agreement, Star, Harte Hanks and each of John H. Griffin, Jr., Genevieve C. Combes, Bradley L.
Radoff, Elizabeth Ross, David Fisher and David A. Garrison (each, a “
supporting stockholder
”) entered into a voting
and support agreement (collectively, the “
Voting and Support Agreements
”). Each supporting stockholder entered into
the applicable Voting and Support Agreement solely in his or her capacity as a Harte Hanks stockholder and not in his or her capacity
as a director, officer or employee of Harte Hanks.
As
of the Record Date, the supporting stockholders beneficially own, in the aggregate, [____] shares of Harte Hanks Common Stock, representing
approximately [____]% of the outstanding shares of Harte Hanks Common Stock. The Voting and Support Agreements cover the shares of Harte
Hanks Common Stock beneficially owned by each supporting stockholder when the applicable Voting and Support Agreement was entered into,
together with any additional shares of Harte Hanks Common Stock or other voting equity securities that the supporting stockholder acquires,
purchases or is issued after that date, including through a stock split, stock dividend, Merger, reorganization, recapitalization, equity-award
exercise or settlement or similar event (collectively, the “
Owned Shares
”).
Amendments
to Employment Agreements
In
connection with the Merger, Harte Hanks amended the employment agreement with each of David Fisher, President of Harte Hanks, and David
A. Garrison, Chief Financial Officer of Harte Hanks, conditional upon, and effective as of, the Closing. Each such amendment provides
for a closing incentive bonus ($200,000 for Mr. Fisher and $150,000 for Mr. Garrison) and waives the requirement that the executive remain
unemployed in order to receive the severance benefits provided under the employment agreement.
Acceleration
of Equity Awards and Conversion in Merger Consideration
At
the Effective Time, each RSU and stock option identified on the disclosure schedules to the Merger Agreement that remains outstanding
immediately prior to the Effective Time (including each such RSU and stock option that is held by a director or executive officer of
Harte Hanks) will be cancelled and converted into the right to receive Merger Consideration (a) in the case of an RSU, with respect to
each share of Harte Hanks Common Stock underlying such RSU, and (b) in the case of a stock option, based on the in-the-money value of
such option. At or immediately prior to the Closing, an aggregate of 216,446 restricted stock units are expected to vest and be
settled, and a stock option covering 32,400 shares of Harte Hanks Common Stock is expected to be cancelled in exchange for a cash payment
of approximately $14,580.
For
more information, see “Background of the Merger” beginning on page 68 and “Harte Hanks’ Reasons for the
Merger; Recommendation of Board of Directors of Harte Hanks” beginning on page 82. These interests are described in more
detail, and certain of them are quantified, in the section entitled “Interests of Harte Hanks Directors and Executive Officers
in the Merger” beginning on page 93.
Governance
of the Combined Company After the Merger (page
96)
The
directors of Merger Sub immediately prior to the Effective Time will become the directors of Harte Hanks as the Surviving Corporation,
and the officers of Merger Sub immediately prior to the Effective Time will become the officers of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and qualified in accordance with applicable law and the Surviving
Corporation’s organizational documents.
The
directors and officers of Star immediately prior to the Merger Effective Time will continue to be the directors and officers of the surviving
parent corporation.
Regulatory
Approvals and Other Conditions to Closing (page
96)
The
Merger is not subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“
HSR
”) because the transaction
does not meet the applicable size-of-transaction threshold, and no HSR filing or waiting period applies. Completion of the Merger is
subject to the satisfaction of certain other regulatory and third-party conditions described below.
33
Under
the Merger Agreement, Harte Hanks and Star have agreed to cooperate and use their respective commercially reasonable efforts to obtain
all approvals, consents, waivers, authorizations and orders required from governmental authorities, if any, in connection with the Merger
and the other transactions contemplated by the Merger Agreement.
In
connection with the issuance of shares of Star’s Preferred Stock in the Merger, Star is required to file with the SEC a registration
statement on Form S-4 registering the securities to be issued in the Merger. A condition to the parties’ obligation to complete
the Merger is that the Form S-4 have become effective under the Securities Act and not be subject to any stop order or proceedings seeking
a stop order. The filing and effectiveness of this Registration Statement on Form S-4 is intended to satisfy this condition to the parties’
obligations to complete the Merger.
The
Merger cannot be completed if any law, injunction, judgment, order or other legal restraint issued by a governmental authority prohibits,
restrains or makes illegal the consummation of the Merger. Accordingly, a condition to Closing is the absence of any governmental order
or legal restraint preventing the parties from completing the transaction.
The
Merger is also conditioned on the delivery of the ABL Loan Agreement Amendment with Texas Capital Bank and on the availability of not
less than $15.0 million of proceeds under such facility (or any permitted Alternative Debt Financing) on the Closing Date. In addition,
the Merger Agreement requires the receipt of certain third-party consents, waivers, approvals and notices identified in the Merger Agreement
and related disclosure schedules.
Although
neither Star nor Harte Hanks knows of any reason why it cannot obtain the requisite approvals in a timely manner, Star and Harte Hanks
cannot be certain when or if they will be obtained, or that the granting of these regulatory approvals will not involve the imposition
of conditions on the completion of the Merger.
For
more information, see “Regulatory Approvals and Other Conditions to Closing” beginning on page 96.
Expected
Timing of the Merger
Neither
Star nor Harte Hanks can predict the actual date on which the Merger will be completed, or if the Merger will be completed at all, because
completion is subject to conditions and factors outside the control of both companies. Harte Hanks must first obtain the approval of
Harte Hanks stockholders for the Harte Hanks Merger Proposal. Star and Harte Hanks must also obtain necessary regulatory approvals and
satisfy certain other closing conditions. Star and Harte Hanks expect the Merger to be completed promptly once Star and Harte Hanks have
obtained the Harte Hanks stockholders’ approval as noted above, have obtained necessary regulatory approvals, and have satisfied
the other closing conditions.
Debt
Financing and Alternative Debt Financing
In
connection with the Merger, Star expects to finance a portion of the cash consideration payable in the Merger, together with related
transaction expenses and fees, through debt financing.
Under
the Merger Agreement, as a condition to Star’s obligation to consummate the Merger, (i) debt financing proceeds in an aggregate
principal amount of not less than $15.0 million must be available to Star and (ii) Harte Hanks must obtain an amendment to Harte Hanks’
existing asset-based lending facility on terms acceptable to Star, or (if such financing is not available) Star must take commercially
reasonable efforts to obtain Alternative Debt Financing (as defined below) in no less than such amount.
As
of the date of this proxy statement/prospectus, Harte Hanks and Star are pursuing financing arrangements intended to satisfy these requirements.
Although Harte Hanks and Star currently expect that the required financing and related amendments will be available on terms acceptable
to Star, there can be no assurance that such financing or amendments will be obtained on the anticipated terms or at all.
34
The
Debt Financing and amendment to Harte Hanks’ existing asset-based lending facility are not subject to approval by Harte Hanks stockholders.
The
Merger Agreement permits Star, subject to the terms and conditions of the Merger Agreement, to obtain Alternative Debt Financing in lieu
of the Debt Financing and amendment to Harte Hanks’ existing asset-based lending facility.
If
Star determines that Alternative Debt Financing is necessary or desirable, Star may seek financing from one or more alternative lenders
or financing providers. Any Alternative Debt Financing must satisfy the requirements set forth in the Merger Agreement, including the
requirement that debt financing proceeds of at least $15.0 million be available at Closing.
Conditions
to Complete the Merger (page
108)
As
more fully described in this proxy statement/prospectus and in the Merger Agreement, the completion of the Merger depends on a number
of conditions being satisfied or, where legally permissible, waived. These conditions include:
●
the adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the voting power of the outstanding shares
of Harte Hanks Common Stock entitled to vote on the Merger;
●
the Registration Statement on Form S-4 relating to the shares of Star’s Preferred Stock to be issued in connection with the Merger
having become effective under the Securities Act of 1933, as amended, and not be subject to any stop order or proceedings seeking a stop
order.
●
the absence of any law, injunction, judgment, order, decree or other legal restraint enacted, entered, promulgated, enforced or issued
by any governmental authority that prohibits, restrains or makes illegal the consummation of the Merger or the other transactions contemplated
by the Merger Agreement;
●
the representations and warranties of Harte Hanks and Star being true and correct at Closing, subject to the materiality and other qualification
standards set forth in the Merger Agreement;
●
each party having performed and complied in all material respects with its respective covenants, agreements and obligations required
to be performed prior to the Closing under the Merger Agreement;
●
delivery by Harte Hanks and Star of customary closing certificates certifying, among other things, that the applicable representations
and warranties satisfy the standards required by the Merger Agreement and that the applicable covenants have been performed;
●
with respect to Harte Hanks, the absence of a Company Material Adverse Effect that is continuing as of the Closing Date;
●
with respect to Star, the absence of a Parent Material Adverse Effect that is continuing as of the Closing Date;
●
Harte Hanks having delivered to Star the amendment to the ABL Loan Agreement required by the Merger Agreement, in form and substance
required by the agreement;
●
all conditions precedent to the Debt Financing, or Alternative Debt Financing, contemplated by Star having been satisfied or waived,
other than those conditions that by their nature are to be satisfied at the Closing of the Merger;
●
Star having available at the Closing not less than $15.0 million of proceeds under the Debt Financing (or any permitted Alternative Debt
Financing) required to fund the transactions contemplated by the Merger Agreement; and
35
●
receipt, expiration or satisfaction of specified third-party consents, approvals, waivers and notices required under certain contracts
and arrangements identified in the Merger Agreement and disclosure schedules.
The
foregoing summary is qualified in its entirety by reference to the section entitled “The Merger Agreement - Conditions to the Merger”
and the full text of the Merger Agreement.
Termination
of the Merger Agreement (page
111)
The
Merger Agreement can be terminated at any time prior to the Effective Time, whether before or after the receipt of the requisite Harte
Hanks vote, in the following circumstances:
●
by
mutual written agreement of Star and Harte Hanks;
●
by
either Star or Harte Hanks if a final and nonappealable order, injunction or other legal
or regulatory restraint or prohibition, or a statute, rule, regulation or order, prohibits,
makes illegal or enjoins the consummation of the Merger, provided that the terminating party
has complied with its obligations to use commercially reasonable efforts to resist, appeal,
obtain consent for, resolve or lift the applicable restraint or prohibition;
●
by
either Star or Harte Hanks if the Effective Time has not occurred by 11:59 p.m., Eastern
Time, on March 1, 2027, subject to the limitations in the Merger Agreement, including limitations
applicable if the other party has a valid termination right or if the terminating party’s
breach was the primary cause of the failure to satisfy the applicable closing conditions
or consummate the Merger by that date;
●
by
either Star or Harte Hanks if Harte Hanks stockholders do not adopt the Merger Agreement
at the Harte Hanks Special Meeting or any adjournment or postponement thereof at which a
vote is taken;
●
by
Star if a condition to Star’s and Merger Sub’s obligation to complete the Merger
has failed to be satisfied or has become incapable of being satisfied by the termination
date, subject to the applicable notice and cure provisions of the Merger Agreement;
●
by
Star, before Harte Hanks stockholders approve the Merger Agreement, if the board of directors
of Harte Hanks or a committee thereof has effected a Company Board Recommendation Change;
●
by
Harte Hanks if a condition to Harte Hanks’ obligation to complete the Merger has failed
to be satisfied or has become incapable of being satisfied by the termination date, subject
to the applicable notice and cure provisions of the Merger Agreement;
●
by
Harte Hanks, before Harte Hanks stockholders approve the Merger Agreement, to enter into
a definitive agreement for a Superior Proposal, provided that Harte Hanks has complied in
all material respects with the applicable non-solicitation provisions and pays the Company
Termination Fee before or concurrently with termination; or
●
by
Harte Hanks if the closing conditions in favor of Harte Hanks and the mutual closing conditions
have been satisfied or waived (other than conditions that are to be satisfied at closing
and are capable of being satisfied at closing), Harte Hanks is ready, willing and able to
close, Star and Merger Sub fail to close when required, and, after Harte Hanks gives the
required written notice of its intention to terminate, Star and Merger Sub fail to close
within the applicable three-business-day period.
36
Harte Hanks Termination Fee and
Star
Termination Fee (page
112
)
Under
the Merger Agreement, Harte Hanks may be required to pay Star a termination fee of $1,152,000 in certain circumstances. The Merger Agreement
provided for a reduced $576,000 fee only if Harte Hanks terminated the Merger Agreement to enter into an alternative transaction involving
more than 25% of Harte Hanks’ outstanding voting power or assets, revenue or net income (an “
Acquisition Transaction
”)
with an Exempted Party and the definitive Alternative Acquisition Agreement was entered into on or prior to the No-Shop Period Start
Date. Because no Alternative Acquisition Agreement was entered into on or prior to September 13, 2026, that reduced fee is no longer
available, and any later termination to enter into an alternative transaction with an Exempted Party would require the full $1,152,000
Company Termination Fee. The termination fee is payable only upon the occurrence of specified events and the termination of the Merger
Agreement under the circumstances described below.
Prior
to obtaining the Requisite Stockholder Approval, Harte Hanks may terminate the Merger Agreement in order to enter into a definitive agreement
with respect to a Superior Proposal, provided that Harte Hanks complies with the notice, negotiation and matching-right procedures set
forth in the Merger Agreement. If Harte Hanks terminates the Merger Agreement under these circumstances, Harte Hanks will be required
to pay Star a termination fee of $1,152,000. The reduced $576,000 fee was available only if the definitive Alternative Acquisition Agreement
was entered into with an Exempted Party on or prior to the No-Shop Period Start Date. Because no Alternative Acquisition Agreement was
entered into by that date, any later termination to enter into an Alternative Acquisition Agreement with an Exempted Party would require
the full $1,152,000 Company Termination Fee.
Star
may terminate the Merger Agreement if the board of directors of Harte Hanks effects a Company Board Recommendation Change. If the Merger
Agreement is terminated under those circumstances, Harte Hanks must pay Star a termination fee of $1,152,000.
If
(i) an Acquisition Proposal has been publicly announced or publicly disclosed, (ii) the Merger Agreement is subsequently terminated under
certain specified circumstances, including a failure to obtain stockholder approval or the failure to complete the Merger by the outside
date, and (iii) within one year following such termination Harte Hanks consummates an Acquisition Transaction or enters into a definitive
agreement providing for an Acquisition Transaction, then Harte Hanks will be required to pay Star a termination fee of $1,152,000.
If
the Merger Agreement is terminated under certain circumstances because Star or Merger Sub has failed to perform its obligations under
the Merger Agreement in a manner that causes a closing condition to Harte Hanks’ obligation to consummate the Merger to fail, or
because Star and Merger Sub fail to consummate the Merger when required by the Merger Agreement, Star will be required to pay Harte Hanks
a termination fee of $1,152,000.
Accounting
Treatment (page
96)
The
Merger will be accounted for as an acquisition of Harte Hanks by Star under the acquisition method of accounting in accordance with GAAP.
Comparison
of the Rights of Star Preferred Stockholders and Harte Hanks Common Stockholders
(page
131
)
The
rights of Harte Hanks stockholders are governed by Delaware law and the Harte Hanks certificate of incorporation and the Harte Hanks
bylaws. In the Merger, Harte Hanks stockholders who receive Star Preferred Stock Consideration will become Star Preferred Stockholders,
and their rights will be governed by Delaware law, and will also be governed by the Certificate of Designations, Rights and Preferences
of Star’s 10% Series A Cumulative Perpetual Preferred Stock and the Star Certificate of Incorporation. Harte Hanks stockholders
will have different rights once they become Star Preferred stockholders due to differences between the Harte Hanks governing documents,
on the one hand, and the Star governing documents, on the other hand. These differences are described in more detail under the section
entitled “Comparison of the Rights of Star Preferred stockholders and Harte Hanks Common stockholders” beginning on page
131.
Stock
Exchange Listing
(page
97
)
The
shares of Star’s 10% Series A Cumulative Perpetual Preferred Stock to be issued in the Merger are listed for trading on the Nasdaq
Global Select Market. Following the Merger, shares of Star Preferred Stock will continue to be traded on the Nasdaq Global Select Market.
37
The
Harte Hanks Special Meeting (page
50)
The
Harte Hanks Special Meeting will take place on [________], 2026 at [__]:00 p.m., Eastern Time, or at such other time as the Harte Hanks
Special Meeting may be adjourned or postponed. The Harte Hanks Special Meeting will be held at Harte Hanks’ principal executive
office located at 1 Executive Drive, Suite 303, Chelmsford, MA 01824.
At
the Harte Hanks Special Meeting, Harte Hanks stockholders will be asked to vote on the following matters:
●
the Harte Hanks Merger Proposal; and
●
the Non-Binding Advisory Compensation Proposal.
You
may vote at the Harte Hanks Special Meeting if you owned shares of Harte Hanks Common Stock at the close of business on [_____], 2026.
As of the Record Date, there were [_______] shares of Harte Hanks Common Stock outstanding.
John
H. Griffin, Jr., Genevieve C. Combes, Bradley L. Radoff, Elizabeth Ross, David Fisher and David A. Garrison, solely in such director’s
or executive officer’s capacity as a stockholder of Harte Hanks, have entered into a voting agreement with Star requiring each
such director or executive officer to vote all shares of Harte Hanks Common Stock owned by such director or executive officer in favor
of the Harte Hanks Merger Proposal. As of the Record Date, these directors and executive officers held [____] shares of Harte Hanks Common
Stock, which represented approximately [____]% of the outstanding shares of Harte Hanks Common Stock entitled to vote at the Harte Hanks
Special Meeting.
As
of the Record Date for the Harte Hanks Special Meeting, Star beneficially owned 82,000 shares of Harte Hanks Common Stock, representing
approximately 1.1% of the outstanding shares of Harte Hanks Common Stock entitled to vote at the Special Meeting. Star intends to vote,
or cause to be voted, all such shares FOR the Harte Hanks Merger Proposal.
The
Harte Hanks Merger Proposal will be approved if a majority of the voting power of the outstanding shares of Harte Hanks Common Stock
entitled to vote at the Harte Hanks Special Meeting are voted in favor of such proposal. If a Harte Hanks stockholder present at the
Harte Hanks Special Meeting abstains from voting, or responds by proxy with an “ABSTAIN,” it will have the same effect as
a vote “AGAINST” such proposal. If a Harte Hanks stockholder is not present at the Harte Hanks Special Meeting and does not
respond by proxy or does not provide his, her or its bank, broker, trustee or other nominee with instructions, as applicable and as may
be required, it will have the same effect as a vote “AGAINST” such proposal.
Approval
of the Non-Binding Advisory Compensation Proposal is not a condition to completion of the Merger. Approval of the Non-Binding Advisory
Compensation Proposal requires the affirmative vote of a majority of the votes cast at the Special Meeting, provided a quorum is present.
Dissenters’
Rights in the Merger (page
97
)
Neither
Star stockholders nor Harte Hanks stockholders are entitled to dissenters’ rights under the Merger Agreement or the General Corporation
Law of the State of Delaware (“
DGCL
”).
Election
Procedures (page
100
)
To
make an effective election, a stockholder of record must submit a properly completed election form to the designated payment agent, on
or before the election deadline specified in the election materials (“election deadline”). The election deadline will be
5:00 p.m., Eastern Time, on the Election Date. The “Election Date” will be the date of the Harte Hanks stockholder meeting,
unless the Closing Date is more than four business days after that meeting; in that case, it will be two business days before the Closing
Date. Star and Harte Hanks may agree to, and publicly announce, another Election Date.
38
Elections
received after the election deadline, or elections that are not properly completed, will be treated as if no election had been made.
You may change or revoke your election at any time prior to the election deadline by written notice received by the payment agent prior
to the election deadline accompanied by a properly completed and signed, revised election form. All elections will be revoked automatically
if the Merger Agreement is terminated. You may not revoke or change your elections following the election deadline.
Stockholders
who do not make a valid election by the election deadline will be deemed to have made no election and will receive Merger Consideration
in accordance with the allocation and proration procedures set forth in the Merger Agreement. In addition, all elections are subject
to the overall cash and stock consideration limitations and proration provisions contained in the Merger Agreement, which may result
in stockholders receiving a combination of cash and Star Preferred Stock that differs from the form of consideration elected.
Maximum
Cash Amount and Proration
(
page
99)
Harte
Hanks stockholders may elect to receive (i) $5.00 in cash for each share of Harte Hanks Common Stock for which they elect Cash Consideration,
(ii) 0.50 share of Star Preferred Stock for each share of Harte Hanks Common Stock for which they elect Preferred Stock Consideration,
or (iii) a combination of both by electing Cash Consideration for some shares and Preferred Stock Consideration for others, in each case
subject to the election and proration procedures contained in the Merger Agreement. Stockholders who do not make a valid election by
the election deadline, or whose election is revoked, lost or otherwise not properly made, will be treated as non-electing stockholders.
The
Merger Agreement provides that the aggregate amount of cash payable in the Merger, including cash payable in lieu of fractional shares
of Star Preferred Stock, may not exceed the Maximum Cash Amount. As a result, a stockholder may not receive the exact form of consideration
elected.
If
the aggregate amount of cash that would be paid to all stockholders making cash elections is less than $19.2 million, all cash-electing
stockholders will receive the full Cash Consideration of $5.00 per share and all Preferred Stock-electing stockholders will receive the
full Preferred Stock Consideration of 0.50 share of Star Preferred Stock per share. In that circumstance, Star will determine whether
non-electing stockholders receive Cash Consideration, Preferred Stock Consideration, or a combination of both, provided that the aggregate
cash paid in the Merger does not exceed $19.2 million.
If
the aggregate amount of cash that would be paid to all shares making cash elections exceeds the $19.2 million Maximum Cash Amount, all
Preferred Stock-electing shares and all non-electing shares will receive the Preferred Stock Consideration. In addition, each cash-electing
share will receive a prorated portion of the Cash Consideration and Preferred Stock Consideration.
The
amount of cash payable to each cash-electing share will be determined by multiplying the Cash Consideration otherwise payable to all
cash-electing shares by a fraction, the numerator of which is the Maximum Cash Amount and the denominator of which is the aggregate amount
of cash that would be paid in respect of all Cash Electing Company Shares if all such Cash Electing Company Shares received the Cash
Consideration in full. The remaining portion of each cash election will be converted into the right to receive Preferred Stock Consideration.
Any
shares for which a valid election is not made, or for which an election is revoked, lost or otherwise deemed ineffective, will be treated
as non-electing shares. If cash elections exceed the Maximum Cash Amount, all non-electing shares will receive Preferred Stock Consideration.
If cash elections do not exceed the Maximum Cash Amount, Star may allocate Cash Consideration, Preferred Stock Consideration, or a combination
thereof to non-electing shares, subject to the Maximum Cash Amount, in its discretion.
Risk
Factors (page
42)
In
evaluating the Merger Agreement and the Merger, you should carefully read this proxy statement/prospectus
and give special consideration to the factors discussed in the section entitled “Risk Factors” beginning on page 42.
39
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some
of the statements contained or incorporated by reference into this proxy statement/prospectus are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995 (the “
Act
”), Section 27A of the Securities
Act, and Section 21E of the Exchange Act notwithstanding that such statements are not specifically identified as such. In addition, certain
statements may be contained in Star’s future filings with the U.S. Securities and Exchange Commission (“
SEC
”),
in press releases and in oral and written statements made by Star or Harte Hanks or with their respective approval that are not statements
of historical fact and constitute forward-looking statements within the meaning of the Act. Any statement that does not describe historical
or current facts is a forward-looking statement, including statements with respect to Star’s and Harte Hanks’ beliefs, goals,
intentions and expectations regarding the proposed transaction, revenues, earnings, Debt Financing, asset quality and capital levels,
among other matters; our estimates of future costs and benefits of the actions we may take; our assessments of the Debt Financing; our
assessments of other market risks; our ability to achieve our financial and other strategic goals; the expected timing of completion
of the proposed transaction; the expected cost savings, synergies and other anticipated benefits from the proposed transaction; and other
statements that are not historical facts.
Forward-looking
statements are typically identified by words such as “believe,” “expect,” “anticipate,” “project,”
“intend,” “target,” “estimate,” “continue,” “positions,” “prospects”
or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could,”
or “may,” or by variations of such words or by similar expressions. Forward-looking statements are based on current expectations,
estimates and projections about Star’s and Harte Hanks’ businesses, beliefs of Star’s and Harte Hanks’ management
and assumptions made by Star and Harte Hanks’ management. These statements are not guarantees of future performance and are subject
to numerous risks, uncertainties and assumptions that are difficult to predict, change over time, and many of which are beyond the control
of Star and Harte Hanks. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking
statements.
Some
of these risks include, among others:
●
the occurrence of any event, change or other circumstances that could give rise to the right of one or all of the parties to terminate
the Merger Agreement;
●
the outcome of any legal proceedings that may be instituted against Star or Harte Hanks;
●
the possibility that the proposed transaction will not close when expected or at all because required regulatory, stockholder or other
approvals are not received or other conditions to the Closing are not satisfied on a timely basis or at all, or are obtained subject
to conditions that are not anticipated (and the risk that required regulatory approvals may result in the imposition of conditions that
could adversely affect the combined company or the expected benefits of the proposed transaction);
●
the ability of Star and Harte Hanks to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed
transaction;
●
the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of Star Preferred
Stock;
●
the possibility that the anticipated benefits of the proposed transaction will not be realized when expected or at all, including as
a result of the impact of, or problems arising from, the integration of the two (2) organizations or as a result of the strength of the
economy and competitive factors in the areas where Star and Harte Hanks do business;
40
●
certain restrictions during the pendency of the proposed transaction that may impact the parties’ ability to pursue certain business
opportunities or strategic transactions;
●
the possibility that the Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
●
diversion of management’s attention from ongoing business operations and opportunities;
●
the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the Merger within the expected
timeframes or at all and to successfully integrate Harte Hanks’ operations and those of Star;
●
such integration may be more difficult, time consuming or costly than expected;
●
revenues following the proposed transaction may be lower than expected;
●
Star’s and Harte Hanks’ success in executing their respective business plans and strategies and managing the risks involved
in the foregoing; and
●
risks related to the potential impact of general economic, political and market factors on the companies or the Merger and other factors
that may affect future results of Star and Harte Hanks.
These
are representative of the risks that could affect the outcome of the forward-looking statements. In addition, such statements could be
affected by general industry and market conditions and growth rates, general economic and political conditions, either nationally or
in the states in which Star, Harte Hanks or their respective subsidiaries do business, including interest rate and currency exchange
rate fluctuations, changes and trends in the securities markets, and other risks.
For
any forward-looking statements made in this proxy statement/prospectus or in any documents included with or incorporated by reference
into this proxy statement/prospectus, Star and Harte Hanks claim the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. You
are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this proxy statement/prospectus
or the dates of the documents incorporated by reference in this proxy statement/prospectus and are not guarantees of future results,
performance or outcomes. Annualized, pro forma, projected and estimated numbers are used for illustrative purposes only, are not forecasts
and may not reflect actual results. Except as required by applicable law, neither Star nor Harte Hanks undertakes to update these forward-looking
statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made.
For
additional information about factors that could cause actual results to differ materially from those described in the forward-looking
statements, please see the reports that Star has filed with the SEC as described under “Where You Can Find More Information”
beginning on page 135.
Star
and Harte Hanks expressly qualify in their entirety all forward-looking statements attributable to either of them or any person acting
on their behalf by the cautionary statements contained or referred to in this proxy statement/prospectus.
41
RISK
FACTORS
In
addition to the other information contained in or incorporated by reference into this proxy statement/prospectus,
including the matters addressed under the caption “Cautionary Statement Regarding Forward-Looking Statements” beginning on
page
40
, Harte Hanks stockholders should carefully consider the following risk factors in deciding whether to vote for the approval
of the Harte Hanks Merger Proposal.
Risks
Relating to the Consummation of the Merger
Harte
Hanks stockholders may receive a form of consideration different from what they elect.
Under
the Merger Agreement, holders of Harte Hanks Common Stock may elect to receive Cash Consideration of $5.00 per share, Preferred Stock
Consideration of 0.50 share of Star’s Preferred Stock per share, or a combination of both by electing Cash Consideration for some
shares and Preferred Stock Consideration for others, subject to the election and proration procedures set forth in the Merger Agreement.
However, the aggregate amount of cash payable in the Merger, including cash payable in lieu of fractional shares of Star Preferred Stock,
may not exceed $19.2 million. As a result, if the aggregate Cash Consideration elected by Harte Hanks stockholders exceeds $19.2 million,
all Preferred Stock elections and all non-elections will be converted into Preferred Stock Consideration, and cash elections will be
prorated. In that circumstance, stockholders that elect to receive cash will receive Cash Consideration only with respect to a portion
of their shares and will receive Preferred Stock Consideration with respect to the remainder of their shares. The amount of cash ultimately
received by each cash-electing stockholder will depend on the total number of shares for which cash elections are made by all Harte Hanks
stockholders.
In
addition, stockholders who do not make a valid election, whose election is revoked, or whose election is otherwise deemed ineffective
will be treated as non-electing stockholders. If cash elections do not exceed the $19.2 million cash cap, Star will determine whether
non-electing shares receive Cash Consideration, Preferred Stock Consideration, or a combination of both, subject to the Maximum Cash
Amount. Accordingly, stockholders may not know the exact form of Merger Consideration they will receive until after the election process
has been completed and the final allocation has been determined. Regardless of whether you elect to receive Cash Consideration, Preferred
Stock Consideration or a combination of both, you may receive a different mix of Cash and Preferred Stock than you elected, and the consideration
you ultimately receive will depend in part on the elections made by other Harte Hanks stockholders.
Non-electing
stockholders may receive a form of consideration determined by Star.
Stockholders
who do not submit a valid election, whose election is revoked, or whose election is otherwise ineffective will be treated as non-electing
stockholders. If the aggregate amount of cash elected by Harte Hanks stockholders is less than the $19.2 million Maximum Cash Amount
permitted under the Merger Agreement, Star has the discretion to determine whether non-electing shares receive Cash Consideration, Preferred
Stock Consideration, or a combination of both, subject to the cash cap. In addition, the Star Preferred Stock has different investment
characteristics and risks than cash, including risks related to Star’s business, financial condition and the market value of the
Star Preferred Stock.
Star
and Harte Hanks are expected to incur substantial costs related to the Merger and integration.
Star
and Harte Hanks have incurred and expect to incur a number of non-recurring costs associated with the Merger. These costs include legal,
financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, public company filing fees
and other regulatory fees, financial printing and other printing costs and other related costs. Some of these costs are payable by either
Star or Harte Hanks regardless of whether the Merger is completed. See “Fees and Expenses” beginning on page 112.
42
Following
the Closing, Star is expected to incur substantial costs related to the integration of Star’s and Harte Hanks’ businesses,
including facilities and systems consolidation costs and employment-related costs. Star and Harte Hanks may also incur additional costs
to maintain employee morale and to retain key employees. There are a large number of processes, policies, procedures, operations, technologies
and systems that may need to be integrated, including accounting and finance, payroll, compliance, treasury management, operations, vendor
management, risk management, lines of business, pricing and benefits. While Star and Harte Hanks have assumed that a certain level of
costs will be incurred, there are many factors beyond their control that could affect the total amount or the timing of the integration
costs. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate accurately. These integration costs
may result in the combined company taking charges against earnings following the completion of the Merger, and the amount and timing
of such charges are uncertain at present. There can be no assurances that the expected benefits and efficiencies related to the integration
of the businesses will be realized to offset these transaction and integration costs over time.
Combining
Star and Harte Hanks may be more difficult, costly or time-consuming than expected, and Star and Harte Hanks may fail to realize the
anticipated benefits of the Merger.
The
success of the Merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of Star
and Harte Hanks. To realize the anticipated benefits and cost savings from the Merger, Star and Harte Hanks must successfully integrate
and combine their businesses in a manner that permits those cost savings to be realized, without adversely affecting current revenues
and future growth. If Star and Harte Hanks are not able to successfully achieve these objectives, the anticipated benefits of the Merger
may not be realized fully, or at all, or may take longer to realize than expected. In addition, the actual cost savings of the Merger
could be less than anticipated, and integration may result in additional and unforeseen expenses.
An
inability to realize the full extent of the anticipated benefits of the Merger and the other transactions contemplated by the Merger
Agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses
and operating results of the combined company following the completion of the Merger, which may adversely affect the value of the capital
stock of the combined company following the completion of the Merger.
Star
and Harte Hanks have operated and, until the completion of the Merger, must continue to operate, independently. It is possible that the
integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies
in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients,
customers, and employees or to achieve the anticipated benefits and cost savings of the Merger. Integration efforts between the two companies
may also divert management attention and resources. These integration matters could have an adverse effect on each of Star and Harte
Hanks during this transition period and for an undetermined period after completion of the Merger.
The
future results of the combined company following the Merger may suffer if the combined company does not effectively manage its expanded
operations.
Following
the Merger, the size of the business of the combined company will increase beyond the current size of Star’s business. The combined
company’s future success will depend, in part, upon its ability to manage this expanded business, which may pose challenges for
management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity.
There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies,
revenue enhancement or other benefits currently anticipated from the Merger.
The
combined company may be unable to retain Star and/or Harte Hanks’ key personnel successfully after the Merger is completed.
The
success of the Merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees
currently employed by Star and Harte Hanks. It is possible that these employees may decide not to remain with Star or Harte Hanks, as
applicable, while the Merger is pending or with the combined company after the Merger is consummated. If Star and Harte Hanks are unable
to retain key employees, including management, who are critical to the successful integration and future operations of the companies,
Star and Harte Hanks could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how
and unanticipated additional recruitment costs. In addition, following the Merger, if key employees terminate their employment, the combined
company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring
suitable replacements, all of which may cause the combined company’s business to suffer. Star and Harte Hanks also may not be able
to locate or retain suitable replacements for any key employees who leave either company. See “Governance of the Combined Company
After the Merger” beginning on page 96.
43
The
Merger is conditioned on the availability of Debt Financing and/or Alternative Debt Financing, which may not be obtained on the anticipated
terms or at all.
The
completion of the Merger is conditioned upon the availability of proposed financing of a portion of the Cash Consideration and any cash
in lieu of fractional shares of Star Preferred Stock, pursuant to a draw by Harte Hanks on its $25,000,000 existing secured revolving
credit facility under the ABL Loan Agreement (the “
Debt Financing
”). Under the Merger Agreement, Star expects to fund
a portion of the Cash Consideration through borrowings under Harte Hanks’ existing revolving credit facility pursuant to the ABL
Loan Agreement, as amended by the ABL Loan Agreement Amendment, or in the event any portion of the Debt Financing becomes unavailable,
Star shall use commercially reasonable efforts to obtain alternative debt financing on terms substantially similar to those available
under the ABL Loan Agreement or otherwise acceptable to Star in its sole discretion (“
Alternative Debt Financing
”).
Among other conditions, the Merger cannot be completed unless all conditions to the funding of the Debt Financing (or any Alternative
Debt Financing) have been satisfied or waived and at least $15.0 million is available to be borrowed at Closing.
Although
Star and Harte Hanks have agreed to use commercially reasonable efforts to obtain the required financing, there can be no assurance that
the required financing will be available on acceptable terms, when needed, or at all. Financing commitments may be delayed, terminated
or become unavailable as a result of adverse market conditions, lender requirements, the failure to satisfy closing conditions or other
factors outside the parties’ control.
If
the required Debt Financing and/or Alternative Debt Financing is not available at Closing, the Merger may be delayed or may not be completed.
Any such delay or failure to complete the Merger could adversely affect Harte Hanks, its business, financial condition, results of operations
and the market price of Harte Hanks Common Stock.
Star
may be required to seek alternative financing if the anticipated Debt Financing becomes unavailable.
Star
intends to fund a portion of the Merger Consideration through borrowings under Harte Hanks’ existing credit facility. If that financing
becomes unavailable or is reasonably expected to become unavailable, Star would be required to seek Alternative Debt Financing. There
can be no assurance that alternative financing would be available on acceptable terms, in sufficient amounts or on a timely basis. Any
inability to obtain alternative financing could delay the consummation of the Merger or prevent the Merger from being completed.
The
Merger will increase the indebtedness of the combined company and could adversely affect its financial flexibility.
A
portion of the Cash Consideration payable in the Merger will be funded through Debt Financing. As a result, the combined company will
have additional indebtedness following the Merger. Increased indebtedness may reduce financial flexibility, increase debt service obligations,
restrict the ability to pursue strategic opportunities, limit the ability to obtain additional financing and make the combined company
more vulnerable to adverse economic and industry conditions. The combined company’s ability to service its indebtedness will depend
on future operating performance and financial results, which will be subject to economic, financial, competitive and other factors beyond
its control.
The
unaudited pro forma condensed combined financial information included in this proxy statement/prospectus
is preliminary and the actual consideration to be issued in the Merger as well as the actual financial condition and results of operations
of the combined company after the Merger may differ materially.
The
unaudited pro forma condensed combined financial information in this proxy statement/prospectus is presented for illustrative purposes
only and is not necessarily indicative of what the combined company’s actual financial condition or results of operations would
have been had the Merger been completed on the dates indicated. The unaudited pro forma condensed combined financial information reflects
adjustments, which are based upon preliminary estimates, to record the Harte Hanks identifiable assets acquired and liabilities assumed
at fair value and the resulting goodwill recognized. The Merger Consideration value allocation reflected in this document is preliminary,
and the final allocation thereof will be based upon the value of the actual Merger Consideration and the fair value of the assets and
liabilities of Harte Hanks as of the date of the completion of the Merger. The unaudited pro forma combined financial information reflects
numerous variables, expectations and assumptions available at the time it was prepared as to certain business decisions that are subject
to change and does not take into account any circumstances or events occurring after the date it was prepared, including any recent developments,
events, and market volatility. Accordingly, the actual value of the Merger Consideration may vary significantly from the value used in
preparing the unaudited pro forma condensed combined financial information in this document. Accordingly, the final acquisition accounting
adjustments may differ materially from the pro forma adjustments reflected in this document and no assurances can be given that if the
prospective financial information had been prepared as of the date of this proxy statement/prospectus, similar assumptions would be used.
For more information, see “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 117.
44
Certain
of Harte Hanks’ directors and executive officers may have interests in the Merger that may differ from, or are in addition to,
the interests of Harte Hanks stockholders.
Harte
Hanks stockholders should be aware that certain Harte Hanks directors and executive officers may have interests in the Merger that differ
from, or are in addition to, the interests of Harte Hanks stockholders generally, including because certain executive officers may receive
transaction-related compensation or benefits, hold Harte Hanks securities or have participated in the evaluation or negotiation of the
Merger. The board of directors of Harte Hanks was aware of these interests and considered them, among other matters, in making its recommendation
that Harte Hanks stockholders approve the Merger Agreement. For a more complete description of these interests, please see “Interests
of Harte Hanks Directors and Executive Officers in the Merger” beginning on page 93.
The
Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.
The
Merger Agreement contains a number of conditions that must be satisfied or waived before the Merger can be completed. These conditions
include, among others, (i) approval of the Merger Agreement by the holders of a majority of the voting power of the outstanding shares
of Harte Hanks Common Stock entitled to vote on the Merger, (ii) the effectiveness of the registration statement on Form S-4, (iii) the
absence of any law, injunction or governmental order prohibiting the Merger, (iv) the accuracy of the parties’ representations
and warranties and compliance with their respective covenants, (v) the absence of a Company Material Adverse Effect and a Parent Material
Adverse Effect, (vi) delivery of the amendment to Harte Hanks’ existing Debt Financing ABL credit facility, or delivery of an acceptable
Alternative Debt Financing agreement, and (vii) the availability of at least $15.0 million of Debt Financing or Alternative Debt Financing
at Closing.
These
conditions may not be satisfied in a timely manner or at all. In particular, the Merger is dependent on the availability of Debt Financing
and the execution of the ABL Loan Agreement Amendment, each of which is outside the complete control of the parties. If any closing condition
is not satisfied or waived, the Merger may be delayed or may not be completed.
In
addition, the Merger Agreement may be terminated under certain circumstances, including by mutual agreement of the parties, if the Merger
is not completed by March 1, 2027, if the required Harte Hanks stockholder approval is not obtained, if certain closing conditions become
incapable of being satisfied, if Harte Hanks accepts a Superior Proposal in accordance with the Merger Agreement, or in certain circumstances
involving a change in the board of directors of Harte Hanks’ recommendation.
If
the Merger is not completed, Harte Hanks stockholders will not receive the Merger Consideration and Harte Hanks may be subject to a number
of risks, including costs incurred in connection with the transaction, potential business disruptions and the diversion of management’s
attention from ongoing business operations
45
Failure
to complete the Merger could negatively impact Star and/or Harte Hanks.
If
the Merger is not completed for any reason, including as a result of Harte Hanks stockholders failing to approve the Harte Hanks Merger
Proposal, there may be various adverse consequences and Star and/or Harte Hanks may experience negative reactions from the financial
markets and from their respective customers and employees. For example, Star’s or Harte Hanks’ businesses may have been impacted
adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any
of the anticipated benefits of completing the Merger. Star and/or Harte Hanks also could be subject to litigation related to any failure
to complete the Merger or to proceedings commenced against Star or Harte Hanks to perform their respective obligations under the Merger
Agreement.
In
addition, under the Merger Agreement, Harte Hanks may be required to pay Star a termination fee of $1.152 million in certain circumstances,
including if the Merger Agreement is terminated following a change in the recommendation of the board of directors of Harte Hanks or
if Harte Hanks terminates the Merger Agreement to enter into an agreement with respect to a Superior Proposal. The Merger Agreement provided
for a reduced $576,000 fee only if the definitive Alternative Acquisition Agreement with an Exempted Party was entered into on or prior
to the No-Shop Period Start Date. Because no Alternative Acquisition Agreement was entered into on or prior to September 13, 2026, that
reduced fee is no longer available and any later termination to enter into an alternative transaction with an Exempted Party would require
the full $1.152 million Company Termination Fee. Star may also be required to pay Harte Hanks a termination fee of $1.152 million in
certain circumstances involving Star’s failure to satisfy its closing obligations under the Merger Agreement. The payment of any
such termination fee could have an adverse effect on the financial condition and results of operations of the party required to make
the payment
Additionally,
each of Star and Harte Hanks has incurred and will incur substantial expenses in connection with the negotiation and completion of the
transactions contemplated by the Merger Agreement, as well as the costs and expenses of preparing, filing, printing and mailing this
proxy statement/prospectus, and all filing and other fees paid in connection with the Merger. If the Merger
is not completed, Star and Harte Hanks would have to pay these expenses without realizing the expected benefits of the Merger.
Further,
if the Merger Agreement is not completed and the board of directors of Harte Hanks seeks another business combination, Harte Hanks stockholders
cannot be certain that Harte Hanks will be able to find a party willing to enter into a transaction that is as favorable to Harte Hanks
and its stockholders as the Merger.
Star
and Harte Hanks will be subject to business uncertainties and Harte Hanks will be subject to contractual restrictions while the Merger
is pending.
Uncertainty
about the effect of the Merger on employees and customers may have an adverse effect on Star and Harte Hanks. These uncertainties may
impair Star’s or Harte Hanks’ ability to attract, retain and motivate key personnel until the Merger is completed, and could
cause customers and others that deal with Star or Harte Hanks to seek to change existing business relationships with Star or Harte Hanks.
In addition, subject to certain exceptions, Harte Hanks has to operate its business in the ordinary course in all material respects and
to refrain from taking certain actions that may adversely affect its ability to consummate the transactions contemplated by the Merger
Agreement on a timely basis without the consent of the other party. These restrictions may prevent Harte Hanks from pursuing attractive
business opportunities that may arise prior to the completion of the Merger. See “Additional Covenants” beginning on page
105 for a description of the restrictive covenants applicable to Harte Hanks.
The
announcement of the proposed Merger could disrupt Star’s and Harte Hanks’ relationships with their customers, suppliers,
business partners and others, as well as their operating results and businesses generally.
Whether
or not the Merger is ultimately consummated, as a result of uncertainty related to the Merger, risks relating to the impact of the announcement
of the Merger on Star’s and Harte Hanks’ businesses include the following:
●
their employees may experience uncertainty about their future roles, which might adversely affect Star’s and Harte Hanks’
ability to retain and hire key personnel and other employees;
46
●
customers, suppliers, business partners and other parties with which Star and Harte Hanks maintain business relationships may experience
uncertainty about their respective futures and seek alternative relationships with third parties, seek to alter their business relationships
with Star and Harte Hanks or fail to extend an existing relationship with Star and Harte Hanks; and
●
Star and Harte Hanks have each expended and will continue to expend significant costs, fees and expenses for professional services and
transaction costs in connection with the proposed Merger.
If
any of the aforementioned risks were to materialize, they could lead to significant costs which may impact each party’s results
of operations and financial condition.
The
Merger Agreement may discourage other companies from trying to acquire Harte Hanks.
Although
the Merger Agreement permits Harte Hanks and its representatives to actively solicit, initiate and engage in discussions regarding alternative
Acquisition Proposals during a 30-day Go-Shop Period following execution of the Merger Agreement. Following the expiration of the Go-Shop
Period Harte Hanks becomes subject to restrictions on its ability to solicit competing Acquisition Proposals and engage in discussions
regarding alternative transactions, subject to certain exceptions designed to permit the board of directors of Harte Hanks to comply
with its fiduciary duties. In addition, after the Go-Shop Period, Harte Hanks is generally required to provide Star with notice of competing
Acquisition Proposals and related developments and, in certain circumstances, an opportunity to negotiate revisions to the Merger Agreement
before the board of directors of Harte Hanks may change its recommendation or terminate the Merger Agreement to enter into an alternative
transaction.
The
Merger Agreement also provides that Harte Hanks may be required to pay Star a termination fee of up to $1.152 million if the Merger Agreement
is terminated in connection with a Superior Proposal or certain other specified circumstances. The Merger Agreement provided for a reduced
$576,000 fee only if an Alternative Acquisition Agreement with an Exempted Party was entered into on or prior to the No-Shop Period Start
Date. Because no Alternative Acquisition Agreement was entered into on or prior to September 13, 2026, that reduced fee is no longer
available and any later termination to enter into an alternative transaction with an Exempted Party would require the full $1.152 million
Company Termination Fee. These provisions could discourage potential acquirors from pursuing an acquisition of Harte Hanks or proposing
a transaction that may be more favorable to Harte Hanks stockholders than the Merger. As a result, Harte Hanks stockholders may not have
the opportunity to consider a competing transaction that could provide greater value than the Merger Consideration contemplated by the
Merger Agreement.
For
more information, see “Harte Hanks Termination Fee” and “Recommendation of Board of Directors of Harte Hanks”
beginning on page 50.
The
shares of Star Preferred Stock to be received by Harte Hanks stockholders as a result of the Merger will have different rights from the
shares of Harte Hanks Common Stock.
In
the Merger, Harte Hanks stockholders who receive stock consideration will become Star Preferred stockholders and their rights as stockholders
will be governed by Delaware law and the governing documents of Star following the Merger. The rights associated with Star Preferred
Stock are different from the rights associated with Harte Hanks Common Stock. See “Comparison of the Rights of Star Preferred stockholders
and Harte Hanks stockholders” beginning on page 131 for a discussion of the different rights associated with Star Preferred Stock.
Harte
Hanks stockholders who receive Star Preferred Stock will cease to hold common equity with general voting rights and will not have voting
rights with respect to Star.
Harte
Hanks stockholders currently have the right to vote in the election of the board of directors and on other matters affecting Harte Hanks.
When the Merger is completed, each Harte Hanks stockholder who receives Star Preferred Stock consideration will become a holder of Preferred
Stock of Star without general voting rights, unless dividends on the Stock Preferred Stock are in arrears for six or more consecutive
quarters. Because of this, Harte Hanks stockholders will have little to no influence on the management and policies of the combined company.
47
The
liquidation preference of the Star Preferred Stock is not a guarantee of market value, redemption value or future payments.
The
Star Preferred Stock has a liquidation preference of $10.00 per share. However, the liquidation preference does not represent the price
at which the Star Preferred Stock will trade, the amount that holders may receive if they sell their shares in the market or an amount
that Star is required to pay upon any specified date.
Except
upon a liquidation, dissolution or winding up of Star in accordance with the Certificate of Designations, holders of Star Preferred Stock
generally have no right to receive the liquidation preference. The market price of the Star Preferred Stock may trade at a substantial
discount to its liquidation preference for extended periods of time based on prevailing interest rates, market conditions, Star’s
financial condition, liquidity in the trading market, investor perceptions regarding Star’s business prospects and other factors.
As a result, stockholders receiving Preferred Stock Consideration in the Merger may not be able to realize an amount equal to the liquidation
preference if they sell their shares.
Dividends
on the Star Preferred Stock are cumulative but remain subject to numerous limitations and may not be paid when expected.
The
Star Preferred Stock provides for cumulative dividend rights. However, the existence of cumulative dividends does not guarantee that
dividends will be paid on any particular date or at all.
The
declaration and payment of dividends will remain subject to applicable law, the availability of legally available funds, Star’s
financial condition, results of operations, cash flows, contractual obligations, debt service requirements, financing arrangements, capital
requirements and other factors determined by Star’s board of directors. If Star does not have sufficient legally available funds
or determines that payment of dividends would not be in the best interests of Star, dividends may accumulate for future payment rather
than being paid currently.
Any
failure by Star to pay dividends when expected may adversely affect the market value of the Star Preferred Stock and could materially
reduce the attractiveness of the Preferred Stock Consideration to Harte Hanks stockholders.
The
Star Preferred Stock ranks junior to all of Star’s indebtedness and may be adversely affected by future borrowings and financing
activities.
The
Star Preferred Stock ranks junior in right of payment to all existing and future indebtedness and other non-equity claims against Star.
As a result, Star must satisfy its obligations to lenders and other creditors before it may make distributions to holders of Star Preferred
Stock.
Star
may incur additional indebtedness in the future, including indebtedness associated with financing the Merger, refinancing existing obligations
or funding future acquisitions and business operations. Increased leverage could reduce cash available for dividend payments on the Star
Preferred Stock, increase financial risk and negatively affect the market value of the Star Preferred Stock.
Stockholders
receiving Preferred Stock Consideration will receive a perpetual preferred equity security that is not redeemable at the holder’s
option and is not convertible into Star common stock.
The
Star Preferred Stockholders generally do not have the right to require Star to redeem or repurchase their shares. In addition, the Star
Preferred Stock is not convertible into shares of Star Common Stock. As a result, Harte Hanks Stockholders receiving Preferred Stock
Consideration will continue as equity holders of Star through ownership of a perpetual preferred security possessing the dividend, liquidation
and other rights described elsewhere in this proxy statement/prospectus. The trading value of the Star Preferred Stock may be affected
by numerous factors, including Star’s financial results, dividend payments, prevailing interest rates, market conditions and investor
demand for preferred securities.
48
Stockholder
litigation could prevent or delay the completion of the Merger or otherwise negatively impact the business and operations of Star and
Harte Hanks.
Stockholders
of Star and/or of Harte Hanks may file lawsuits against Star, Harte Hanks and/or the directors and officers of either company in connection
with the Merger. One of the conditions to the Closing is the absence of any law, injunction or governmental order prohibiting the Merger.
If any plaintiff were successful in obtaining an injunction prohibiting Star or Harte Hanks from completing the Merger or any of the
other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the effectiveness of the Merger and
could result in significant costs to Star and/or Harte Hanks, including any cost associated with the indemnification of directors and
officers of each company. Star and Harte Hanks may incur costs in connection with the defense or settlement of any stockholder lawsuits
filed in connection with the Merger. Such litigation could have an adverse effect on the financial condition and results of operations
of Star and Harte Hanks and could prevent or delay the completion of the Merger.
The
opinion received by the board of directors of Harte Hanks from Citizens JMP Securities, LLC prior to the signing of the Merger Agreement
does not reflect any changes in circumstances that may have occurred since the date of such opinion.
The
opinion of Citizens JMP Securities, LLC regarding the fairness, from a financial point of view, of the Merger Consideration was rendered
to the board of directors of Harte Hanks on, and was dated August 12, 2026. Changes in the operations and prospects of Harte Hanks or
Star, general market and economic conditions and other factors which may be beyond the control of Harte Hanks may have altered the value
of Harte Hanks and/or the value of the Merger Consideration pursuant to the Merger Agreement. Citizens JMP Securities, LLC’s opinion
dated August 12, 2026 does not speak as of any date other than the date of such opinion.
The
Merger may distract Star’s and Harte Hanks’ management from their other responsibilities.
The
pending Merger could cause Star’s and Harte Hanks’ management to focus its time and energies on matters related to the Merger
that otherwise would be directed to the business and operations of Star and Harte Hanks, respectively. Any such distraction on the part
of management, if significant, could affect its ability to service existing business and develop new business and adversely affect the
business and earnings of Star and Harte Hanks.
The
Merger will be a taxable transaction for U.S. federal income tax purposes, and Harte Hanks stockholders may be required to recognize
taxable gain without receiving entirely Cash Consideration.
The
Merger is intended to be a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder of Harte Hanks Common
Stock generally will recognize gain or loss equal to the difference between (i) the fair market value of the Merger Consideration received
and (ii) such U.S. holder’s adjusted tax basis in its shares of Harte Hanks Common Stock. As a result, many Harte Hanks stockholders
may incur a current tax liability as a result of the Merger.
In
addition, because stockholders may receive Star Preferred Stock as all or a portion of the Merger Consideration, stockholders may be
required to pay taxes on gain recognized in the Merger even though they receive little or no Cash Consideration with which to satisfy
those taxes. Consequently, a stockholder could incur tax liabilities associated with the Merger while receiving insufficient cash proceeds
to satisfy those liabilities. Such stockholders may be required to use funds from other sources, sell securities, or incur additional
costs to meet their tax obligations. Stockholders should consult their own tax advisors regarding the tax consequences of the Merger
in light of their particular circumstances.
The
amount of gain or loss recognized, the character of such gain or loss and the overall tax consequences of the Merger will depend on a
stockholder’s particular facts and circumstances, including the form of consideration received and the stockholder’s tax
status. As a result, the tax consequences of the Merger may differ significantly from one stockholder to another.
Net
operating loss carryforwards and certain other tax attributes of Harte Hanks are expected to be limited as a result of the Merger.
In
general, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change
net operating losses to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain
stockholders, generally stockholders beneficially owning five percent (5%) or more of a corporation’s common stock, applying certain
look-through and aggregation rules, increases by more than 50 percentage points over such stockholders’ lowest percentage ownership
during the testing period, generally three years. Harte Hanks is expected to experience an ownership change as a result of the Merger.
Consequently, the combined company may not be able to utilize a portion of Harte Hanks’ net operating loss carryforwards and certain
other tax attributes, which could have an adverse effect on cash flow and results of operations.
Risks
Relating to Star’s Business
You
should read and consider risk factors specific to Star’s business that will also affect the combined company after the Merger.
These risks are described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” sections of Star’s Annual Report on Form 10-K for the year ended December 31, 2025. Please see
the section entitled “Where You Can Find More Information” beginning on page 135 of this proxy statement/prospectus for
the location of information available regarding Star in its public filings with the SEC.
Risks
Relating to Harte Hanks’ Business
You
should read and consider risk factors specific to Harte Hanks’ business that will also affect the combined company after the Merger.
These risks are described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” sections of Harte Hanks’ Annual Report on Form 10-K for the year ended December 31, 2025. Please
see the section entitled “Where You Can Find More Information” beginning on page 135 of this proxy statement/prospectus
for the location of information available regarding Harte Hanks in its public filings with the SEC.
49
THE
HARTE HANKS SPECIAL MEETING
This
section contains information for Harte Hanks stockholders about the Harte Hanks Special Meeting that board of directors of Harte Hanks
has called to allow Harte Hanks stockholders to consider and vote on the Harte Hanks Merger Proposal and the Non-Binding Advisory Compensation
Proposal. This proxy statement/prospectus is accompanied by a notice of the Harte Hanks Special Meeting and a form of proxy card that
the board of directors of Harte Hanks is soliciting for use by Harte Hanks stockholders at the Harte Hanks Special Meeting and at any
adjournments or postponements of the Harte Hanks Special Meeting.
Date,
Time and Place of the Meeting
The
Harte Hanks Special Meeting will take place on [________], 2026 at [__]:00 p.m., Eastern Time, or at such other time as the Harte Hanks
Special Meeting may be adjourned or postponed. The Harte Hanks Special Meeting will be held at Harte Hanks’ principal executive
office located at 1 Executive Drive, Suite 303, Chelmsford, MA 01824.
Matters
to Be Considered
At
the Harte Hanks Special Meeting, Harte Hanks stockholders will be asked to consider and vote upon the following proposals:
●
the Harte Hanks Merger Proposal; and
●
the Non-Binding Advisory Compensation Proposal.
Recommendation
of Board of Directors of Harte Hanks
The
board of directors of Harte Hanks recommends that you vote “FOR” the Harte Hanks Merger Proposal and “FOR” the
Non-Binding Advisory Compensation Proposal. See “Harte Hanks’ Reasons for the Merger; Recommendation of Board of Directors
of Harte Hanks” beginning on page 82 for a more detailed discussion of the board of directors of Harte Hanks’ recommendations.
Record
Date and Quorum
The
board of directors of Harte Hanks has fixed the close of business on [_____], 2026 as the Record Date for the determination of Harte
Hanks stockholders entitled to notice of and to vote at the Harte Hanks Special Meeting. As of the Harte Hanks Record Date, there were
[_____] shares of Harte Hanks Common Stock outstanding.
The
presence, in person or represented by proxy, of holders of shares representing a majority of the voting power of the outstanding shares
of Harte Hanks Common Stock entitled to vote at the Harte Hanks Special Meeting will constitute a quorum for the transaction of business
at the Harte Hanks Special Meeting. If you fail to submit a proxy prior to the Harte Hanks Special Meeting or to vote at the Harte Hanks
Special Meeting, your shares of Harte Hanks Common Stock will not be counted towards a quorum. Abstentions will be included in determining
the number of shares present at the meeting for the purpose of determining the presence of a quorum, but not a broker non-vote or other
failure to vote.
Under
the Harte Hanks bylaws, if a quorum is not present at the Harte Hanks Special Meeting, the presiding officer of the Harte Hanks Special
Meeting, if directed by the board of directors of Harte Hanks, may adjourn the Harte Hanks Special Meeting.
At
the Harte Hanks Special Meeting, each share of Harte Hanks Common Stock is entitled to one (1) vote on all matters properly submitted
to Harte Hanks stockholders.
50
As
of the close of business on the Record Date, Harte Hanks’ directors and executive officers and their affiliates were entitled to
vote an aggregate of [______] shares of Harte Hanks Common Stock at the Harte Hanks Special Meeting, which represents approximately [______]%
of the issued and outstanding shares of Harte Hanks Common Stock entitled to vote at the Harte Hanks Special Meeting.
John
H. Griffin, Jr., Genevieve C. Combes, Bradley L. Radoff, Elizabeth Ross, David Fisher and David A. Garrison, solely in such director’s
or executive officer’s capacity as a stockholder of Harte Hanks, have entered into a voting agreement with Star requiring each
such director or executive officer to vote all shares of Harte Hanks Common Stock owned by such director or executive officer in favor
of the Harte Hanks Merger Proposal. As of the Record Date, these directors and executive officers held [____] shares of Harte Hanks Common
Stock, which represented approximately [____]% of the outstanding shares of Harte Hanks Common Stock.
Broker
Non-Votes
A
broker non-vote occurs when a bank, broker, trustee or other nominee submits a proxy with respect to a proposal on which it has discretionary
voting authority but does not vote on a separate “non-routine” proposal because it has not received voting instructions from
the beneficial owner of the shares. Because both proposals to be considered at the Harte Hanks Special Meeting are non-routine matters,
broker non-votes are not expected at the Harte Hanks Special Meeting.
If
your bank, broker, trustee or other nominee holds your shares of Harte Hanks Common Stock in “street name,” that entity may
vote your shares on the Harte Hanks Merger Proposal only if you provide voting instructions by following the instructions provided with
this proxy statement/prospectus. Accordingly, if you hold your shares in street name, you should instruct your bank, broker, trustee
or other nominee how to vote your shares as promptly as possible.
Vote
Required; Treatment of Abstentions and Failure to Vote
Harte
Hanks Merger Proposal:
Vote
Required
: Approval of the Harte Hanks Merger Proposal requires the affirmative vote of the holders of a majority of the voting power
of the outstanding shares of Harte Hanks Common Stock entitled to vote on the Merger. Approval of the Harte Hanks Merger Proposal is
a condition to the completion of the Merger.
Effect
of Abstentions and Failure to Vote
: If you do not attend the Harte Hanks Special Meeting and do not respond by proxy or do not provide
your bank, broker, trustee or other nominee with instructions, as applicable, or if you attend the Harte Hanks Special Meeting and abstain
from voting, or respond by proxy with an “ABSTAIN,” this will be considered votes cast “against” the Harte Hanks
Merger Proposal.
Non-Binding
Advisory Compensation Proposal:
Vote
Required
: Approval of the Non-Binding Advisory Compensation Proposal requires the affirmative vote of a majority of the votes cast
at the Special Meeting, provided a quorum is present. Approval of this proposal is not a condition to completion of the Merger.
Effect
of Abstentions and Failure to Vote
: Assuming a quorum is present, abstentions will not be counted as votes cast and will have no
effect on the outcome of the proposal. Broker non-votes and failures to vote or submit a proxy will not be counted as votes cast and
will have no effect on the outcome of the proposal.
Voting
at the Harte Hanks Special Meeting
Shares
of Harte Hanks Common Stock held directly in your name as the stockholder of record may be voted at the Harte Hanks Special Meeting.
Even if you plan to attend the Harte Hanks Special Meeting, we recommend that you vote your shares of Harte Hanks Common Stock in advance
as described above so that your vote will be counted if you later decide not to attend the Harte Hanks Special Meeting.
51
If
your shares of Harte Hanks Common Stock are registered in “street name” in the name of a broker or other nominee and you
wish to vote at the Harte Hanks Special Meeting, you will need to obtain a legal proxy from your bank or brokerage firm. Please consult
the voting form sent to you by your bank or broker to determine how to obtain a legal proxy in order to vote at the meeting. See “Shares
Held in Street Name” below for further information.
Proxies
A
holder of Harte Hanks Common Stock may vote by proxy at the Harte Hanks Special Meeting. If you hold your shares of Harte Hanks Common
Stock in your name as a record holder, to submit a proxy, you, as a holder of Harte Hanks Common Stock, may use one of the following
methods:
●
through the internet: by visiting the website indicated on the accompanying proxy card and following the instructions; or
●
by completing and returning the accompanying proxy card in the enclosed postage-paid envelope. The envelope requires no additional postage
if mailed in the United States.
Harte
Hanks requests that Harte Hanks stockholders vote over the internet or by completing and signing the accompanying proxy card and returning
it to Harte Hanks as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy card is returned properly executed,
the shares of Harte Hanks Common Stock represented by it will be voted at the Harte Hanks Special Meeting in accordance with the instructions
contained on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and
returning it, your proxy will be voted “FOR” the Harte Hanks Merger Proposal and “FOR” the Non-Binding Advisory
Compensation Proposal.
If
you are a beneficial owner, the holder should check the voting form used by your bank, broker, trustee or other nominee to determine
whether the holder may vote by telephone or the internet.
Every
vote is important. Accordingly, you should sign, date and return the enclosed proxy card or vote via the internet whether or not you
plan to attend the Harte Hanks Special Meeting. Sending in your proxy card or voting via the internet will not prevent you from voting
your shares at the meeting because you may revoke your proxy at any time before it is voted.
Shares
Held in Street Name
If
your shares are held in “street name” through a bank, broker, trustee or other nominee, you must instruct the bank, broker,
trustee or other nominee on how to vote your shares. Your bank, broker, trustee or other nominee will vote your shares only if you provide
specific instructions on how to vote by following the instructions provided to you by your bank, broker, trustee or other nominee.
Further,
banks, brokers, trustees or other nominees who hold shares of Harte Hanks Common Stock on behalf of their customers may not give a proxy
to Harte Hanks to vote those shares with respect to any of the proposals without specific instructions from their customers, as banks,
brokers, trustees and other nominees do not have discretionary voting power on the proposal that will be voted upon at the Harte Hanks
Special Meeting, including the Harte Hanks Merger Proposal.
Revocability
of Proxies
If
you directly hold shares of Harte Hanks Common Stock in your name as a record holder, you can change your vote at any time before your
proxy is voted at the Harte Hanks Special Meeting. You can do this by:
●
submitting a written statement that you would like to revoke your proxy to the corporate secretary of Harte Hanks;
52
●
casting your vote by internet as provided on the proxy card;
●
signing and returning a proxy card with a later date prior to the Harte Hanks Special Meeting; or
●
attending the Harte Hanks Special Meeting, requesting the return of your proxy and voting at the Harte Hanks Special Meeting.
If
your shares are held in street name, you should follow your bank’s, broker’s, trustee’s or other nominee’s instructions
regarding the revocation of proxies.
Attendance
at the Harte Hanks Special Meeting will not in and of itself constitute revocation of a proxy. A revocation or later-dated proxy received
by Harte Hanks after the vote will not affect the vote. Written notices of revocation and other communications regarding the revocation
of your proxy should be addressed to Harte Hanks, Inc., Attn: Corporate Secretary / General Counsel, 1 Executive Drive, Suite 303, Chelmsford,
MA 01824. If the Harte Hanks Special Meeting is postponed or adjourned, it will not affect the ability of Harte Hanks stockholders of
record as of the Record Date to exercise their voting rights or to revoke any previously granted proxy using the methods described above.
Delivery
of Proxy Materials
As
permitted by applicable law, only one (1) copy of this proxy statement/prospectus is being delivered to Harte Hanks stockholders residing
at the same address, unless such Harte Hanks stockholders have notified Harte Hanks of their desire to receive multiple copies of the
proxy statement/prospectus.
Harte
Hanks will promptly deliver, upon written request, a separate copy of the proxy statement/prospectus to
any Harte Hanks stockholder residing at an address to which only one (1) copy of such document was mailed. Requests for additional copies
should be directed to Harte Hanks, Inc., Attn: Corporate Secretary / General Counsel, 1 Executive Drive, Suite 303, Chelmsford, MA 01824.
Solicitation
of Proxies
The
board of directors of Harte Hanks is soliciting the Harte Hanks stockholders’ proxies in connection with the Harte Hanks Special
Meeting. Harte Hanks has retained [_____] as proxy solicitor to assist with the solicitation of proxies in connection with the Harte
Hanks Special Meeting. Star is responsible for the expenses incurred in connection with the printing and mailing of this proxy statement/prospectus.
Harte Hanks may also request banks, brokers, trustees and other intermediaries holding shares of Harte Hanks Common Stock beneficially
owned by others to send this document to, and obtain proxies from, the beneficial owners and may reimburse such record holders for their
reasonable out-of-pocket expenses in so doing. Solicitation of proxies by mail may be supplemented by telephone and other electronic
means, advertisements and personal solicitation by the directors, officers or employees of Harte Hanks. No additional compensation will
be paid to Harte Hanks’ directors, officers or employees for solicitation.
You
should not send in any Harte Hanks stock certificates with your proxy card (or, if you are a beneficial owner, your voting instruction
card). Stockholders will receive an election form from the payment agent with instructions for the surrender of stock certificates prior
to the completion of the Merger.
Other
Matters to Come Before the Harte Hanks Special Meeting
Harte
Hanks management knows of no other business to be presented at the Harte Hanks Special Meeting, but if any other matters are properly
presented to the meeting or any adjournments or postponements thereof, the persons named in the proxies will vote upon them in accordance
with the board of directors of Harte Hanks’ recommendations.
Assistance
If
you need assistance in completing your proxy card, have questions regarding the Harte Hanks Special Meeting or would like additional
copies of this proxy statement/prospectus, please contact Harte Hanks, Inc., Corporate Secretary / General Counsel, 1 Executive Drive,
Suite 303, Chelmsford, MA 01824, telephone (512) 434-1100.
53
HARTE
HANKS PROPOSALS
PROPOSAL
1: HARTE HANKS MERGER PROPOSAL
Pursuant
to the Merger Agreement, Harte Hanks is asking Harte Hanks stockholders to approve the Merger Agreement. Harte Hanks stockholders should
read this proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the
Merger Agreement and the transactions contemplated thereby. A copy of the Merger Agreement is attached to this proxy statement/prospectus
as
Annex A
.
After
careful consideration, the board of directors of Harte Hanks, by a unanimous vote of all directors, approved the Merger Agreement and
determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, advisable, and in
the best interests of Harte Hanks and Harte Hanks stockholders. Accordingly, the board of directors of Harte Hanks unanimously recommends
that Harte Hanks stockholders vote “FOR” the approval of the Merger Agreement. Harte Hanks stockholders should carefully
consider the information contained in the proxy statement, including the discussion entitled “The Merger -  Harte
Hanks’ Reasons for the Merger; Recommendation of Board of Directors of Harte Hanks” beginning on page 82 for a more detailed
discussion of the board of directors of Harte Hanks’ recommendation.
The
approval of the Harte Hanks Merger Proposal by Harte Hanks stockholders is a condition to the completion of the Merger.
Harte
Hanks is not asking stockholders to vote on a separate proposal to approve one or more adjournments of the Harte Hanks Special Meeting.
Under the Harte Hanks bylaws, the presiding officer of the Harte Hanks Special Meeting has authority to adjourn the meeting.
The
board of directors of Harte Hanks unanimously recommends a vote “FOR” the Harte Hanks Merger Proposal.
54
PROPOSAL
2: THE NON-BINDING ADVISORY COMPENSATION PROPOSAL
Section
14A of the Exchange Act and Rule 14a-21(c) thereunder require Harte Hanks to submit to a separate stockholder advisory vote the compensation
that may be paid or become payable to its named executive officers in connection with the Merger. Harte Hanks is asking Harte Hanks stockholders
to approve, on an advisory (non-binding) basis, the compensation payable to Harte Hanks’ named executive officers that is based
on or otherwise relates to the Merger, as disclosed in the section titled “Interests of Harte Hanks Directors and Executive Officers
in the Merger.”
RESOLVED,
that the stockholders of Harte Hanks, Inc. approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable
to Harte Hanks’ named executive officers in connection with the Merger, as disclosed pursuant to Item 402(t) of Regulation S-K
under “Interests of Harte Hanks Directors and Executive Officers in the Merger” (which disclosure includes the Golden Parachute
Compensation table and related narrative disclosures required pursuant to Item 402(t) of Regulation S-K).
The
vote on this proposal is separate and apart from the vote to approve the Harte Hanks Merger Proposal. Approval of the Non-Binding Advisory
Compensation Proposal is not a condition to completion of the Merger. If the Merger is completed, the merger-related compensation may
be paid to Harte Hanks’ named executive officers to the extent payable in accordance with the terms of the applicable compensation
agreements and arrangements, even if Harte Hanks stockholders vote against the Non-Binding Advisory Compensation Proposal.
Approval
of the Non-Binding Advisory Compensation Proposal requires the affirmative vote of a majority of the votes cast at the Special Meeting,
provided a quorum is present. Abstentions, broker non-votes and failures to vote or submit a proxy will not be counted as votes cast
and will have no effect on the outcome of the proposal.
The
board of directors of Harte Hanks unanimously recommends a vote “FOR” the Non-Binding Advisory Compensation Proposal.
55
INFORMATION
ABOUT THE COMPANIES
Star
Equity Holdings, Inc.
Star
Equity Holdings, Inc. is a multi-industry diversified holding company with four segments: Building Solutions, Business Services, Energy
Services, and Investments. Star’s Common Stock and Preferred Stock are listed on the Nasdaq Global Select Market exchange as “STRR”
and “STRRP,” respectively.
Star’s
Building Solutions segment is currently made up of the following operating businesses: KBS EdgeBuilder, and Glenbrook, with the latter
two managed together and referred to jointly as EBGL, and Timber TT. KBS is based in Maine and manufactures modular buildings, typically
in the single and multi-family residential segments, servicing principally the New England market. EBGL is based in the Minneapolis-Saint
Paul area and principally serves the Upper Midwest region. EBGL manufactures and delivers structural wall panels for single and multi-family
residential buildings, and other engineered wood-based products. EBGL also distributes building materials from two lumberyard locations
primarily focused on professional builder customers. TT is based outside the Minneapolis-St. Paul area and manufactures glue-laminated
timber products for various end markets and applications, including agriculture, industrial, infrastructure, and building construction
(commercial and residential).
Star’s
Business Services segment, which consists of HTS, delivers customized recruitment and contracting solutions to mid-to-large multinational
companies, including RPO, project-based RPO, contingent workforce solutions, recruitment consulting, outsourced professional contract
staffing, and MSP services across eighteen countries across three geographic regions: the Americas, Asia Pacific, and Europe, Middle
East, and Africa. Star Equity’s RPO services include complete recruitment outsourcing, project-based outsourcing, contingent workforce
solutions, and recruitment consulting for clients’ permanent staff hires. RPO services leverage Star Equity’s consultants,
supported by Star Equity’s specialists, in the delivery of its proprietary methods to identify, select, and engage the best-fit
talent for critical client roles. In addition, Star Equity provides RPO clients with a range of outsourced professional contract staffing
services and managed service provider services offered sometimes on a standalone basis and sometimes as part of a blended total talent
solution. These services draw upon a combination of specialized recruiting and project management competencies to deliver a wide range
of solutions. HTS RPO-employed professionals - either individually or as a team - are placed with client organizations for a defined
period of time based on specific business needs of the client.
Star’s
Energy Services segment currently consists of ADT, a Wyoming and Texas based provider of drilling tools and services to the Energy industry,
a key sector of the economy. ADT is a full-service downhole drilling tool company which provides sale and rental tools in the Oil &
Gas, Geothermal, Mining, and Waterwells sectors. ADT is strategically located near premier oilfields in the Rockies, a geothermal and
mining hub, and in Midland, TX within the Permian Basin. ADT’s business model allows for the majority of costs, such as freight,
repairs, and damages, to be passed directly to customers.
Star’s
Investments segment holds and manages certain of its own corporate-owned real estate, including a manufacturing facility in Maine that
is leased to KBS and a manufacturing facility in Wisconsin that is leased to TT. In addition, the Investments segment manages internally
funded, concentrated minority investments in a small number of public companies. It also holds and manages a promissory note and a private
equity stake in Catalyst, a provider of medical imaging equipment and services. These interests were acquired in May 2023 as a result
of the sale of Digirad Health.
As
of June 30, 2026, Star had total consolidated assets of approximately $108.2 million, total liabilities of approximately $48.4 million
and total consolidated stockholders’ equity of approximately $59.8 million.
Star’s
principal executive offices are located at 53 Forest Avenue, Suite 101, Old Greenwich, CT 06870, its phone number is (203) 489-9500 and
its website is https://www.starequity.com/.
56
The
information required by Item 14 of Form S-4, including a Description of Business, Description of Property, Legal Proceedings, Market
Price of and Dividends on the Registrant’s Common Equity, Management’s Discussion and Analysis of Financial Condition and
Results of Operations (MD&A), and the audited and unaudited financial statements and related notes required by Regulation S-X, is
set forth in
Annex C
to this proxy statement/prospectus and is incorporated by reference herein.
Merger
Sub
Merger
Sub, a direct, wholly owned subsidiary of Star, is a Delaware corporation that was incorporated for the sole purpose of effecting the
Merger. In the Merger, Merger Sub will merge with and into Harte Hanks, with Harte Hanks surviving as a direct, wholly owned subsidiary
of Star and the separate corporate existence of Merger Sub will cease.
Merger
Sub’s principal administrative office is located at 53 Forest Avenue, Suite 101, Old Greenwich, CT 06870 and its phone number is
(203) 489-9500.
Harte
Hanks, Inc.
Harte
Hanks, Inc., together with its subsidiaries (“
Harte Hanks
”) is a global Business Experience Outsourcing company. Harte
Hanks operates at the intersection of data, marketing, sales, customer care, fulfillment, and logistics integrating front office revenue
growth and customer experience operations with back office execution to deliver measurable business outcomes. With offices in North America,
Asia-Pacific and Europe, Harte Hanks serves leading global brands enabling them to design, activate and optimize the full customer and
product lifecycle.
Harte
Hanks is a leading customer and brand experience company operating in six service categories - data, marketing, sales, customer care,
fulfillment and logistics. In and across these service categories, Harte Hanks addresses today’s biggest growth and customer experience
challenges for B2B and B2C businesses across the world in the new era of intelligence and artificial intelligence (“
AI
”),
by being a modern journey enabler. These challenges Harte Hanks solves include:
●
Grappling with data, AI and technology in a cookie-restricted digital environment;
●
Growing awareness, demand and sales for products;
●
Storing, fulfilling and delivering samples, kits, materials and products direct to the door of consumers, influencers or
businesses;
●
Delivering better customer experience and support across multiple channels; and
●
Delivering effectively with tighter budgets and talent shortages.
Harte
Hanks’ clients need help enabling their journey to growth, to transformation, to customer centricity, to product success and to
AI powered approaches and solutions to marketing, sales, fulfillment and customer care. At the core of how Harte Hanks addresses this
is a concentration on its clients’ key audiences - prospects, customers, patients, members, partners, employees and influencers
- and how Harte Hanks helps align its clients’ brands and products to these different audiences along journeys. This includes the
product journey, e.g., product innovation, build, strategy, launch, sell, deliver, support and recall and the customer journey, e.g.,
how customers become aware of their needs, how they buy, making the purchase, using the product or service, advocacy and renewal. Harte
Hanks is focused on helping its clients better understand, engage, acquire, deliver to, service, support and retain these audiences.
Harte Hanks starts by understanding and architecting the journey in focus, and then enables, delivers and manages some or all aspects
along this journey. Harte Hanks’ alignment of customers and products on behalf of brands along the entire lifecycle distinguishes
it from most other agencies and competitors in its service categories.
57
Harte
Hanks offers a uniquely diverse range of services and solutions in and across its service categories to businesses in the following industries:
●
B2B Technology & Services including cloud, SaaS, hardware, software, semiconductors, health technology, fintech, electronics,
distributors and telecommunications
●
Healthcare, Pharmaceuticals & Health Insurance
●
Consumer Products including health, well-being and beauty; consumer tech/electronics; domestic appliances
●
Travel, Hospitality, Streaming & Entertainment
●
QSRs (Quick Service Restaurants)
●
Financial Services and Fintech
●
Automotive
●
Retail
Harte
Hanks works in partnership with its clients to provide them with: data-driven analytics and actionable insights from research; robust
customer-experience (“
CX
”), marketing or sales strategies; and the data, content & technology to enable delivery.
Harte Hanks then combines these insights with seamless program execution, fulfillment, service and delivery on a project or ongoing service
basis to meet its clients’ goals. In essence Harte Hanks offers services along the customer & product lifecycle - from Data
to Demand, to Deal, to Delivery, and everything in between.
Operationally,
starting in 2024, Harte Hanks’ services are organized into three business units that span the end to end customer and product lifecycles:
●
Data, marketing, demand generation and managed marketing services (“
Revenue Solutions
”)
●
Customer Care
●
Fulfillment & Logistics
Data,
Marketing, Demand Generation and Managed Marketing Services (Revenue Solutions)
Harte
Hanks helps its clients determine, detect and activate their audiences through traditional, digital, and emerging channels. Harte Hanks
provides full service multi-channel marketing from strategy to campaign execution. This includes the support of its customers’
sales teams in their continued pursuit of excellence, delivering specialized outsourcing, optimization, lead nurturing and messaging
development services to global and national partners. Harte Hanks leverages data, insights, technology, and award-winning creative solutions
to meet and exceed its clients’ business objectives and optimize its clients’ return on investment.
Harte
Hanks’ key offerings in this business unit include:
●
Data & Analytics
– In-depth data and analytics including audience identification, profiling, segmentation and
prioritization, predictive modeling and data strategy. Harte Hanks provides data hygiene and cleansing to ensure the best possible
results. Harte Hanks accesses broad first-party and third-party data sources, search and social media, and research through
syndicated, primary and secondary sources, and Harte Hanks leverages its proprietary DataView tool, a comprehensive, aggregate data
mart for B2C (USA) and B2B (Global) that provides a 360-degree customer view, with over 1,500 attributes enabling accurate
predictive marketing to its clients. Harte Hanks also offers a unique intent data solution called Audience Finder for detecting
in-market prospects.
58
●
Research
& Intelligence
– Primary and secondary research to help its clients understand their customers, category, competitors
and capabilities, either as a standalone deliverable or to inform the development of strategies for campaigns and
programs.
●
Strategy
– Provide strategic guidance to help clients efficiently and effectively plan and execute omnichannel marketing,
demand generation and customer experience programs that deliver business results. Harte Hanks leverages data and insights to enhance
its clients’ understanding of their consumers, competitors and category dynamics, then applies those insights to develop the
strategies to fuel activities such as customer acquisition, engagement, purchase behavior, loyalty and advocacy. Harte Hanks’
expertise spans the range of strategies including targeting, Go-To-Market, commercial, product launch, customer experience,
campaign, content, ABM (Account Based Marketing) and demand strategy.
●
Creative
& Content
- Full-service creative and content design, development and execution spanning traditional and digital channels,
including creative concepts, messaging and content assets for print, broadcast, direct mail, website, app, display, social, mobile,
search engine marketing, and voice.
●
Marketing
Technology
– Website and app development, e-commerce development and enablement, database building and management,
platform architecture creation, and marketing automation to serve as the foundation for digital and multi-channel marketing
execution.
●
Digital
and Multi-channel Marketing Execution & Advertising
– Orchestration and execution of programs and campaigns across
multiple channels, territories and audiences, using data, strategies, content and Marketing technology, or “MarTech,”
provided either by Harte Hanks or by its clients. Setup and management of digital advertising programs and campaigns across the
latest advertising channels (e.g., Google, Meta, LinkedIn, TikTok) and platforms (DSPs, ABM advertising, industry
networks).
●
Demand
Generation and ABM
– Providing intelligence-based B2B solutions that understand audiences and their behaviors, and then
inspire and drive action to deliver results. These solutions help companies understand which accounts, sectors and persons to
target, and then generate marketing qualified leads (“
MQLs
”) and pipelines for their marketing and sales team,
through combining data, strategy, content, MarTech and digital/multi-channel execution.
●
Managed Marketing Services
– Also referred to as “Marketing as a Service”. A flexible outsourcing marketing
operations solution, that works as a highly integrated extension of a client’s own marketing function by blending the best of
agency and business outsourcing processes and capabilities. Marketing as a Service operationalizes, manages and delivers some or all
of: data operations, marketing technology, analytics, demand generation, and staff augmentation.
●
Inside
Sales Outsourcing
– Combining best-in-class analytics, accomplished sales professionals and full-cycle experimentation
Harte Hanks provides B2B enterprises, and Small to Midsized Businesses with a fully outsourced sales service, that can work
alongside or in lieu of an internal sales function.
●
Lead
Generation
– Combining data, lead generation resources and technology, Harte Hanks provides turnkey lead generation and
development that converts interested or good fit prospects into leads for sales to qualify, nurture and sell to.
●
Sales
Play Development
– Designing sales plays and cadences to enable sales teams to find, plan, engage, nurture and convert
prospects into sales opportunities.
Customer
Care
Harte
Hanks’ customer care services are customized to meet the needs of its partners’ customer, helping them attract new buyers
and turn existing patrons into loyal brand advocates. Harte Hanks supports its clients by addressing their end customers’ urgent
needs, navigating an increasingly-complex technology landscape, and integrating AI technology and automation — while maintaining
a fierce devotion to reducing customer effort, for the benefit of both the business and the buyer. This approach to “effortless
customer experience” not only drives better service results but is also designed to lower its clients’ operational costs.
59
Harte
Hanks’ global, omnichannel delivery model is focused on providing its clients three key services:
●
Customer Service Outsourcing
– Harte Hanks’ accomplished customer care associates interact and resolve consumer
queries and complaints across hardware and software platforms, healthcare benefit plans, product recalls and/or a myriad of other
customer service issues. Harte Hanks leverages technology to help reduce customer effort while providing a human touch to increase
customer satisfaction.
●
Customer
Care Technology and AI Transformation
– Harte Hanks’ solution services teams configures various CRM solutions (e.g.,
Salesforce, Zendesk) and channel /AI technology including Amazon Connect to create meaningful customer interactions by connecting
content between agent, AI-driven interfaces and web-based self-help tools and community forums.
●
Self-Service Technology
– Harte Hanks provides and maintains self-service solutions through Interactive Voice Response
(“
IVR
”), Help Centers, online, and via apps and channel technology.
Harte
Hanks also analyzes a significant amount of aggregated data obtained from customer interactions on behalf of its clients. Harte Hanks
leverages information gained from this analysis and end customer-driven feedback to drive efficiencies, provide insights on predictive
behaviors that lead to lower customer churn and help its clients innovate their core product offerings and develop innovative product
features.
Fulfillment
& Logistics Services
Harte
Hanks’ fulfillment and logistics services are designed to meet the diverse and dynamic needs of businesses across industries, ensuring
that products, promotional materials, and essential items are delivered efficiently, accurately, and on time. Harte Hanks fulfillment
unlocks critical sales enablement, value-added product fulfillment, and eCommerce channels for its clients. Harte Hanks logistics supports
the supply chain needs of its clients in everything from time-sensitive deliveries to full scale supply chain management. By leveraging
its modern infrastructure, advanced technology, and industry expertise, Harte Hanks helps its clients streamline their operations, enhance
customer experience, and optimize cost efficiencies. Harte Hanks supports enterprise-level supply chain management, executes precise
time-sensitive deliveries, and enables eCommerce scalability.
End
to End Product, Print-On-Demand, and Mail Fulfillment Services
Harte
Hanks’ extensive fulfillment capabilities include:
●
Print-On-Demand
& Literature Distribution
– Harte Hanks facilitates the seamless production and distribution of marketing materials,
sales collateral, and product literature, ensuring businesses can effectively engage with customers, prospects, and
partners.
●
Promotional & Branded Product Distribution
– Harte Hanks manages and distributes promotional products, trade show
materials, and corporate gifts to enhance brand awareness and customer engagement.
●
Custom Kitting & Event Fulfillment
– Harte Hanks’ curated kitting solutions support corporate events, influencer
marketing programs, employee appreciation campaigns, and conference giveaways, ensuring that clients can create impactful brand
experiences.
●
Product Recall Management
– Harte Hanks assists in efficient product recalls, ensuring regulatory compliance, customer safety,
and brand reputation protection.
60
●
Temperature-Controlled & FDA-Registered Fulfillment Centers
– Harte Hanks has strategically located fulfillment
centers across the United States, that provide temperature-controlled storage and are FDA-registered to handle sensitive products
such as:
○
Nutritional supplements, medical foods, and baby formulas
○
Chocolates, coffee, tea, snack foods, nuts, and seeds
○
Pet food, treats, and nutritional supplements
●
Scalable Global Fulfillment
– Harte Hanks’ fulfillment network spans the U.S., with capabilities in Europe and
additional support from regional logistics partners that ensure efficient international product distribution.
Through
its upgraded order management platform, Harte Hanks can now streamline order processing, facilitate seamless integration with various
data sources and eCommerce platforms, and ensure real-time visibility into inventory and shipment status.
Third-Party
Logistics & Freight Optimization
Harte
Hanks logistics services help businesses achieve supply chain excellence by ensuring efficient transportation, freight optimization,
and timely product delivery. Harte Hanks’ logistics expertise enables businesses to reduce costs, improve delivery speed, and optimize
their supply chain operations—whether managing individual shipments or full-scale supply chain management. Harte Hanks’ comprehensive
logistics solutions include:
●
Nationwide & Regional Shipping
– Harte Hanks facilitates the shipping of millions of time-sensitive materials
annually, leveraging its nationwide logistics network.
●
Certified Fleet & Expedited Shipping
– With access to a contracted fleet of over 15,000 trucks, Harte Hanks provides
clients with scalable third-party logistics (3PL) services tailored to their needs.
●
Allink®360:
Proprietary Logistics Technology
– Harte Hanks’ proprietary rate-shopping system, Allink 360, optimizes freight
costs and delivery timelines, ensuring shipments arrive on time and within budget.
●
Flexible & Scalable Logistics Solutions
– Harte Hanks offers customized logistics solutions designed to accommodate
businesses of all sizes, from startups to Fortune 500 enterprises.
Client
Relationship
Harte
Hanks is known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every
customer touch point in order to deliver desired business outcomes. Realizing Harte Hanks’ clients’ success is the only valid
measure of Harte Hanks’ own success. Harte Hanks ensures all its efforts are aligned with its clients’ business objectives
and measured against defined performance metrics. It is this commitment to its clients and their businesses that allows Harte Hanks to
build meaningful relationships with them. Harte Hanks’ client engagements may consist of one or a few of Harte Hanks’ service
offerings – with a goal toward continuously expanding its relationships. Harte Hanks provides cross-service client management along
with continuous business reviews to ensure its clients receive value from our partnerships.
Use
of Subcontractors
Certain
segments of Harte Hanks’ business rely on subcontractors and other third parties to provide a portion of Harte Hanks’ overall
services in certain engagements. Over the years Harte Hanks has established strong relationships with subcontractors that translate into
high level service and favorable prices for its customers.
61
Restructuring
Activities
Harte
Hanks’ management team continuously reviews and adjusts its cost structure and operating footprint to optimize its operations,
and invest in improved technology. The program named “Project Elevate” involved the optimization and rationalization of its
business resources as well as the partial reinvestment of savings into Harte Hanks’ sales and marketing team, technology, and strategy.
Reorganization cost reductions from Project Elevate during 2024 through 2025 were estimated to be $16.0 million. In connection with its
cost-saving and restructuring initiatives, Harte Hanks incurred total restructuring charges of $1.8 million and $2.4 million in 2025
and 2024, respectively. This program has resulted in ongoing cost optimization and rationalization initiatives across the organization.
Customers
Harte
Hanks’ clients include large multinational enterprises, small and medium-sized businesses and government organizations. Harte Hanks’
largest client in terms of revenue generated 10.5% of total revenues in 2025. Harte Hanks’ largest 25 clients in terms of revenue
generated 68.3% of total revenue in 2025. Harte Hanks’ clients span a wide range of industries including but not limited to retail,
travel, streaming, healthcare, financial services, and technology, which reduced the concentration risk of Harte Hanks in any one sector.
Harte Hanks generally enters into long-term contracts with its clients ranging in duration from one to three years. Most of its contracts
do not require its customers to purchase a minimum amount of services from Harte Hanks. In general, Harte Hanks’ contracts with
our customers are terminable on short notice with little or no penalty payable on termination.
Sales
and Marketing
Harte
Hanks operates a modern sales and marketing growth engine to generate awareness, create demand and convert this demand into new business,
as well as support existing client growth and retention. As a B2B services company Harte Hanks practices the marketing and sales methodology
and tactics it offers to its clients, including ABM, demand generation, content marketing, inside sales and enterprise sales. Harte Hanks
also leverages partnerships to extend its reach and broaden its solutions.
For
marketing, Harte Hanks leverages a combination of corporate marketing resources, marketing services resources and a modern MarTech stack
including CRM, content management, SEO/digital advertising tools to support targeting, account-based marketing, demand creation and awareness.
For
sales, Harte Hanks relies on its enterprise and solution sellers, combined with an internal sales team, to sell its products and services
to new clients and task its employees supporting existing clients to expand its client relationship through additional solutions and
products. Harte Hanks has expanded its sales team coverage internationally to support its global client and prospect network. Its sales
force sells a variety of solutions and services to address its clients’ cross-selling targeted marketing needs. Harte Hanks also
maintains solution-specific experts in its sales force and sales groups to sell it individual products and solutions, with expertise
by target industries including B2B, Health and B2C.
Harte
Hanks had 12 employees in our corporate sales and marketing function as of December 31, 2025.
Competition
Harte
Hanks’ competition comes from local, national, and international marketing, advertising, customer care, print fulfillment, smaller
3PL, logistics companies, and internal client resources, against whom it competes for individual projects, entire client relationships,
and marketing expenditures. The principal competitive factors in Harte Hanks’ industry are the breadth, depth and quality of service
offerings, technical and strategic expertise, the perceived value of the services provided, reputation, pricing, and brand recognition.
Harte Hanks also competes against social, mobile, web-based, email, print, broadcast, and other forms of advertising for marketing and
advertising dollars in general.
Furthermore,
competition may begin to emerge as a result of the availability of in-house information technology solutions that can replicate some
of Harte Hanks’ services. Harte Hanks expects its clients to continue to improve their information technology systems and offerings
and, in some circumstances, move the services Harte Hanks provides in-house.
62
Seasonality
Some
of Harte Hanks’ revenue streams tend to be higher in the fourth quarter than in other quarters during a given year. This increased
revenue is a result of overall increased activity prior to the holiday season in the retail vertical, and due to the open enrollment
period in the healthcare vertical.
As
of June 30, 2026, Harte Hanks had total consolidated assets of approximately $88.1 million, total liabilities of approximately $72.7
million and total consolidated stockholders’ equity of approximately $15.4 million.
Harte
Hanks’ principal executive offices are located at 1 Executive Drive, Chelmsford, MA 01824, its phone number is (512) 434-1100 and
its website is https://www.hartehanks.com.
The
information required by Item 17 of Form S-4, including a Description of Business, Description of Property, Legal Proceedings, Market
Price of and Dividends on the Registrant’s Common Equity, Management’s Discussion and Analysis of Financial Condition and
Results of Operations (MD&A), and the audited and unaudited financial statements and related notes required by Regulation S-X is
set forth in
Annex D
to this proxy statement/prospectus and is incorporated by reference herein.
Beneficial
Ownership of Common Stock by Principal Stockholders and Management
The
information contained herein has been obtained from Harte Hanks’ records and from information furnished directly to Harte Hanks
by each individual or entity. Applicable percentage ownership in each of the tables is based on [_____] shares of Harte Hanks Common
Stock outstanding as of [_____], 2026, the Record Date for the Harte Hanks Special Meeting. Except as otherwise indicated in the footnotes
to the table, the beneficial owners listed have sole voting and investment power as to all of the shares beneficially owned by them (or,
where applicable, shared power with such individual’s spouse). As used herein, “voting power” is the power to vote
or direct the voting of shares, and “investment power” is the power to dispose or direct the disposition of shares. Beneficial
ownership is determined in accordance with Rule 13d-3 under the Exchange Act; however, the inclusion of shares in the table below will
not be deemed an admission of beneficial ownership of all the reported shares for any purpose. Except as otherwise indicated, the address
for each stockholder listed in the table below is c/o Harte Hanks, Inc., 1 Executive Drive, Suite 303, Chelmsford, MA 01824.
The
following table sets forth, as of the Record Date, the beneficial ownership of Harte Hanks Common Stock by: (i) each Harte Hanks director;
(ii) each Harte Hanks named executive officer; (iii) all Harte Hanks directors and executive officers as a group; (iv) each person known
by Harte Hanks to beneficially own more than 5% of Harte Hanks Common Stock; and (v) Star and its affiliates, if any, that beneficially
own Harte Hanks Common Stock as of the Record Date.
Name and Address of Beneficial Owner
(1)(2)
Title of Class
Amount and Nature of Beneficial Ownership
Percent of Class
Named Executive Officers(5)
David Fisher
Common Stock
18,790
*
David A. Garrison
Common Stock
21,462
*
Robert Wyman (former General Counsel)
(3)
Common Stock
27,217
*
Directors
John H. Griffin, Jr.
Common Stock
209,820
2.8
%
Genevieve C. Combes
Common Stock
26,283
*
Bradley L. Radoff
(4)
Common Stock
423,447
5.7
%
Elizabeth Ross
Common Stock
12,048
*
All current directors and executive officers as a group (6 persons)
(5)
711,880
9.6
%
5% Holders
William Blair & Company, L.L.C.
(6)
Common Stock
660,845
8.9
%
Houston H. Harte (Estate of)
(7)
Common Stock
660,816
8.9
%
Gary S. Rosenbach and Susan Rosenbach
(8)
Common Stock
2,118,635
28.4
%
*less
than 1%.
(1)
The
address of (a) William Blair & Company LLC is 150 North Riverside Plaza, Chicago, IL
60606, (b) Houston H. Harte is P.O. Box 17424, San Antonio, TX 78217, and (c) each other
beneficial owner is c/o Harte Hanks, Inc., 1 Executive Drive, Suite 303, Chelmsford, MA 01824.
63
(2)
Includes
shares that may be acquired upon the exercise of options that are exercisable within 60 days
of the Record Date; excludes shares subject to options that will not vest or become exercisable
within 60 days of the Record Date.
(3)
The
amount of shares and associated percentage is based solely on information available to Harte Hanks as of December 22, 2025, the last day of Mr. Wyman’s employment with Harte
Hanks.
(4)
Mr.
Radoff directly owns 403,447 shares of Harte Hanks’ common stock and indirectly
owns (through his IRA) 20,000 shares of Harte Hanks’ common stock. Information relating
to this stockholder is based on the amendment to the stockholder’s Schedule 13D, filed
with the SEC on December 6, 2024, and stock transactions that Mr. Radoff informed Harte Hanks
of since that time.
(5)
This
group includes Harte Hanks’ current directors and executive officers as of March 26,
2026 and excludes Harte Hanks’ former Chief Executive Officer, Kirk Davis, whose last
day of employment with Harte Hanks was February 14, 2025, and Harte Hanks’ former General
Counsel, Robert Wyman, whose last day of employment with Harte Hanks was December 22, 2025.
(6)
Represents
660,845 shares of Harte Hanks’ common stock held by William Blair & Company, L.L.C.,
in its capacity as investment adviser, to clients who have granted discretionary authority
to dispose of or direct the disposition of the shares to William Blair & Company, L.L.C.
Those clients have the right to receive, or the power to direct the receipt of, dividends
from, or the proceeds from the sale of, such securities. Information relating to this stockholder
is based on Amendment No. 4 to the stockholder’s Schedule 13G, filed with the SEC on
February 12, 2024.
(7)
Represents
660,816 shares of Harte Hanks’ common stock held in the Harte Management Trust, over
which Houston H. Harte, Carolyn Harte and Sarah Harte share voting and dispositive power.
Information relating to this stockholder group is based on Amendment No. 3 to such group’s
Schedule 13D, filed with the SEC on March 29, 2019.
(8)
Gary S. Rosenbach
(“
Mr. Rosenbach
”) beneficially owns 2,118,635 shares of Harte Hanks’ common stock which is comprised of: (i)
1,464,762 shares of common stock which Mr. Rosenbach and his spouse own jointly, (ii) 116,441 shares of common stock held in family trusts
for which each of Mr. Rosenbach and his spouse serve as a trustee, (iii) 532,562 shares of common stock held in the retirement account
of Mr. Rosenbach and (iv) 4,870 shares of common stock held in the retirement account of Mr. Rosenbach’s spouse. Information relating
to this stockholder is based on the Form 4, filed with SEC on March 30, 2025.
Recent
Developments
On
August 14, 2026, Star filed its Quarterly Report on Form 10-Q for the period ended June 30, 2026, and the unaudited financial statements
contained therein. Also on August 14, 2026, Harte Hanks filed its Quarterly Report on Form 10-Q for the period ended June 30, 2026, and
the unaudited financial statements contained therein. The discussion below presents highlights of the unaudited preliminary results of
operations and financial condition as of and for the periods indicated. The financial information from each of Star and Harte Hanks constitutes
preliminary financial results and is not a comprehensive statement of their respective financial results as of and for such period and
has not been audited by their respective independent registered public accounting firm.
64
The
following should be read in conjunction with each of Star’s and Harte Hanks’ consolidated financial statements and related
notes, as well as management’s discussion and analysis of financial condition and results of operations, included or incorporated
by reference herein, as well as the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk
Factors” in this proxy statement/prospectus and any other documents included in the annexes hereto.
Star
Results at and for the Second Quarter and Six Months Ended June 30, 2026
On
August 14, 2026, Star filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2026. Star reported a net loss attributable
to common shareholders of $2.5 million, or $0.66 per basic and diluted share, for the quarter ended June 30, 2026, compared to a net
loss of $0.7 million, or $0.23 per basic and diluted share, for the quarter ended June 30, 2025. For the six months ended June 30, 2026,
Star reported a net loss attributable to common shareholders of $6.8 million, or $1.84 per basic and diluted share, compared to a net
loss of $2.4 million, or $0.82 per basic and diluted share, for the six months ended June 30, 2025.
Total
revenues increased to $54.9 million for the quarter ended June 30, 2026 from $35.5 million for the quarter ended June 30, 2025. For the
six months ended June 30, 2026, total revenues increased to $105.0 million compared to $67.4 million for the same period in 2025. Gross
profit increased to $22.8 million for the quarter ended June 30, 2026 from $18.6 million for the quarter ended June 30, 2025. For the
six months ended June 30, 2026, gross profit increased to $43.4 million compared to $35.0 million for the corresponding period in 2025.
Operating
expenses increased to $24.2 million for the quarter ended June 30, 2026 from $18.8 million for the quarter ended June 30, 2025. For the
six months ended June 30, 2026, operating expenses increased to $48.7 million compared to $37.0 million for the corresponding period
in 2025. As a result, Star reported an operating loss of $1.4 million for the quarter ended June 30, 2026, compared to an operating loss
of $0.2 million for the quarter ended June 30, 2025, and an operating loss of $5.4 million for the six months ended June 30, 2026, compared
to an operating loss of $1.9 million for the six months ended June 30, 2025.
Star’s
total assets were $108.2 million as of June 30, 2026, compared to $113.2 million as of December 31, 2025. Cash and cash equivalents were
$6.8 million as of June 30, 2026, compared to $10.3 million as of December 31, 2025. Total stockholders’ equity was $59.8 million
as of June 30, 2026, compared to $65.7 million as of December 31, 2025.
For
the six months ended June 30, 2026, net cash used in operating activities was $3.1 million, compared to $0.7 million used in operating
activities for the corresponding period in 2025. As of June 30, 2026, Star had $9.0 million of short-term debt and $5.1 million of long-term
debt, compared to $8.5 million of short-term debt and $6.1 million of long-term debt as of December 31, 2025.
Harte
Hanks Results at and for the Second Quarter and Six Months Ended June 30, 2026
On
August 14, 2026, Harte Hanks filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2026.
Harte
Hanks reported a net loss of $5.0 million, or $0.67 per basic and diluted share, for the quarter ended June 30, 2026, compared to a net
loss of $0.3 million, or $0.05 per basic and diluted share, for the quarter ended June 30, 2025. For the six months ended June 30, 2026,
Harte Hanks reported a net loss of $5.6 million, or $0.76 per basic and diluted share, compared to a net loss of $0.7 million, or $0.10
per basic and diluted share, for the six months ended June 30, 2025.
Revenue
was $38.0 million for the quarter ended June 30, 2026, compared to $38.6 million for the quarter ended June 30, 2025. For the six months
ended June 30, 2026, revenue was $75.2 million, compared to $80.2 million for the corresponding period in 2025. Operating expenses increased
to $42.5 million for the quarter ended June 30, 2026 from $38.6 million for the quarter ended June 30, 2025, and increased modestly to
$80.5 million for the six months ended June 30, 2026 from $80.2 million for the corresponding period in 2025.
65
As
a result, Harte Hanks reported an operating loss of $4.5 million for the quarter ended June 30, 2026, compared to operating income of
less than $0.1 million for the quarter ended June 30, 2025. For the six months ended June 30, 2026, Harte Hanks reported an operating
loss of $5.3 million, compared to an operating loss of less than $0.1 million for the corresponding period in 2025.
Total
assets were $88.1 million as of June 30, 2026, compared to $91.8 million as of December 31, 2025. Cash and cash equivalents and restricted
cash were $5.2 million as of June 30, 2026, compared to $5.6 million as of December 31, 2025. Total stockholders’ equity was $15.4
million as of June 30, 2026, compared to $20.5 million as of December 31, 2025.
For
the six months ended June 30, 2026, net cash used in operating activities was $2.6 million, compared to $5.7 million used in operating
activities during the corresponding period in 2025. Capital expenditures during each of the six months ended June 30, 2026 and 2025 were
approximately $0.3 million. As of June 30, 2026, Harte Hanks had $3.0 million of short-term debt and no long-term debt, compared to no
debt outstanding as of December 31, 2025.
Comparative
Market Value of Harte Hanks Common Stock and Star Preferred Stock
The
following table compares: (i) the historical market price of Harte Hanks Common Stock, (ii) the historical market price of Star Preferred
Stock; and (iii) the implied value of the Preferred Stock Consideration, in each case based upon closing trading prices on August 13,
2026, the last trading day before public announcement of the Merger Agreement.
Historical Market Price Per Share
Equivalent Per Harte Hanks Share
Harte Hanks Common Stock
$
2.81
N/A
Star Preferred Stock
$
10.14
N/A
Preferred Stock Consideration (0.50 share of Star Preferred Stock)
N/A
$
5.07
The
value of the Preferred Stock Consideration will fluctuate based on the market price of Star Preferred Stock. Accordingly, the value of
the Preferred Stock Consideration at the Effective Time may be greater or less than the value reflected in the table above. Because the
aggregate amount of cash payable in the Merger is capped at $19.2 million and elections are subject to proration, Harte Hanks stockholders
may receive a different form of consideration than elected.
66
THE
MERGER
This
section of the proxy statement/prospectus describes material aspects of the Merger. This summary may not contain all of the information
that is important to you. You should carefully read this entire proxy statement/prospectus and the other documents we refer you to for
a more complete understanding of the Merger. In addition, Star incorporates important business and financial information into this document
by reference. You may obtain the information incorporated by reference into this document without charge by following the instructions
in the section entitled “Where You Can Find More Information” beginning on page
135
.
Terms
of the Merger
Each
of Star’s and Harte Hanks’ respective boards of directors have approved the Merger Agreement. The Merger Agreement provides
that, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Harte
Hanks, with Harte Hanks continuing as the Surviving Corporation and becoming a wholly owned subsidiary of Star.
Upon
the terms and subject to the conditions of the Merger Agreement, at the Effective Time, each share of Harte Hanks Common Stock issued
and outstanding immediately before the Effective Time, other than shares held by Harte Hanks, Star, Merger Sub or certain of their wholly
owned subsidiaries, will be converted into the right to receive, at the election of the holder and subject to the proration procedures
described below, either: Cash Consideration of $5.00 per share, without interest; or Preferred Stock Consideration of 0.50 shares of
Star’s Preferred Stock, subject to adjustment.
Harte
Hanks stockholders may elect to receive Cash Consideration, Preferred Stock Consideration or a combination of both for their shares,
including by electing Cash Consideration for some shares and Preferred Stock Consideration for others, subject to the proration procedures
set forth in the Merger Agreement. Shares for which no valid election is made, or for which an election is revoked or deemed lost, will
be treated as non-electing shares. If aggregate cash elections are less than the Maximum Cash Amount available under the Merger Agreement,
Star will determine whether non-electing shares receive Cash Consideration, Preferred Stock Consideration or a combination of both. If
aggregate cash elections exceed the Maximum Cash Amount, non-electing shares will receive Preferred Stock Consideration, and holders
making cash elections will receive a prorated combination of Cash Consideration and Preferred Stock Consideration. The aggregate cash
payable in the Merger, including cash payable in respect of certain Harte Hanks equity awards and cash paid in lieu of fractional shares
of Star Preferred Stock, may not exceed $19,200,000.
If
aggregate cash elections are less than $19,200,000, cash-electing stockholders will receive Cash Consideration and preferred-stock-electing
stockholders will receive Preferred Stock Consideration. Harte Hanks shares for which no valid election has been made may be converted,
at Star’s election, into Cash Consideration, Preferred Stock Consideration or a combination of both, subject to the $19,200,000
cap. If aggregate cash elections exceed $19,200,000, each cash-electing share will be converted into a prorated portion of the Cash Consideration
and Preferred Stock Consideration for the remaining portion of that share; all Preferred-Stock-electing shares and non-electing shares
will receive Preferred Stock Consideration.
No
fractional shares of Star Preferred Stock will be issued in the Merger. Instead, a holder otherwise entitled to a fractional share will
receive cash, without interest, equal to the fractional share multiplied by $10.00. The Merger Consideration is subject to customary
adjustment for specified changes in Harte Hanks Common Stock, including stock splits, reverse stock splits, stock dividends, recapitalizations
and similar events occurring after the date of the Merger Agreement and before the Effective Time.
Harte
Hanks stockholders are being asked to approve the Harte Hanks Merger Proposal. The affirmative vote of the holders of a majority of the
voting power of the outstanding shares of Harte Hanks Common Stock entitled to vote on the Merger is the only stockholder vote required
to adopt the Merger Agreement and consummate the Merger. Stockholders will also be asked to vote on the Non-Binding Advisory Compensation
Proposal, but that advisory vote is separate and apart from the Harte Hanks Merger Proposal and is not a condition to completion of the
Merger. See the section entitled “The Merger Agreement” beginning on page 98 for additional and more detailed information
regarding the legal documents that govern the Merger, including information about the conditions to completion of the Merger and the
provisions for terminating or amending the Merger Agreement.
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Background
of the Merger
The
terms of the merger agreement are the result of arm’s-length negotiations between representatives of Harte Hanks and Star. The
following is a summary of the events leading up to the signing of the merger agreement and key meetings, negotiations, discussions and
actions taken among Harte Hanks, Star, and their respective advisors that preceded the public announcements of the merger; it does not
purport to catalogue every conversation or interaction among representatives of Harte Hanks, Star and other parties.
The
board of directors of Harte Hanks and Harte Hanks’ management team regularly review Harte Hanks’ operating results, capital
structure, future growth opportunities and competitive position in its markets. These reviews have included consideration by the board
of directors of Harte Hanks and Harte Hanks’ management team and, from time to time, discussions with outside financial advisors
and other industry participants of various potential strategic transactions, as well as ongoing initiatives aimed at enhancing stockholder
value, strengthening Harte Hanks’ financial and liquidity position, increasing its cash flows and growing its business organically,
to prepare for and respond to changing market forces and resulting business risks and uncertainties in its markets.
Pre-2025
Activities
In
November 2019 and June 2020, Harte Hanks was approached by a party referred to as “Company A” and a party referred to as
“Company B” who made offers to purchase the Harte Hanks Contact Center division (the call centers). Harte Hanks signed an
exclusivity arrangement with Company B with an initial expiration date of August 2020 following these overtures. Because of an upturn
in call center business, the discussions with Company B terminated in September 2020. Following these discussions, Harte Hanks retained
an investment banker, on December 7, 2020, to support Harte Hanks with various strategic alternatives. From time to time, this investment
banker vetted early discussions to sell business units of Harte Hanks (for example, in July 2021, another inquiry about a purchase of
the call centers was received by Harte Hanks’ investment bank that was never followed by a formal offer).
Harte
Hanks returned to a national exchange on November 30, 2021 (NASDAQ) and obtained a $25 million revolving line of credit from Texas Capital
Bank in December 2021.
An
unsolicited offer to buy Harte Hanks was made in January 2022 by a party referred to as “Company C”. In response to the offer,
the board of directors of Harte Hanks created a committee of non-management directors called the Special Transaction Committee and sought
advice from an outside financial advisor and its internal and external counsel. The discussions with this potential acquirer ended shortly
thereafter without action by the board of directors of Harte Hanks.
Coincidently,
also in February 2022, John H. Griffin, Jr., Chairman of the board of directors of Harte Hanks, met Jeffrey E. Eberwein, Star’s
current Chief Executive Officer. The two discussed overlaps between Harte Hanks’ operations and Star’s businesses. On March
28, 2022, Harte Hanks was informed by Mr. Eberwein, after consultation with the Star Board of Directors, that any transaction between
the companies would not occur for the foreseeable future, but from that time on, the two set up occasional meetings to discuss topics
of common interest.
Later
that year, on December 1, 2022, Harte Hanks acquired InsideOut Solutions, LLC, for $7.5 million in cash and HHS stock, and simplified
its corporate structure by repurchasing from Wipro, LLC all of Harte Hanks’ Series A Convertible Preferred Shares for cash and
HHS stock.
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Efforts
by Harte Hanks to simplify its financial structure continued into 2024 with Harte Hanks paying $5.1 million and transferring $71.9 million
in pension assets to the diversified insurance and financial services company Nationwide to finalize the termination of a Qualified Pension
Plan as of August 1, 2024. Harte Hanks selected David A. Garrison as its Chief Financial Officer and David Fisher as its Chief Transformation
Officer in January 2024.
Initial
Divestiture Efforts
On
January 13, 2025, Harte Hanks received an unsolicited offer from a party referred to as “Company D” to invest in, or take
private, Harte Hanks. In response, Harte Hanks re-convened meetings of its Special Transaction Committee, with Bradley Radoff as its
Chairman, and agreed to retain a new investment advisor and outside counsel to evaluate the Company D offer. The Special Transaction
Committee’s primary function was to manage the investment advisor and outside counsel and the due diligence process; it was not
authorized to negotiate the terms of a strategic transaction without further authorization from the board of directors of Harte Hanks,
and any definitive agreement remained subject to approval by the board of directors of Harte Hanks. Company D’s proposal contemplated
a commitment of up to $15 million in a new convertible preferred offering at a 20% premium or a common equity offering at the current
stock price to sponsor a $40 million self-tender (assuming up to $25 million of additional leverage) at a 20% premium to the then-current
stock price, following which Harte Hanks could delist its common stock. Stockholders who did not tender would have remained stockholders
of Harte Hanks.
On
January 28, 2025, Harte Hanks announced that Kirk Davis had stepped down for personal reasons as Harte Hanks’ Chief Executive Officer,
and that Mr. Fisher, Harte Hanks’ Chief Transformational Officer, would serve as interim Chief Operating Officer.
On
February 14, 2025, Harte Hanks informed Company D that because of its recent Chief Executive Officer transition, it would like to defer
discussions to the near future.
The
overture led Harte Hanks to focus on potential transformative transactions with greater focus. On February 17, 2025, Harte Hanks formally
retained a new financial advisor (the “
Wilson Financial Advisor
”) for a divestiture transaction named “Project
Wilson,” which contemplated a sale of the Harte Hanks fulfillment and logistics businesses.
From
February 2025 to July 2025, Harte Hanks, through the Wilson Financial Advisor, entered into confidentiality and non-disclosure agreements
containing customary mutual non-disclosure and non-use provisions, with 93 different parties. Discussions during this time resulted in
ten initial indications of interest, and ultimately three letters of intent from parties that we refer to as “Company E”,
“Company F” and “Company G”.
On
May 20, 2025, Company F submitted a preliminary indication of interest for Harte Hanks’ fulfillment and logistics businesses at
an enterprise value range of $50 million to $55 million, subject to adjustments for tax liabilities, deferred revenue, indebtedness,
accrued compensation and other items.
On
June 30, 2025, Harte Hanks appointed Mr. Fisher as President.
Following
diligence, on July 22, 2025, Company F submitted a letter of intent at an enterprise value of up to $46 million, consisting of $38.5
million in cash at closing and up to $7.5 million of contingent consideration based on post-closing EBITDA performance. In response to
a counterproposal from the board of directors of Harte Hanks, on July 29, 2025, Company F agreed to replace the contingent consideration
with a $5 million seller note, for total consideration of $43.5 million.
On
July 31, 2025, Harte Hanks entered into an exclusivity agreement running through October 2, 2025 with Company F for Project Wilson. Harte
Hanks opted to pursue Company F exclusively for a variety of reasons, including that Company E had no committed capital and Company G
did not appear to be on the same timetable for a transaction as Harte Hanks. On the same day, Harte Hanks retained Baker Botts L.L.P.
(“
Baker Botts
”) as external legal counsel for Project Wilson.
69
Extensive
work proceeded on an asset sale transaction with Company F, which included work on transactional documents and extensive due diligence.
In September 2025, Harte Hanks disclosed to Company F the impending loss of nearly all revenue of a significant customer for one of the
units that was attributable to Project Wilson. On October 2, 2025, the day before its exclusivity was set to expire, Company F informed
Harte Hanks that it no longer had an interest in pursuing Project Wilson.
On
October 14, 2025, the board of directors of Harte Hanks approved a new Operating Committee and delegated the responsibilities to evaluate
and pursue potential strategic transactions and alternatives involving Harte Hanks and its business units to that Committee. Mr. Griffin
and Ms. Combes were appointed to the Committee, with Mr. Griffin serving as Chairperson. The board of directors of Harte Hanks formed
the Operating Committee to provide more frequent oversight of the strategic process and direction to Harte Hanks’ advisors between
meetings of the full board. The Operating Committee reported regularly to the full board of directors of Harte Hanks, and any decision
to enter into a definitive agreement remained reserved to the full board of directors. The Wilson Financial Advisor re-initiated discussions
with Company F about Project Wilson, and provided updated financial information to Company F.
During
October 2025, Harte Hanks continued to meet with Company F and Company G, each of whom stated that a significant amount of diligence
would be required before making any offer. Company D also reengaged in conversations with Harte Hanks at this time.
On
October 27, 2025, the Operating Committee met with representatives of the Wilson Financial Advisor to discuss ongoing exploratory discussions
with entities that had expressed interest in investing in or acquiring all or part of Harte Hanks. Representatives of the Wilson Financial
Advisor reported that Company G had expressed strong interest in pursuing a whole-company acquisition of Harte Hanks and that Company
E remained interested in acquiring the fulfillment and logistics portion of Harte Hanks’ business. The Wilson Financial Advisor
reported that both parties would likely require additional time before providing an offer, and the Operating Committee agreed to continue
discussions with them in parallel.
The
Operating Committee and its advisors also discussed transaction process considerations, including an internal valuation analysis to be
prepared by the Wilson Financial Advisor and the possible use of a post-signing go-shop period if Harte Hanks received a proposal that
the Operating Committee believed reflected a satisfactory valuation and wished to pursue. The Operating Committee discussed fiduciary
considerations associated with potential strategic transactions and noted that, although a transaction was being explored, no affirmative
determination to pursue a sale had been made at that time.
The
Operating Committee also discussed interest expressed by Company D and the desirability of keeping Company D informed while avoiding
premature exclusivity. The Operating Committee agreed that Company D’s interest should be communicated to the Wilson Financial
Advisor for consideration with the other potential counterparties.
A
month later, in November 2025, Mr. Eberwein reached out to Mr. Griffin to set up time to meet. While setting up that meeting, Mr. Eberwein
informed Mr. Griffin that Star had merged with Hudson Global, Inc. and had reduced costs by $2 million annually. Mr. Eberwein also shared
information with Mr. Griffin about Star’s preferred stock. They arranged for a December meeting.
Also
during November and December 2025, Harte Hanks continued to discuss interest shown by Company G. Company G showed interest but continued
to represent an elongated timeline prior to having the ability to make any offer or to confirm whether Company G intended to pursue part
or all of Harte Hanks.
70
On
November 14, 2025, the Operating Committee reviewed developments concerning Company G, including a presentation by members of Harte Hanks
to the chief executive officer and chief financial officer of a Company G subsidiary, which representatives of the Wilson Financial Advisor
and the Operating Committee also attended. The Operating Committee also reviewed continuing negotiations concerning a confidentiality
agreement with Company D, including a standstill provision, and instructed Baker Botts to send a revised draft to Company D’s counsel.
The
Operating Committee and its advisors discussed whether the exploratory inquiries and discussions undertaken to date indicated that Harte
Hanks was for sale. Baker Botts advised that those activities were exploratory and preliminary and did not constitute a definitive intention
to sell Harte Hanks. The Operating Committee and its advisors also discussed considerations that would arise if Harte Hanks later decided
to pursue a sale process.
During
November and December 2025, a party referred to as “Party A” contacted Harte Hanks’ Chief Client Officer and Mr. Fisher
regarding potential ways to expand the existing commercial relationship between Harte Hanks and Party A and potential strategic opportunities
involving Harte Hanks, including a potential acquisition or merger. At that time, Harte Hanks was in advanced discussions with Company
E regarding a letter of intent for Project Wilson, and those discussions were confidential. Accordingly, at the direction of the Operating
Committee, Harte Hanks referred Party A’s inquiries to the Wilson Financial Advisor. Party A did not submit an indication of interest
or proposal to Harte Hanks at that time.
On
December 1, 2025, the Operating Committee again reviewed the status of the confidentiality agreement with Company D, including Company
D’s deletion of the proposed standstill provision. The Operating Committee instructed Baker Botts to offer Company D’s counsel
another opportunity to discuss the need for the standstill provision.
Company
D discontinued conversations with Harte Hanks during December 2025 and no indication of interest or valuation range was shared between
the parties.
On
December 12, 2025, Mr. Eberwein and Mr. Griffin met as planned. Following that meeting, Star delivered a draft confidentiality agreement
to Harte Hanks. On December 29, 2025, the Operating Committee reviewed the proposed confidentiality agreement and discussed recent conversations
between Mr. Griffin and Mr. Eberwein. Mr. Griffin reported that Mr. Eberwein had indicated that Star’s board of directors (the
“
Star Board
”) had expressed renewed interest in pursuing a potential merger transaction with Harte Hanks. The Operating
Committee and its advisors discussed the appropriate process for responding to Star’s inquiry and agreed that Harte Hanks could
enter into a confidentiality agreement with Star, subject to revisions including a mutual standstill provision. The Operating Committee
requested that Baker Botts revise the draft confidentiality agreement for distribution to Star.
The
Operating Committee met frequently, often weekly or more often during active periods, with representatives of Baker Botts and, through
April 2026, the Wilson Financial Advisor, and later with representatives of Citizens and ODP. Because Harte Hanks’ strategic review
involved multiple parallel discussions with potential counterparties for all or part of Harte Hanks on differing timelines and because
Harte Hanks did not have a Chief Executive Officer for portions of 2025, the board of directors of Harte Hanks determined that a smaller
committee could more efficiently oversee day-to-day process matters, such as the negotiation of confidentiality agreements, the sharing
of diligence information and the direction of Harte Hanks’ advisors, between meetings of the full board of directors of Harte
Hanks. The Operating Committee was not authorized to approve a definitive agreement. Mr. Griffin regularly reported developments to the
full board of directors of Harte Hanks, which made the principal decisions in the process.
On
January 8, 2026, Star and Harte Hanks entered into a confidentiality agreement.
On
January 9, 2026, Mr. Griffin and Mr. Eberwein held a video call. During the call, Mr. Eberwein shared information on recent industry
developments.
71
On
January 16, 2026, Mr. Griffin discussed Star’s interest in Harte Hanks following the sale of the Project Wilson assets, which is
referred to as “Remainco,” with the Wilson Financial Advisor, who was formally retained to advise on Project Wilson only.
On
January 30, 2026, Company E submitted a revised letter of intent to Harte Hanks for Project Wilson.
On
February 3, 2026, a revised letter of intent was signed, and provided Company E with exclusivity for 60 days, through early April 2026.
Company E’s revised letter of intent proposed to acquire the equity interests of the fulfillment and logistics businesses for $41
million on a cash-free, debt-free basis, less deferred taxes and amounts collected for services not yet rendered. The proposal was subject
to a significant financing contingency, as Company E lacked cash and was reliant on letters of support from potential funders for all
of the required debt financing and required equity. The proposal also assumed that the business would have trailing twelve-month EBITDA
of not less than $6.8 million at closing and that the parties would enter into a 12-month transition services agreement.
On
February 11, 2026, Mr. Griffin reached out to Mr. Eberwein to have a February update and scheduled a time to speak by phone the following
day.
On
March 2, 2026, the board of directors of Harte Hanks was informed that the Wilson Financial Advisor had received an unsolicited inquiry
for all of Harte Hanks from Company B. As Harte Hanks was subject to an exclusivity arrangement with Company E at the time of the inquiry,
the board of directors of Harte Hanks determined not to respond to the March 2nd inquiry from Company B.
On
April 3, 2026, Mr. Eberwein reached out to Mr. Griffin via email and requested a short update call for the following week, and Mr. Griffin
stated that he would be in the area and that they could get together in person.
On
April 8, 2026, Company E and Harte Hanks extended the exclusivity period through May 30, 2026.
On
April 10, 2026, Mr. Griffin met with Mr. Eberwein with the objective of assessing Star’s interest in Remainco.
On
April 15, 2026, the Wilson Financial Advisor alerted Harte Hanks’ directors that it would not be providing advisory services beyond
Project Wilson and would therefore not advise Harte Hanks with respect to any transaction involving Remainco.
On
April 16, 2026, Mr. Eberwein and Mr. Griffin spoke. Mr. Griffin explained that Harte Hanks would be hiring another investment banker
for Remainco. Mr. Griffin agreed to share materials about Remainco with Mr. Eberwein, and Mr. Eberwein agreed to prepare a non-binding
letter of intent for Remainco. It was understood that the Star proposal would not include the assets that Company E was planning to purchase
as part of Project Wilson. Harte Hanks also stated that any offer must be subject to an opportunity to publicly confirm the adequacy
of the purchase price through a “go-shop period”.
On
April 17, 2026, Mr. Griffin shared with Mr. Eberwein a projection deck for Remainco. The deck identified approximately $4 million in
possible shared services reductions from merging the two publicly traded companies.
On
April 22, 2026, representatives of Oaklins DP, LLC (“
ODP
”), Harte Hanks’ financial advisor, contacted representatives
of Citizens regarding the opportunity for Citizens to serve as lead financial advisor to Harte Hanks.
On
April 29, 2026, Mr. Eberwein emailed Mr. Griffin and Ms. Combes a draft indication of interest for Remainco. It referenced a presentation
titled “Remainco Reimagined” that Mr. Griffin and Ms. Combes had provided to Mr. Eberwein on April 17, 2026. That same day,
Mr. Griffin shared a draft letter of intent from Star with the board of directors of Harte Hanks and marketing decks for the selection
of an investment banker.
72
On
April 30, 2026, representatives of Citizens had an introductory call with Mr. Griffin and Ms. Combes to discuss the scope of Citizens’
engagement, which was expected to be limited to the sale of Harte Hanks’ marketing services and customer care divisions, and recent
developments regarding Project Wilson.
At
a May 5, 2026 meeting, the board of directors of Harte Hanks discussed the Star proposal with representatives of Harte Hanks’ outside
counsel at Baker Botts and internal Harte Hanks counsel. The board of directors of Harte Hanks concluded that the three current structures
of the proposals for Remainco by Star were not in the best interest of Harte Hanks. The board of directors of Harte Hanks instructed
Mr. Griffin to inform Star that Harte Hanks would be hiring an investment banker to evaluate options for Harte Hanks.
On
May 8, 2026, the Citizens and ODP engagement letters were executed.
On
May 14, 2026, as part of the onboarding of its new advisors, Mr. Griffin shared with representatives of Citizens and ODP an unsolicited
inquiry received by Harte Hanks from Company F, which Citizens might pursue once the exclusivity period of Project Wilson expired.
On
May 19, 2026, representatives of Citizens, ODP and Harte Hanks discussed the latest developments regarding Project Wilson,
the Company B inquiry, and an overview of the process and diligence related to the sale of the marketing services and customer care
business.
On
the same day, Mr. Eberwein informed Mr. Griffin that Star now had an “ATM offering” through Ladenburg of its preferred stock,
which allowed it to raise capital for acquisitions and improve trading liquidity for the Star preferred stock.
On
May 27, 2026, at the request of Harte Hanks, representatives of Citizens established a virtual data room (the “
VDR
”)
to facilitate the due diligence process in connection with the proposed Remainco transaction. Harte Hanks populated the VDR with diligence
materials for review by prospective counterparties, including information relating to Harte Hanks’ marketing services and customer
care divisions.
On
May 30, 2026, the exclusivity period for Company E expired, although diligence activities and legal drafting continued for Project Wilson.
On
June 1, 2026, Mr. Eberwein submitted a non-binding indication of interest (the “
June 1st Star IOI
”) to the board of
directors of Harte Hanks proposing to acquire 100% of the outstanding common stock of Harte Hanks for $5.00 per share, consisting of
$2.50 per share in cash and $2.50 per share in Star’s 10% Series A Cumulative Perpetual Preferred Stock (Nasdaq: STRRP), the value
of which is based on a liquidation preference of $10.00 per share. In proposing the preferred stock component of the merger consideration,
Star indicated that it believed the Star Preferred Stock represented an attractive alternative form of consideration because it was listed
for trading on the Nasdaq Global Select Market, carried cumulative dividend rights at an annual rate of 10%, and had a stated liquidation
preference of $10.00 per share.
On
June 5, 2026, a principal for a party referred to as “Company H” contacted Bradley L. Radoff, a member of the board of directors
of Harte Hanks, expressing interest in acquiring Harte Hanks. Mr. Griffin introduced Company H to representatives of ODP and Citizens
to discuss next steps regarding a potential transaction. That same day, Mr. Eberwein was introduced to representatives of ODP and Citizens
to discuss next steps regarding a potential transaction.
On
June 8, 2026, Company E presented to the Harte Hanks Project Wilson Advisor a revised and reduced proposal, and suggested it was investigating
an employee stock ownership plan structure with one potential financing source. Company E suggested a valuation of $30 million was now
warranted, plus an additional $3 million possible earnout, and up to $2 million in financing by Harte Hanks might be needed.
73
On
June 8, 2026, representatives of Citizens and ODP held an introductory call with Mr. Eberwein, who provided an overview of Star and the
rationale for the June 1st Star IOI.
On
June 10, 2026, Harte Hanks and Company H executed a non-disclosure agreement.
On
June 11, 2026, representatives of Citizens and ODP held an introductory call with principals from Company H, who provided an overview
of the company and its investment thesis for a merger with Harte Hanks, with next steps to include an initial diligence request list.
On
June 16, 2026, Company H submitted its initial diligence request list to representatives of Citizens and ODP.
On
June 23, 2026, Company E stated that only an employee stock ownership plan structure would be workable, with only $28 million in cash
paid to Harte Hanks, along with $2 million in private preferred stock and a potential additional $3 million earn out. Only $850,000 would
be provided by Company E itself.
On
June 24, 2026, Harte Hanks provided Company H with VDR access and materials responsive to its initial diligence requests.
On
June 25, 2026, Star submitted its initial diligence request list to representatives of Citizens and representatives of ODP.
On
July 1, 2026, Mr. Griffin was informed by its Project Wilson financial advisor that Company E had ended all work on a possible transaction
following its review of recent Company financial results for the month of May 2026.
On
July 2, 2026, the Operating Committee notified Harte Hanks’ financial and legal advisors that discussions related to Project Wilson
had not resulted in a transaction. Accordingly, the scope of Citizens’ engagement was revised to encompass a sale of the entire
company. Mr. Griffin, Ms. Combes and Mr. Radoff, from the board of directors of Harte Hanks, directed Harte Hanks’ legal and financial
advisors to share a process letter with Star and Company H setting a bid deadline of July 30, 2026, with bids to include a markup of
the merger agreement to be prepared by Baker Botts. At the request of the board of directors of Harte Hanks, representatives of Citizens
shared the final process letter with Company H and Star the same day and requested letters of interest by July 30, 2026. That same day,
Harte Hanks provided Star with access to the VDR.
On
July 6, 2026, Mr. Eberwein called Mr. Griffin and said his team was prepared to send to Harte Hanks the deliverables that Harte Hanks
requested for July 31, 2026, namely a revised letter of intent and a marked up merger agreement.
On
July 8, 2026, Star submitted its second phase of diligence requests to representatives of Citizens, covering financial, legal, pension
and tax matters.
On
July 13, 2026, Baker Botts delivered an initial draft of the merger agreement to Baker & Hostetler LLP (“
Baker
Hostetler
”), outside legal counsel to Star. The initial draft was structured as a reverse subsidiary merger in which
Merger Sub would merge into Harte Hanks and Harte Hanks would survive as a wholly owned subsidiary of Star.
On
July 15, 2026, Company H, through its principal, notified Mr. Radoff that it was exiting the process to focus on enterprise resource
planning related initiatives rather than dedicating resources to evaluating Harte Hanks. Following Company H’s withdrawal,
Star was the only party that remained in the process and the only party that had submitted a recent proposal to acquire all of the outstanding
shares of Harte Hanks. None of the prior proposals received by Harte Hanks since January 2025 had resulted in a transaction: the Company
D proposal contemplated only a partial self-tender rather than an acquisition of Harte Hanks, the Company F and Company E proposals
related solely to the fulfillment and logistics businesses and were terminated by those parties following diligence, and Company G’s
extended timeframe for a closing added risks that were not acceptable to Harte Hanks.
74
On
July 21, 2026, Patrick O’Brien, Managing Director of Harte Hanks’ fulfillment & logistics business, and Benjamin Chacko,
Managing Director of Harte Hanks’ customer care business, traveled with Mr. Griffin and representatives of Citizens and ODP to
Greenwich, Connecticut for in-person management meetings at Star’s office.
On
July 27, 2026, representatives of Harte Hanks, Citizens, ODP and Star had a meeting to discuss Harte Hanks’ fulfillment &
logistics business.
On
July 28, 2026, representatives of Harte Hanks, Citizens, ODP and Star had a meeting to discuss Harte Hanks’ revenue solutions
business and Harte Hanks’ current legal and tax services. That same day, Star shared a markup of the merger agreement with Harte
Hanks that, among other things, proposed a forward merger structure in which Harte Hanks would merge into Merger Sub and cease to exist,
contemplated a tax-free reorganization under Section 368(a) with extensive joint tax representations, and included a 30-day go-shop period,
a 4% Company Termination Fee, a 2% Exempted Party reduced fee, and a 2% Parent Termination Fee. The markup also provided a three-Business
Day matching and notice period for superior proposals, limited Star’s monetary liability to the Parent Termination Fee, did not
require the purchase of D&O tail insurance, and required non-public information provided to bidders to be shared within 24 hours.
On
July 29, 2026, representatives of Harte Hanks, Citizens, ODP and Star had a meeting to discuss Harte Hanks’ corporate costs and
potential cost synergies and the customer care business.
On
July 30, 2026, representatives of Harte Hanks, Citizens, ODP and Star had a meeting to further discuss Harte Hanks’ fulfillment
& logistics business, the sales team and its operations.
On
July 31, 2026, Star delivered a revised letter of intent (the “
July 31st Star LOI
”) that introduced election mechanics
including STRRP preferred stock, a fifteen (15)-day exclusivity period (with an automatic seven (7)-day extension), specific financing
terms, detailed governance and integration provisions naming key personnel, enumerated closing conditions, and a thirty (30)-day go-shop
period no longer conditioned on a one-month acceptance deadline. The July 31st Star LOI maintained the $5.00 per share price and consideration
structure comprised of 50% cash and 50% STRRP preferred stock. The July 31st Star LOI also stated that Star expected to fund approximately
$12.5 million of the cash consideration through a draw on Harte Hanks’ existing Texas Capital Bank revolving credit facility,
with the balance funded from Star’s cash on hand, and that Star’s indemnification of directors and officers would replace
the need for a D&O tail insurance policy. Concurrently, Star delivered a comprehensive markup of the merger agreement.
The
board of directors of Harte Hanks discussed the July 31st Star LOI. Following the board of directors of Harte Hanks’ discussions,
the board of directors of Harte Hanks directed its legal and financial advisors to request that Star increase its offer to $6.50 per
share.
On
July 31, 2026, the Audit Committee of the Star board met to discuss the proposed Merger. All members of the Audit Committee attended
the meeting, together with certain members of Star management and Star’s outside counsel and financial advisor.
On
August 2, 2026, the board of directors of Harte Hanks, certain members of Harte Hanks’ management team, and representatives from
Citizens and ODP held a call to discuss the July 31st Star LOI and the Merger Agreement received from Star on July 28, 2026. The board
of directors of Harte Hanks and its advisors discussed Star’s positions on the merger structure, D&O insurance, the transaction-expense
cap and its proposed scope, the asymmetry in the proposed termination fee structure, the absence of a parent guarantee, and the tax implications
of the proposed transaction.
75
On
August 3, 2026, following discussion, Star delivered a revised executed letter of intent (the “
August 3rd Star LOI
”)
increasing the price to $5.50 per share, with the incremental value effectively funded through an increased Texas Capital Bank facility
draw and a new transaction-expense cap of $2,365,000. The August 3rd Star LOI increased the proposed Texas Capital Bank facility draw
from approximately $12.5 million to approximately $15.0 million to fund the additional cash consideration, with the balance and transaction
expenses funded from Star’s cash on hand. The August 3rd Star LOI also introduced a closing condition capping Harte Hanks’
aggregate transaction expenses at $2,365,000, defined broadly to include professional advisory fees, D&O tail insurance costs, and
certain transaction-related payments to employees and officers. Star continued to maintain that its indemnification of directors would
replace the need for a separate and customary D&O tail policy.
On
August 5, 2026, management of Harte Hanks and Star, together with their respective legal and financial advisors, including representatives
of Citizens, met to discuss regulatory matters for each line of business and the go-to-market strategies for Harte Hanks’ revenue
solutions and customer care businesses.
On
August 6, 2026, management of Harte Hanks and Star, together with their respective legal and financial advisors, including representatives
of Citizens, met to discuss legal matters, including ongoing litigation, with Harte Hanks, and customer case studies for the Revenue
Solutions and Customer Care businesses. Separately, Mr. Fisher circulated a draft cash forecast for Citizens’ review and representatives
of Citizens had a discussion with Mr. Eberwein regarding the transaction’s progress.
Also
on August 6, 2026, management of Harte Hanks finalized discussions it had been having with the Wilson Financial Advisor over fees and
expenses that it claimed it was owed.
On
August 6, 2026, the Star board met to discuss the proposed Merger. All members of the Star Board attended the meeting. The Star Board
discussed the proposed Merger and the additional due diligence then available.
On
August 7, 2026, management of Harte Hanks and Star, together with their respective legal and financial advisors, including representatives
of Citizens, met to discuss corporate structure and to provide a customer care technology demonstration for the Star team.
That
same day, Baker Botts shared a further revised draft of the Merger Agreement with Baker Hostetler that, among other things, reverted
to a reverse subsidiary merger structure in which Merger Sub would merge into Harte Hanks and Harte Hanks would survive in order to avoid
triggering third-party consent requirements for pension plans, contracts, leases and permits; changed the intended tax treatment from
a tax-free reorganization to a taxable transaction and eliminated the joint tax representations article; added a customary six-year D&O
tail insurance provision, including a prepaid tail policy option and a Maximum Annual Premium of 300% of Harte Hanks’ current
premium; revised the proposed termination fees to 3% for Harte Hanks, 1.5% for an Exempted Party, and 3% for Star, and carved out any
Company Termination Fee obligation arising from failure of the Debt Financing; expanded Star’s representations regarding capitalization,
SEC reports, financial statements and the financing commitment letter; added a Star performance guarantee; and reflected $5.50 per share
consideration.
On
August 8, 2026, Harte Hanks executed a revised letter of intent (the “
August 8th Star LOI
”). At the request of the
board of directors of Harte Hanks, representatives of Citizens shared the executed August 8th Star LOI and an updated cash forecast and
estimated transaction expenses with Star. The August 8th Star LOI maintained the $5.50 per share price and the 50% cash / 50% preferred
stock consideration structure from the August 3rd Star LOI, but incorporated several governance changes: it removed the fixed exclusivity
period and replaced it with exclusivity through August 14, 2026; agreed to obtain a customary D&O tail insurance policy prior to
closing, resolving a key issue from the August 3 board of directors of Harte Hanks discussion; dropped the transaction-expense cap as
a closing condition; and instead provided that Harte Hanks’ transaction expenses would be paid from Harte Hanks’ own cash
prior to closing and would not reduce the purchase price payable to stockholders. The August 8th Star LOI also added a requirement for
voting and support agreements from Harte Hanks’ directors and certain executive officers.
76
Later
that day, Mr. Eberwein notified a representative of Citizens via email that Star was lowering its offer to $5.00 per share (50% cash
and 50% preferred stock), and expected Star Board approval to sign the merger agreement the following Thursday, with a proposed signing
on August 13, 2026, and announcement on August 14, 2026. Mr. Eberwein attributed the revision in price to higher anticipated transaction
expenses of approximately $4.5 million, an approximately $6 million adverse swing in net debt, weaker-than-expected second-quarter results,
and concerns over continued client loss, and noted that the $5.00 per share consideration represented a 119% premium to Harte Hanks’
prior-Friday close of $2.28. The board of directors of Harte Hanks discussed the updated transaction terms.
On
August 9, 2026, management of Harte Hanks and Star, together with their respective legal advisors, had a call to discuss certain key
issues in the merger agreement and timing for the transaction. Key issues discussed included the Texas Capital Bank financing structure,
termination fees, treatment of Harte Hanks equity awards, directors and officers indemnification and insurance, and representations and
warranties.
On
August 9, 2026, management of Harte Hanks and Star, together with their respective legal and financial advisors, including representatives
of Citizens, met to discuss the top customers for each line of business.
On
August 10, 2026, Baker Hostetler shared a further revised draft of the merger agreement with Baker Botts that, among other things, responded
to the August 7 draft by providing for cash, preferred stock, or a combination of both for vested Company equity awards, while cancelling
unvested awards without consideration; retained the six-year D&O tail insurance provision with a 300% premium cap; and revised the
termination fees to a 3% Company Termination Fee, a 1.5% Exempted Party reduced fee during the Go-Shop Period, and a 2% Parent Termination
Fee. That same day, Baker Hostetler also shared a form of Voting and Support Agreement with Baker Botts, together with a list of directors,
officers, and certain stockholders that Star was requesting to sign such an agreement.
On
August 11, 2026, Mr. Garrison shared Harte Hanks’ projected operating model with Texas Capital Bank, supporting the feasibility
of a $15 million draw on its loan in connection with the proposed transaction. Additionally, Baker Botts shared a revised draft of the
merger agreement with Baker Hostetler which reflected ongoing negotiations on open issues concerning the financing structure, termination
fees, treatment of Company equity awards, directors’ and officers’ indemnification and insurance, and representations and
warranties.
On
August 11, 2026, Star delivered a revised letter of intent (the “
August 11th Star LOI
”) reflecting its offer at $5.00
per share, increasing the transaction-expense cap to $4,514,000 and including a closing condition that Harte Hanks’ aggregate
transaction expenses not exceed that amount. The August 11th Star LOI reverted to $5.00 per share from $5.50, reinstated the transaction-expense
cap - now at $4,514,000, nearly double the original $2,365,000 cap - as a closing condition, and reversed the August 8th Star LOI’s
concession on D&O tail insurance by stating that Star’s indemnification would replace the need for a separate tail policy.
Mr. Eberwein again attributed the price reduction to higher anticipated transaction expenses of approximately $4.5 million, an approximately
$6 million adverse swing in net debt, weaker-than-expected second-quarter results, and concerns over continued client loss. With respect
to net debt, Harte Hanks had no borrowings and approximately $5.6 million of cash and cash equivalents as of December 31, 2025, compared
with $3.0 million of borrowings under its Texas Capital Bank credit facility and approximately $5.2 million of cash and cash equivalents
as of June 30, 2026, and Harte Hanks’ cash forecast reflected the use of cash on hand through closing to pay transaction expenses.
77
During
the course of the negotiations, including at meetings held on August 7, 11, and 12, 2026, the board of directors of Harte Hanks, together
with representatives of Harte Hanks’ management and its financial and legal advisors, discussed certain concerns and risks relating
to the proposed transaction, including: (i) the lack of a committed debt financing letter and Star’s reliance on a draw of up to
$15 million on Harte Hanks’ existing Texas Capital Bank facility, the availability of which was subject to Harte Hanks’
borrowing base and Texas Capital Bank’s consent, and the corresponding closing condition, which the board of directors sought to
mitigate by excluding any Company Termination Fee obligation arising from a financing failure and requiring Star to bear lender financing
costs if the transaction terminates; (ii) the value and liquidity of the Star Preferred Stock to be received by Harte Hanks stockholders
and the importance of diligence on Star’s financial condition; (iii) whether contractual indemnification by Star would adequately
protect Harte Hanks’ directors and officers in the absence of a prepaid D&O tail insurance policy; (iv) Star’s proposed
cap on transaction expenses and the risk that excess expenses would reduce the consideration payable to stockholders; (v) the asymmetric
termination fees initially proposed by Star and their potential effect on the credibility of the go-shop period; (vi) the terms of the
voting and support agreements requested by Star, including the need to preserve the ability of signatories to support a superior proposal;
and (vii) the risk that Star would not proceed with a transaction at all, and the absence of other proposals for the entire Company.
The board of directors of Harte Hanks also discussed the reduced price with representatives of Citizens and Baker Botts. Representatives
of Citizens had previously advised the board of directors of Harte Hanks that the uncertainty regarding the availability of financing
under the Texas Capital Bank facility, Harte Hanks’ second-quarter results and the size of ongoing strategic transaction expenses
may each affect Star’s offer, and that Star might revert to its original $5.00 per share price. In determining to continue negotiations
at $5.00 per share, the board of directors of Harte Hanks considered, among other things, that the $5.00 per share price represented
a premium of more than 100% to the $2.28 closing price of Harte Hanks Common Stock on August 7, 2026; that no other party had submitted
a recent proposal to acquire the entire Company; that prior efforts to sell the fulfillment and logistics businesses had not resulted
in a transaction; Harte Hanks’ recent financial performance and loss of business from certain clients; the risks of continuing
as a standalone public company; and that the Merger Agreement would include a 30-day go-shop period with a reduced termination fee, permitting
Harte Hanks to solicit superior proposals following announcement.
On
August 12, 2026, representatives of Harte Hanks, Star, Citizens, ODP, Baker Botts and Baker Hostetler participated in an all-hands call
to discuss key outstanding issues in the Merger Agreement. Key outstanding issues discussed included the termination fee structure, the
treatment of Company equity awards, the scope of directors’ and officers’ indemnification and insurance, and the terms of
the Voting and Support Agreement. The outstanding issues discussed by the parties during the final phase of negotiations included the
financing structure, termination fees, treatment of Company equity awards, directors’ and officers’ indemnification and insurance,
and representations and warranties.
Later
on August 12, 2026, the board of directors of Harte Hanks held a meeting with Harte Hanks’ management and its financial and legal
advisors. Harte Hanks’ legal advisors summarized the terms of the Merger Agreement and provided an overview of the board of directors’
fiduciary duties. The representatives of Citizens presented their financial analysis and their opinion that the merger consideration
to be received by the holders of the Harte Hanks Common Stock (other than Owned Company Shares) in the merger is fair, from a financial
point of view, to such holders. Citizens subsequently shared its written opinion dated August 12, 2026 with the board of directors of
Harte Hanks.
That
same day, Baker Hostetler shared a revised form of Voting and Support Agreement with Baker Botts.
On
August 13, 2026, Baker Botts shared a further revised draft of the merger agreement with Baker Hostetler that, among other things, reflected
$5.00 per share consideration and a 50% cash cap, and revised the treatment of Company equity awards so that specified options and RSUs
could receive elected cash or preferred stock consideration while all PSUs would be cancelled without consideration. It also added alternative
debt financing and related cost-reimbursement provisions, restored D&O indemnification protections, and retained the 3% Company Termination
Fee, 1.5% Exempted Party reduced fee and 3% Parent Termination Fee. That same day, Baker Botts shared a revised draft of the Voting and
Support Agreement with Baker Hostetler, which was finalized by the parties that day.
Also
on August 13, 2026, Texas Capital Bank shared a letter with Harte Hanks confirming its confidence to provide up to the $15 million loan
in connection with the transaction. Later that day, the board of directors of Harte Hanks held a meeting, including certain members of
Harte Hanks’ management, representatives of Citizens and representatives of ODP, and representatives of Baker Botts to discuss
the status of key items required prior to signing and the planned timing for signing and announcement. Following discussions, the board
of directors of Harte Hanks approved the Merger Agreement.
78
On
August 13, 2026, the Star board met again to consider the Merger Agreement and the transactions contemplated by the Merger Agreement.
All members of the Star board attended the meeting. The Star board received an update regarding additional due diligence conducted since
its August 6, 2026 meeting. Following its consideration of the updated due diligence and the proposed transaction, the Star board determined
to proceed with the Merger and approved the merger agreement and the transactions contemplated thereby.
Later
that same day, Baker Botts and Baker Hostetler held multiple calls to discuss open issues in the merger agreement, and Baker Hostetler
shared a further revised draft of the merger agreement with Baker Botts that, among other things, finalized the $5.00 per share consideration
and $19.2 million Maximum Cash Amount, specified the options and RSUs eligible for elected cash or preferred stock consideration, and
cancelled the PSUs without consideration. The draft narrowed the alternative debt financing obligation to commercially reasonable efforts
on terms substantially similar to the ABL Loan Agreement or otherwise acceptable to Star, retained the six-year D&O insurance tail
while narrowing related indemnification language, and fixed Harte Hanks, Exempted Party reduced, and Parent Termination Fees at
$1,152,000, $576,000, and $1,152,000, respectively; it also preserved Star’s entitlement to the Company Termination Fee where otherwise
payable while excluding damages arising solely from financing failure.
Early
in the morning on August 14, 2026, Baker Botts shared a further revised draft of the merger agreement with Baker Hostetler and the Merger
Agreement by and between Harte Hanks and Star was executed. The deal was publicly announced later that day.
On
August 14, 2026, Star and Harte Hanks each issued a press release announcing the execution of the Merger Agreement.
Also
on August 14, 2026, Star filed a Form 8-K announcing the execution of and entry into the Merger Agreement, including the Merger Agreement
and Form of Voting and Support Agreement as exhibits.
Following
the execution of the Merger Agreement, on August 21, 2026, representatives of Star and Harte Hanks participated in a call with a significant
stockholder of Harte Hanks. During the call, representatives of Star and Harte Hanks discussed the proposed transaction and reviewed
terms that had previously been publicly disclosed.
Following
the call, representatives of Star emailed the stockholder to continue the discussion regarding the proposed transaction, and counsel
for such parties had a discussion to consider the terms under which those discussions could occur. On September 8, 2026, counsel for
such stockholder informed Star’s counsel that it would require a waiver under its existing cooperation agreement with Harte Hanks
before engaging in further discussions regarding the proposed transaction. Counsel for Star thereafter requested such a waiver from Harte
Hanks. On September 11, 2026, the stockholder’s counsel advised Star’s counsel by email that the stockholder did not intend
to engage in any discussions regarding the proposed transaction prior to its review of the proxy statement/prospectus.
By
unanimous written consent dated September 23, 2026, the board of directors of Harte Hanks extended the term of the Operating Committee
through December 31, 2026.
Post-Signing
Go-Shop Activity
Pursuant
to the Merger Agreement, during the Go-Shop Period from August 14, 2026 through September 13, 2026 at 11:59 p.m. Eastern Time, Harte
Hanks and its representatives were permitted to initiate, solicit, encourage and engage in discussions or negotiations with third parties
regarding alternative Acquisition Proposals and to furnish non-public information to such third parties, subject to specified conditions
set forth in the Merger Agreement.
79
During
the Go-Shop Period, Citizens and ODP, Harte Hanks’ financial advisors, together with Harte Hanks, solicited interest from 93 third
parties. Harte Hanks entered into Acceptable Confidentiality Agreements (as defined in the Merger Agreement) with nine parties, and each
of those parties was provided access to a virtual data room containing non-public information regarding Harte Hanks. Two parties submitted
Acquisition Proposals during the Go-Shop Period.
On
August 21, 2026, Party A executed an Acceptable Confidentiality Agreement, and on August 23, 2026, Party A received access to the virtual
data room. On September 1, 2026, Party A participated in a management presentation. On September 7, 2026, Party A submitted a letter
of intent proposing to acquire all outstanding shares of Harte Hanks Common Stock for $4.50 per share in cash. The proposal was not subject
to a financing condition, although Party A’s financing proposals from institutional lenders were non-binding and subject to credit
approval and definitive documentation.
On
September 8, 2026, Citizens delivered the Party A proposal to Star pursuant to the notice requirements of the Merger Agreement. From
September 8 through September 10, 2026, Citizens, on behalf of the board of directors of Harte Hanks, communicated with Party A regarding
financing certainty, alternative financing sources, the proposed Parent Termination Fee, potential enhancements to the proposed merger
agreement and purchase-price improvement.
On
September 9, 2026, Party A delivered a markup of a merger agreement to Baker Botts, together with enhanced proposal information addressing
the board’s questions regarding financing certainty, balance-sheet resources and shareholder commitment.
On
September 11, 2026, Party A submitted a revised proposal increasing the purchase price to $4.60 per share, subject to the Texas Capital
Bank line of credit being paid in full at closing, and increasing the proposed Parent Termination Fee from approximately $1.152 million
to $2.3 million.
On
September 3, 2026, a party referred to as “Party B” executed an Acceptable Confidentiality Agreement and received access
to the virtual data room. On September 8, 2026, Party B submitted a proposal providing for the contribution of substantially all of Harte
Hanks’ assets, other than its federal and state net operating loss carryforwards, to a newly formed entity, with Harte Hanks receiving
$20.0 million in cash and 3,953,611 common units in the newly formed entity. The cash was intended to be returned to Harte Hanks stockholders
through a special dividend, self-tender offer or other mechanism. The proposal did not include a fixed per-share acquisition price. Party
B indicated that funding would come from cash and liquidity on hand and that the proposal was not subject to a financing contingency.
The proposal was non-binding and subject to negotiation of definitive documentation, completion of due diligence, required approvals
and customary conditions.
On
September 9, 2026, Citizens circulated a Superior Proposal Assessment to the board of directors of Harte Hanks. The board held an update
meeting with Harte Hanks’ management and its financial and legal advisors to discuss the status of the Star transaction, the Party
A proposal, the Party B proposal and the Citizens assessment.
On
September 11, 2026, the board held an update meeting with Harte Hanks’ management and representatives of Citizens and Baker Botts.
The board discussed the revised Party A proposal, a comparison of the Star and Party A merger agreements and Exempted Party considerations.
Following consultation with Citizens and Baker Botts, the board unanimously determined in good faith that each of the Party B proposal
and the Party A proposal would reasonably be expected to result in a Superior Proposal, as defined in the Merger Agreement, and designated
each proposer as an Exempted Party under the Merger Agreement. The board did not determine at that time that either proposal constituted
a Superior Proposal. The board reaffirmed the Company Board Recommendation in favor of the Star Merger Agreement and the Merger.
Also
on September 11, 2026, Harte Hanks delivered the notice required by Section 5.3(a) of the Merger Agreement to Star, identifying Party
A and Party B as Exempted Parties and providing the information and documents required by the Merger Agreement.
80
On
September 12, 2026, Harte Hanks and its advisors discussed the post-Go-Shop process for continued engagement with Party A as an Exempted
Party. The Go-Shop Period expired at 11:59 p.m. Eastern Time on September 13, 2026, and the No-Shop Period Start Date occurred immediately
thereafter.
Also
on September 13, 2026, Party B delivered a letter to Citizens formally withdrawing its Acquisition Proposal. Party B stated that, after
considering the board’s response to its proposal, Party B was unwilling to supplement its proposal to provide an all-cash purchase
of all of Harte Hanks’ outstanding stock or assets on terms that the board would likely be in a position to determine constituted
a Superior Proposal. Party B stated that it remained interested in Harte Hanks and its businesses and would welcome the opportunity to
re-engage if the Star Merger or any other acquisition transaction failed to be consummated.
Also
on September 13, 2026, Harte Hanks sent return-or-destroy notices to all NDA counterparties other than Party A and Party B, and Citizens
confirmed that no additional Acquisition Proposals had been received after the revised Party A proposal.
On
September 14, 2026, Harte Hanks notified Star that Party B was no longer an Exempted Party and Harte Hanks sent a return-or-destroy notice
to Party B.
On
September 14 and 17, 2026, the board held an update meeting with Harte Hanks’ management and representatives of Citizens and Baker
Botts to discuss Party A proposal and a comparison of the Star and Party A merger agreements and a return draft of a proposed merger
agreement to Party A.
On
September 18, 2026, following continued discussions with Party A in accordance with the terms of the Merger Agreement, Party A provided
a financing work plan and timeline to representatives of Citizens. On the same date, Baker Botts, on behalf of Harte Hanks, delivered
to Party A’s counsel a revised draft of a proposed merger agreement between Harte Hanks and Party A. In accordance with the Merger
Agreement, on September 20, 2026, Harte Hanks provided Star with a copy of the proposed merger agreement sent to Party A, along with
the financing working plan and timeline received from Party A.
On
October 8, 2026, following continued discussions with Party A in accordance with the terms of the Merger Agreement, Party A’s counsel
delivered to Baker Botts a revised draft of the proposed merger agreement. Among other things, the revised draft (i) provided for a reduction
of the per share cash merger consideration, on a dollar-for-dollar basis, by the amount of the outstanding obligations under Harte Hanks’
existing Texas Capital Bank credit facility to be repaid at closing, any shortfall of Harte Hanks’ closing cash below a specified
target amount and any Company Transaction Expenses in excess of a specified budget; (ii) added restrictions on Harte Hanks’ borrowings
under its existing credit facility, interim financial reporting obligations and covenants regarding Harte Hanks’ transaction expenses;
(iii) added conditions to Party A’s obligation to pay a termination fee in certain circumstances and narrowed the circumstances
in which Party A would reimburse Harte Hanks for financing-related costs; and (iv) identified a different lender as the source of Party
A’s proposed debt financing. Harte Hanks provided a copy of the revised draft to Star in accordance with the Merger Agreement.
Harte Hanks and its advisors are reviewing the revised draft, and the board of directors of Harte Hanks has not yet considered the revised
draft.
As
of the date of this proxy statement/prospectus, one Exempted Party, Party A, remained engaged in discussions with Harte Hanks following
the expiration of the Go-Shop Period in accordance with the terms of the Merger Agreement. The board of directors of Harte Hanks has
not determined that either the Party A proposal or the now-withdrawn Party B proposal constitutes a Superior Proposal. There can be no
assurance that the continuing discussions with Party A will result in a Superior Proposal or that any alternative transaction will be
entered into or consummated.
Under
the Merger Agreement, the reduced Company Termination Fee of $576,000 was available only if Harte Hanks terminated the Merger Agreement
to enter into an Alternative Acquisition Agreement with an Exempted Party on or prior to the No-Shop Period Start Date. Because no Alternative
Acquisition Agreement was entered into on or prior to September 13, 2026, the reduced fee is no longer available. If Harte Hanks terminates
the Merger Agreement after the Go-Shop Period to enter into an Alternative Acquisition Agreement with an Exempted Party, the full $1,152,000
Company Termination Fee would be payable.
81
Harte
Hanks’ Reasons for the Merger; Recommendation of Board of Directors of Harte Hanks
In
evaluating the Merger Agreement and the Merger and in reaching its determination to approve the Merger Agreement and recommend that Harte
Hanks stockholders vote “FOR” the Harte Hanks Merger Proposal, the board of directors of Harte Hanks consulted with Harte
Hanks’ management and its legal and financial advisors and considered a number of factors, including the factors described below.
The board of directors of Harte Hanks considered these factors as a whole and did not assign relative weights to any particular factor.
The
positive factors considered by the board of directors of Harte Hanks included, among others:
●
the $5.00 per share Merger Consideration, which represented a significant premium of approximately 119% over the closing price of Harte
Hanks Common Stock of $2.28 on August 7, 2026;
●
the mixed consideration structure, pursuant to which Harte Hanks stockholders may receive Merger Consideration in cash and in Star Preferred
Stock that pays a 10% annual dividend;
●
the 30-day Go-Shop Period, during which the board of directors of Harte Hanks could actively solicit superior proposals, together with
the reduced 1.5% Company Termination Fee that was available only if the applicable conditions were satisfied on or prior to the No-Shop
Period Start Date;
●
the board of directors of Harte Hanks’ view that the terms of the Merger Agreement were the product of extensive arm’s-length
negotiations;
●
the fairness opinion received from Citizens JMP Securities, LLC on August 12, 2026;
●
the board of directors of Harte Hanks’ understanding of the company’s business, operations, financial condition, earnings and prospects,
including the loss of a significant customer and weaker-than-expected second-quarter results;
●
the terms of the Merger Agreement, including the ability to respond to unsolicited superior proposals after the Go-Shop Period, subject
to compliance with the Merger Agreement’s terms;
●
the six-year survival of the D&O indemnification protections following the Closing, including the D&O tail insurance provision;
●
the board of directors of Harte Hanks’ assessment of the alternatives to the Merger, including continuing as a standalone public
company, and the risks associated with those alternatives; and
●
the board of directors of Harte Hanks’ review of the strategic process conducted by its financial advisors since early 2025, including
outreach to 93 parties, multiple letters of intent, and the ultimate narrowing of the process.
The
potentially negative factors and risks considered by the board of directors of Harte Hanks included, among others:
●
the risk that the Merger might not be completed in a timely manner or at all;
●
the restrictions on Harte Hanks’ ability to solicit alternative proposals after the Go-Shop Period;
●
the potential that Harte Hanks could be required to pay Star a termination fee under specified circumstances;
●
the fact that the receipt of the Merger Consideration would be taxable to Harte Hanks stockholders;
●
Star’s financing structure, including the absence of a debt commitment letter and Star’s reliance on commercially reasonable
efforts to obtain financing;
82
●
the potential that certain directors and officers have interests in the Merger that differ from, or are in addition to, the interests
of Harte Hanks stockholders generally;
●
transaction costs payable whether or not the Merger is completed;
●
the fact that Harte Hanks stockholders would not participate in any future growth or value creation of Harte Hanks as a standalone entity;
and
●
the risk that the $5.00 per share price reflected a lower price than the $5.50 previously offered, driven by higher transaction expenses,
an adverse swing in net debt and weaker-than-expected second-quarter results.
After
considering the foregoing and other relevant factors and risks, and their overall impact on the stockholders and other constituencies
of Harte Hanks, the board of directors of Harte Hanks concluded that the anticipated benefits of the Merger outweighed the anticipated
risks of the transaction. Accordingly, the board of directors of Harte Hanks unanimously approved and deemed advisable the Merger Agreement
and the Merger, and the board of directors of Harte Hanks unanimously recommends that Harte Hanks stockholders vote “
FOR
”
the Harte Hanks Merger Proposal.
It
should be noted that this explanation of the board of directors of Harte Hanks’ reasoning and all other information presented in
this section includes information that is forward-looking in nature, and, therefore, should be read in light of the factors discussed
under the heading “Cautionary Statement Regarding Forward-Looking Statements.”
Harte
Hanks stockholders should also be aware that directors and executive officers of Harte Hanks may have interests in the Merger that are
different from, or in addition to, those of other Harte Hanks stockholders. See “Interests of Harte Hanks Executive Officers and
Directors in the Merger.”
Unaudited
Prospective Financial Information
Harte
Hanks does not, as a matter of course, publicly disclose forecasts as to future performance, earnings or other results due to the unpredictability
of the underlying assumptions and estimates. However, Harte Hanks has included in this proxy statement a summary of certain unaudited
prospective financial information of Harte Hanks for fiscal years 2026 through 2029 (the “
Financial Forecasts
”), certain
of which were furnished to our financial advisor and to Star Equity.
The
Financial Forecasts were not prepared with a view toward public disclosure or complying with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of prospective financial data, published guidelines of the
SEC regarding forward-looking statements or generally accepted accounting principles in the United States (“
GAAP
”).
No
assurances can be made regarding future events, and the estimates and assumptions underlying the Financial Forecasts involve judgments
with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions
that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties
and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the marketing
and business services industries in which Harte Hanks operates, the timing and financing of future growth and development projects, and
the risks and uncertainties described in the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking
Statements,” all of which are difficult to predict and many of which are outside the control of Harte Hanks and, upon consummation
of the Merger, will be beyond the control of Parent and the surviving corporation. Company stockholders are urged to review Harte Hanks’
SEC filings for a description of risk factors with respect to Harte Hanks’ business. There can be no assurance that the assumptions
underlying the Financial Forecasts will prove to be accurate or that the projected results will be realized. Actual results may differ
materially from those reflected in the Financial Forecasts, whether or not the Merger is consummated. The inclusion in this proxy statement
of the Financial Forecasts should not be regarded as an indication that Harte Hanks, the Board, our financial advisors or any other person
considered, or now consider, these forecasts to be a reliable predictor of future results.
83
The
Financial Forecasts, while presented with numerical specificity, were based on numerous variables and assumptions that necessarily involve
judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions, all of which
are difficult or impossible to predict and many of which are beyond Harte Hanks’ control. Because the Financial Forecasts cover
multiple years, by their nature, they become subject to greater uncertainty with each successive year. In addition, the Financial Forecasts
may be affected by Harte Hanks’ ability to achieve strategic goals, objectives and targets over the applicable periods.
The
Financial Forecasts are not fact, and neither they nor any underlying assumptions should be relied on as being indicative of future results.
The Financial Forecasts are not, and should not be considered to be, a guarantee of future operating results. In light of the foregoing
factors and the uncertainties inherent in the Financial Forecasts, readers of this proxy statement are cautioned not to place undue,
if any, reliance on the Financial Forecasts included in this proxy statement, including in making a decision as to whether to vote in
favor of adoption of the Merger Agreement.
The
Financial Forecasts assumed that Harte Hanks would continue to operate as a standalone company, assume organic company growth without
business expansions from mergers and acquisitions or alternative business models, and do not anticipate any material acquisitions or
divestitures by Harte Hanks. The Financial Forecasts do not take into account any circumstances, transactions or events occurring after
the date on which the Financial Forecasts were prepared and do not give effect to any changes or expenses incurred after the date on
which they were made, including as a result of the Merger or any effects of the Merger. The Financial Forecasts also do not reflect any
divestitures or other restrictions that may be imposed in connection with the receipt of any necessary governmental or regulatory approvals,
or any changes to Harte Hanks’ operations or strategy that may be implemented after completion of the Merger.
Certain
of the financial measures included in the Financial Forecasts are “non-GAAP financial measures.” These are financial performance
measures that are not calculated in accordance with GAAP. Investors should also note that the non-GAAP financial measures presented in
this proxy statement are not prepared under any comprehensive set of accounting rules or principles and do not reflect all of the amounts
associated with Harte Hanks’ results of operations as determined in accordance with GAAP. Investors should also note that the
non-GAAP financial measures presented in this proxy statement have no standardized meaning prescribed by GAAP and, therefore, have limits
in their usefulness to investors. The non-GAAP financial measures in this proxy statement may be calculated differently from, and may
not be directly comparable to, similarly titled measures used by Harte Hanks’ competitors and other companies.
Due
to the inherent limitations of non-GAAP financial measures, investors should consider non-GAAP measures only as a supplement to, not
as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP.
The
non-GAAP financial measures included in the Financial Forecasts were prepared by Harte Hanks’ management and reviewed by the Board
for use by and were used and relied on at the direction of Harte Hanks’ management by its Financial Advisors in connection with
rendering its opinion and performing its financial analysis in connection therewith and by the Board for its consideration of the Merger.
Financial measures included in forecasts provided to a financial advisor and a Board in connection with a business combination transaction,
such as the Financial Forecasts, are excluded from the definition of “non-GAAP financial measures” under applicable SEC rules
and regulations. As a result, the Financial Forecasts are not subject to SEC rules regarding disclosures of non-GAAP financial measures,
which would otherwise require a reconciliation of a non-GAAP financial measure to the most directly comparable GAAP financial measure.
Reconciliations of these non-GAAP financial measures were not provided to or relied on by the Board or our Financial Advisors in connection
with their respective evaluations of the Merger. Accordingly, Harte Hanks has not provided a reconciliation of the non-GAAP financial
measures included in the Financial Forecasts to the relevant GAAP financial measures.
84
The
Financial Forecasts included in this document have been prepared by, and are the responsibility of, Harte Hanks’ management. Wolf
& Company P.C., Harte Hanks’ independent registered public accounting firm, has not audited, reviewed, examined, compiled
or applied agreed-upon procedures with respect to the accompanying Financial Forecasts and, accordingly, Wolf & Company P.C. does
not express an opinion or any other form of assurance with respect thereto.
By
including in this proxy statement the Financial Forecasts below, neither Harte Hanks nor any of its representatives has made or makes
any representation to any person regarding the ultimate performance of Harte Hanks compared to the information contained in the Financial
Forecasts. Harte Hanks makes and has made no representation to Parent or Merger Sub, in the Merger Agreement or otherwise, concerning
the Financial Forecasts.
Accordingly,
the Financial Forecasts should not be construed as financial guidance, nor relied on as such, and the Financial Forecasts may differ
in important respects from other guidance provided by Harte Hanks and which Harte Hanks’ management prepared based on a different
set of assumptions. The inclusion of the Financial Forecasts in this proxy statement does not constitute an admission or representation
by Harte Hanks that the information contained therein is material. The Financial Forecasts reflected the opinions, estimates and judgments
of Harte Hanks’ management at the time they were prepared and have not been updated to reflect any subsequent changes. NONE OF
HARTE HANKS, PARENT, MERGER SUB OR, AFTER CONSUMMATION OF THE MERGER, THE SURVIVING CORPORATION, UNDERTAKES ANY OBLIGATION, EXCEPT AS
REQUIRED BY LAW, TO UPDATE OR OTHERWISE REVISE THE FINANCIAL FORECASTS TO REFLECT CIRCUMSTANCES EXISTING SINCE THEIR PREPARATION, CHANGES
IN GENERAL ECONOMIC OR INDUSTRY CONDITIONS OR THE OCCURRENCE OF UNANTICIPATED EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE UNDERLYING
ASSUMPTIONS ARE SHOWN TO BE IN ERROR.
The
Financial Forecasts were prepared by Harte Hanks’ management in connection with management’s long range plan for Harte Hanks,
and reviewed by the Board, in the ordinary course of business as part of its strategic planning. The Financial Forecasts reflect assumptions
as to certain business decisions that are subject to change, including, but not limited to, assumptions regarding: revenue growth rates
across Harte Hanks’ segments; overall industry performance, competitive landscape and market conditions; wage and employee
expense escalation; and changes in net working capital. The foregoing is a summary of certain key assumptions and does not purport to
be a comprehensive overview of all assumptions reflected in the Financial Forecasts.
The
Financial Forecasts were relied on by the Board in reaching its determination on August 13, 2026 to authorize and approve the execution,
delivery and performance by Harte Hanks of the Merger Agreement, to declare the Merger Agreement advisable and to resolve to recommend
that the holders of Company Common Stock adopt the Merger Agreement and were used at the direction of the management of Harte Hanks and
reviewed by the Board for use and reliance by our financial advisors in connection with presenting its financial analyses to the Board
on August 12, 2026 followed by the rendering and delivery to the Board of its opinion dated as of Augst 12, 2026, as summarized in the
section of this proxy statement entitled “
Opinion of Harte Hanks’ Financial Advisor
.”
The
following table sets forth a summary of the Financial Forecasts. The summary of the Financial Forecasts is not included in this proxy
statement to induce any Company stockholder to vote in favor of adopting the Merger Agreement proposal or approving any other proposals
to be voted on at the Special Meeting or to influence any Company stockholder or holder of rollover shares to make any investment decision
with respect to the Merger.
85
Financial
Forecasts
($ in millions)
2026E
2027E
2028E
2029E
Revenues
$
160.2
$
166.1
$
173.7
$
182.5
EBITDA
$
3.4
$
6.9
$
9.1
$
11.2
(+) Restructure/Severance
0.8
-
0.1
0.1
(+) Stock Compensation
0.9
0.9
0.9
0.9
(+) Strategic Alternative Effort
2.5
-
-
-
ADJ EBITDA
$
7.5*
$
7.8
$
10.1
$
12.2
Less: Changes in NWC
$
(2.4
)
$
(2.9
)
$
(2.9
)
$
(2.9
)
Less: Capital Expenditures
(0.6
)
(0.6
)
(0.6
)
(0.6
)
Unlevered Free Cash Flow
$
4.5
$
4.3
$
6.6
$
8.7
*
does not sum due to rounding.
Opinion
of Harte Hanks’ Financial Advisor
Citizens
JMP Securities, LLC (“
Citizens
”) was retained by Harte Hanks to act as its financial advisor in connection with the
Merger and, upon Harte Hanks’ request, to render its fairness opinion to the board of directors of Harte Hanks in connection therewith.
Harte Hanks selected Citizens to act as its financial advisor based on Citizens’ qualifications, expertise and reputation, its
knowledge of Harte Hanks’ industry and its knowledge and understanding of the business and affairs of Harte Hanks.
At
a meeting of the board of directors of Harte Hanks on August 12, 2026, Citizens rendered its oral opinion, subsequently confirmed in
its written opinion dated August 12, 2026, to the board of directors of Harte Hanks that, as of the date thereof and based upon and subject
to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review
undertaken by Citizens in connection with the opinion (which are stated in its written opinion), the Merger Consideration to be received
by the holders of Harte Hanks Common Stock (other than Owned Company Shares (as defined in the Merger Agreement)) in the Merger was fair
to such holders from a financial point of view.
The
full text of Citizens’ written opinion delivered to the board of directors of Harte Hanks , dated August 12, 2026, is attached
as
Annex B
to this proxy statement/prospectus and incorporated into this proxy statement/prospectus by reference in its entirety.
Citizens’ written opinion has been provided by Citizens at the request of the board of directors of Harte Hanks and is subject
to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review
undertaken by Citizens in connection with the opinion (which are stated therein). You are encouraged to read the opinion carefully in
its entirety.
Citizens
provided its opinion to the board of directors of Harte Hanks, in its capacity as such, in connection with and for purposes of its evaluation
of the Merger only and Citizens’ opinion does not constitute a recommendation as to any action the board of directors of Harte
Hanks should take with respect to the Merger or how any holder of Harte Hanks Common Stock should vote or act with respect to the Merger
or any other matter.
The
following is a summary of Citizens’ opinion and the methodology that Citizens used to render its opinion. This summary of Citizens’
opinion contained in this proxy statement is qualified in its entirety by reference to the full text of Citizens’ written opinion.
In
arriving at its opinion, Citizens, among other things:
(i) reviewed
certain publicly available financial statements and certain other business and financial information relating to Harte Hanks furnished
to Citizens;
(ii) reviewed
certain internal financial statements and other financial and operating data concerning Harte Hanks prepared by the management of Harte
Hanks;
(iii)
reviewed certain financial forecasts prepared by the management of Harte Hanks;
86
(iv) compared
the financial performance of Harte Hanks with that of certain other publicly-traded companies that Citizens believed were generally comparable
to Harte Hanks;
(v) reviewed
the financial terms, to the extent publicly available, of certain acquisition transactions involving companies in lines of business that
Citizens believed were generally comparable to Harte Hanks;
(vi) participated
in discussions with members of the senior management of Harte Hanks with respect to the business prospects and financial outlook of Harte
Hanks;
(vii)
reviewed the Merger Agreement draft dated as of August 10, 2026 and certain related documents; and
(viii)
performed such other analysis and considered such other factors as Citizens deemed appropriate.
In
conducting its review and arriving at its opinion, Citizens has assumed and relied, without independent verification, upon the accuracy
and completeness of all information and data that was publicly available or furnished to or otherwise reviewed by or discussed with Citizens.
Citizens has further relied upon the assurance of the management of Harte Hanks that they are not aware of any facts or circumstances
that would make such information inaccurate or misleading. With respect to the financial forecasts of Harte Hanks, the management of
Harte Hanks has advised Citizens, and Citizens has assumed, that they have been reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the management of Harte Hanks as to the future financial performance of Harte Hanks and
other matters covered thereby. Citizens has not been engaged to assess the reasonableness or achievability of such forecasts or the assumptions
on which they were based and expresses no view as to such forecasts or assumptions.
For
purposes of rendering its opinion, Citizens has assumed that the representations and warranties of each party contained in the Merger
Agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under
the Merger Agreement and that all conditions to the consummation of the Merger will be satisfied without waiver thereof. Citizens has
assumed that the final form of the Merger Agreement will not vary materially from the last draft Merger Agreement reviewed by Citizens
and that the Merger will be consummated substantially on the terms described in such draft, without any amendment or waiver of material
terms or conditions. Citizens has also assumed that all necessary governmental, regulatory and other consents and approvals contemplated
by the Merger Agreement will be obtained and that in the course of obtaining those consents and approvals no costs or restrictions will
be imposed or waivers made that would have an adverse effect on the contemplated benefits of the Merger.
Company
Financial Analyses
In
connection with rendering its opinion, Citizens performed certain financial, comparative and other analyses as summarized below. In arriving
at its opinion, Citizens did not ascribe a specific range of values to the shares of Harte Hanks Common Stock but rather made its determination
as to fairness, from a financial point of view, to the holders of shares of Harte Hanks Common Stock (other than Owned Company Shares)
of the Merger Consideration to be received by such holders pursuant to the Merger Agreement on the basis of various financial and comparative
analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and
relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore,
a fairness opinion is not readily susceptible to summary description.
In
arriving at its opinion, Citizens did not attribute any particular weight to any single analysis or factor considered by it but rather
made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors
performed and considered by it and in the context of the circumstances of the Merger. Accordingly, Citizens believes that its analyses
must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors
as a whole, could create a misleading or incomplete view of the process underlying its opinion. The following is a summary of the material
financial analyses used by Citizens in preparing its opinion to the board of directors of Harte Hanks . Certain financial analyses summarized
below include information presented in tabular format. In order to fully understand the financial analyses used by Citizens, the tables
must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses.
87
In
performing its analyses, Citizens made numerous assumptions with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Harte Hanks, Star or any other parties to the Merger. None of Harte Hanks,
Star, Citizens or any other person assumes responsibility if future results are materially different from those discussed. Any estimates
contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly
more or less favorable than as set forth below. In addition, analyses relating to the value of businesses do not purport to be appraisals
or reflect the prices at which the businesses may actually be sold.
Selected
Public Companies Analysis
Citizens
reviewed and compared specific financial, operating and public trading data relating to Harte Hanks with selected publicly traded companies
that Citizens deemed comparable to Harte Hanks. Using publicly available financial data and closing stock prices as of August 7, 2026,
Citizens calculated, among other things, total enterprise value (calculated as the equity value based on fully diluted shares outstanding,
plus debt and less cash and cash equivalents) (“
TEV
”) as a multiple of estimated calendar year 2026 adjusted EBITDA
(“
EV/CY2026E EBITDA
”) and estimated calendar year 2027 adjusted EBITDA (“
EV/CY2027E EBITDA
”). Estimated
financial data of the selected companies were based on publicly available research analysts’ estimates. A summary of the selected
companies and the relevant metrics is set forth below:
EV/CY2026E EBITDA
EV/CY2027E EBITDA
YOC AG
5.3x
4.0x
Vianet Group
4.2x
4.1x
Microlise Group
3.4x
2.8x
Mean
4.3x
3.6x
Median
4.2x
4.0x
Citizens,
based on its professional judgment, selected the comparable companies because Citizens believed their businesses and operating profiles
are reasonably similar to that of Harte Hanks. However, because of the inherent differences between the businesses, operations and prospects
of Harte Hanks and those of the comparable companies, Citizens believed that it was inappropriate to, and therefore did not, rely solely
on the quantitative results of the selected comparable company analysis. Accordingly, Citizens also made qualitative judgments concerning
differences between the businesses, financial and operating characteristics and prospects of Harte Hanks and the comparable companies
that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative
analysis. After reviewing the above analyses, Citizens selected a representative range of multiples and applied these ranges to Harte
Hanks’ estimated adjusted EBITDA for calendar years 2026 and 2027 based on the forecasts to calculate a range of implied total
enterprise values, from which Citizens subtracted Harte Hanks’ estimated net debt to calculate a range of implied equity values,
and divided the resulting amounts by the number of fully diluted shares of Harte Hanks Common Stock outstanding as provided by Harte
Hanks management, to calculate a range of implied prices per share of Harte Hanks Common Stock. The following summarizes the results
of these calculations:
Multiples
Implied
prices per
share of Harte Hanks
Common Stock
EV/CY2026E
EBITDA:
3.8x
- 4.7x
$1.84
– $2.70
EV/CY2027E
EBITDA:
3.6x
- 4.4x
$1.77
– $2.60
88
Selected
Precedent Transactions Analysis
Citizens
reviewed, to the extent publicly available, and analyzed the valuation and financial metrics relating to selected transactions involving
target companies in lines of business that Citizens believed were generally comparable to Harte Hanks, including companies providing
outsourced business services, customer experience management, business process outsourcing and logistics services. For each precedent
transaction, Citizens reviewed the TEV of the target company in the transaction as a multiple of the target company’s trailing
twelve months adjusted EBITDA at the time of the announcement of the relevant transaction (“
EV/TTM EBITDA
”). Estimated
financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant
transaction. A summary of the selected transactions and the relevant metrics is set forth below:
Year
Announced
Target
Acquiror
EV/TTM
EBITDA
2025
Burroughs
Loomis
6.5x
2023
CBW
Resources
Super
Group Holdings
4.2x
2022
HyperPointe
XpresSpa
Group
5.4x
2020
Personiv
eClerx
4.7x
Mean
5.2x
Median
5.1x
Citizens,
based on its professional judgment, selected the comparable transactions because Citizens believed their businesses and operating profiles
are reasonably similar to that of Harte Hanks. However, because of the inherent differences between the businesses, operations and prospects
of Harte Hanks and those of the companies involved in the selected transactions, Citizens believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the selected precedent transaction analysis. Accordingly, Citizens also
made qualitative judgments concerning differences between the selected precedent transactions and the Merger that would affect the acquisition
values of the selected target companies and Harte Hanks. After reviewing the above analyses, Citizens selected a representative range
of EV/EBITDA multiples and applied this range to Harte Hanks’ estimated adjusted EBITDA for calendar years 2026 and 2027 as provided
by Harte Hanks’ management to calculate a range of implied total enterprise values, from which Citizens subtracted Harte Hanks’
estimated net debt, and divided the resulting amounts by the number of fully diluted shares of Harte Hanks Common Stock outstanding as
provided by Harte Hanks management, to calculate a range of implied prices per share of Harte Hanks Common Stock. The following summarizes
the results of these calculations:
Multiples
Implied
prices per share of Harte Hanks Common Stock
EV/CY2026E
EBITDA:
4.6x
- 5.6x
$2.61
- $3.64
EV/CY2027E
EBITDA:
4.6x
– 5.6x
$2.81
- $3.88
Discounted
Cash Flow Analysis
In
order to estimate the present value of Harte Hanks Common Stock, Citizens performed a discounted cash flow analysis of Harte Hanks. A
discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present
value” of estimated future cash flows generated by the asset. “
Present value
” refers to the current value of
future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account
macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.
89
To
calculate the estimated enterprise value of Harte Hanks using the discounted cash flow method, Citizens added (a) Harte Hanks’
projected after-tax unlevered free cash flows for fiscal years 2026 through 2029 based on the forecasts, to (b) a range of “terminal
values” of Harte Hanks, and discounted such amounts to their present value using a range of selected discount rates of 14.5% to
16.5%. The after-tax unlevered free cash flows were calculated by taking the tax-affected adjusted EBIT (defined as adjusted EBITDA less
depreciation and amortization), adding depreciation and amortization, subtracting changes in net working capital, capital expenditures
and severance costs. The residual value of Harte Hanks at the end of the projection period, or “terminal value,” was estimated
by applying an exit EBITDA multiple range of 3.6x to 4.4x to Harte Hanks’ terminal year 2029 adjusted EBITDA of approximately $12.2
million from the forecasts. The range of exit EBITA multiples of 3.6x to 4.4x was selected based on Citizens analysis of the selected
companies and its’ professional judgement. The range of after-tax discount rates of 14.5% to 16.5% was selected based on Citizens’
analysis of the weighted average cost of capital of Harte Hanks, derived by application of the capital asset pricing model, taking into
account, among other things, the risk-free rate based on the yield on ten-year U.S. Treasury securities, an equity risk premium, the
relevered beta for Harte Hanks derived from the comparable public companies, and a size premium reflective of Harte Hanks’ market
capitalization.
Citizens
then calculated a range of implied values per share of Harte Hanks Common Stock by subtracting Harte Hanks’ estimated net debt
from the estimated enterprise value derived using the discounted cash flow method and dividing such amount by the number of fully diluted
shares of Harte Hanks Common Stock outstanding as provided by Harte Hanks management. The following summarizes the results of these calculations:
Implied
prices per share of Harte Hanks Common Stock:
Discounted
Cash Flow Analysis: $3.57 – $4.44
Star
Preferred Stock Analysis
Citizens
analyzed the Star Preferred Stock to be issued as Merger Consideration at various reference prices, including the current trading price
of $10.06, the liquidation preference of $10.00, the 30-day VWAP of $10.04, the 10-day VWAP of $10.11, the 52 week high of $10.92 and
the 52 week low of $8.75, calculating the implied value of the preferred stock consideration and the aggregate implied purchase price
at each reference price, which ranged from $4.69 to $5.23.
General
Citizens
is not a legal, tax or regulatory advisors and relied upon, without independent verification, the assessment of Harte Hanks and its legal,
tax or regulatory advisors with respect to legal, tax or regulatory matters. Citizens is not in the business of appraising tangible assets
and has not made any independent valuation or appraisal of any or all of the assets or liabilities (including any contingent, derivative
or off-balance-sheet assets or liabilities) of Harte Hanks, nor has Citizens been furnished with any such valuations or appraisals. In
addition, Citizens has not evaluated the solvency of any party to the Merger Agreement under any state or federal laws relating to bankruptcy,
insolvency or similar matters. Citizens’ opinion is necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to Citizens as of, the date of the Merger Agreement. Events occurring after the date of
the opinion may affect the opinion and the assumptions used in preparing it, and Citizens does not assume any obligation to update, revise
or reaffirm the opinion.
90
Citizens
was not requested to consider, and its opinion does not address, Harte Hanks’ underlying business decision to enter into the Merger
Agreement and pursue the Merger, or the relative merits of the Merger as compared to any alternative business strategies that might exist
for Harte Hanks or the effect of any other transaction in which Harte Hanks might engage. Citizens was not requested to consider, and
its opinion does not address, the non-financial terms of the Merger Agreement or the Merger, nor does it address the terms of any of
the related agreements to be entered into by the parties. Its opinion addresses only the Merger Consideration to be received by the holders
of Harte Hanks Common Stock (other than Owned Company Shares) in the Merger. Citizens was not requested to consider, and its opinion
does not address, the fairness of any consideration to be received in the Merger by the holders of any other class or series of capital
stock, creditors or other constituencies of Harte Hanks, the allocation of the Merger Consideration amongst the holders of any class
or series of capital stock, creditors or other constituencies of Harte Hanks, the conversion ratio pursuant to the Merger Agreement for
any class or series of capital stock or any election, proration or adjustment of the Merger Consideration. Citizens has assumed that
the value of the Star Preferred Stock is the liquidation preference of $10.00 per share, and Citizens expressed no opinion as to the
price at which the Star Preferred Stock may be sold in the future. Furthermore, Citizens expressed no opinion with respect to the amount
or nature of any compensation to be received by any officers, directors or employees of any party to the Merger, or any class of such
persons, relative to the Merger Consideration to be paid to the holders of Harte Hanks Common Stock in the Merger or otherwise, or with
respect to the fairness of any such compensation.
Citizens,
as part of its investment banking business, is customarily engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of securities, private placements
and valuations for estate, corporate and other purposes.
Citizens
has acted as financial advisor to Harte Hanks in connection with the Merger and will receive a fee for its services, a portion of which
is payable for providing the opinion and a significant portion of which will become payable only if the Merger is consummated. In addition,
Harte Hanks has agreed to indemnify Citizens against certain liabilities arising out of its engagement. Citizens has not otherwise had
a material relationship with, nor otherwise received fees from, Harte Hanks or any other party to the Merger during the two years preceding
the date of the opinion.
In
the ordinary course of its trading, brokerage, investment management and financing activities, Citizens or its affiliates may at any
time hold long or short positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers,
in debt or equity securities of other companies or any currency that may be involved in the Merger. In the future, Citizens may maintain
other relationships with, and provide advisory and other services to Harte Hanks, Star and their respective affiliates, and may receive
fees for providing such services.
The
opinion was given at the request of, and was intended for the benefit and use of, the board of directors of Harte Hanks in connection
with its consideration of the Merger, and it is not intended to be and does not constitute a recommendation to any stockholder of Harte
Hanks as to how such stockholder should vote or act on any matter relating to the Merger.
For
more information, see
Annex B
.
Citizens
JMP Securities, LLC’s Relationship with Harte Hanks and Star
Citizens
JMP Securities, LLC (“
Citizens
”) is acting as financial advisor to Harte Hanks in connection with the Merger. Harte
Hanks selected Citizens based on Citizens’ qualifications, expertise and reputation in providing financial advisory services in
transactions similar to the Merger, as well as Citizens’ familiarity with Harte Hanks and its business. Oaklins DP, LLC (“
ODP
”)
is also serving as a financial advisor to Harte Hanks in connection with the Merger.
Pursuant to an engagement
letter dated May 8, 2026 between Harte Hanks and ODP (the “
ODP Engagement Letter
”), together with a separate engagement
letter dated May 8, 2026 between Harte Hanks and Citizens (the “
Citizens Engagement Letter
”, and together with the
ODP Engagement Letter, the “
Advisor Engagement Letters
”), Harte Hanks engaged Citizens and ODP as co-advisors to provide
financial advisory and investment banking services in connection with a sale of Harte Hanks. Pursuant to the Advisor Engagement Letters
and the Retainer Fee Split Agreement between ODP and Citizens dated May 20, 2026, the aggregate success fee described below (excluding
expense reimbursements) is allocated 75% ($1,500,000) to Citizens and 25% ($500,000) to ODP. Harte Hanks has agreed to pay Citizens
and ODP an aggregate success fee of $2,000,000 in connection with the Merger. Of the aggregate success fee, (i) $100,000, of which $25,000
is allocable to ODP, became payable to Citizens upon execution of the Citizens Engagement Letter as a retainer fee, which is credited
against Citizens’ and ODP’s respective portions of the success fee, (ii) $750,000 became payable to Citizens upon
delivery of its opinion as an opinion fee, which is credited against Citizens’ portion of the success fee, and which was not contingent
upon the conclusion reached in the opinion or the consummation of the Merger and (iii) the remaining $1,150,000 (consisting of $675,000
payable to Citizens and $475,000 payable to ODP) is contingent upon the consummation of the Merger. Harte Hanks has also agreed
to reimburse ODP for its reasonable and documented out-of-pocket expenses, and to reimburse Citizens for its reasonable and documented
expenses, and to indemnify each of ODP and Citizens and certain related parties against certain liabilities that may arise out of their
engagement.
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During
the two years preceding the date of its opinion, other than pursuant to the Advisor Engagement Letters, Citizens and its affiliates have
not had a material relationship with, received fees from, or provided investment banking or other financial services to, Harte Hanks
or its affiliates or Star or its affiliates. During the same period, other than pursuant to the Advisor Engagement Letters, ODP and its
affiliates have not had a material relationship with, received fees from, or provided investment banking or other financial services
to, Harte Hanks or its affiliates or Star or its affiliates.
Certain
Estimated Synergies Attributable to the Merger
The
management of Star and the management of Harte Hanks developed and provided to their respective boards of directors certain prospective
financial information relating to the anticipated strategic, financial and operational benefits to, and synergies to be realized by,
Star following the completion of the Merger beginning in 2027.
In
connection with Star’s evaluation of the Merger, Star management prepared and provided to the Star board of directors certain preliminary
estimates regarding the potential strategic, financial and operational benefits expected to result from the Merger. These estimates were
prepared as part of Star’s preliminary due diligence process and were based on information available at the time, including assumptions
that were subject to further diligence, negotiation and integration planning.
Star
management’s preliminary estimates identified potential annual run-rate cost synergies of approximately $15.0 million, consisting
of approximately $10.0 million of public-company and corporate-overhead cost savings and up to approximately $5.0 million of operational
cost savings. Star management viewed the public-company and corporate-overhead cost savings as the higher-confidence and more near-term
component of the preliminary synergy estimate. The operational cost-savings estimate was expected to be phased in over an integration
period.
The
public-company and corporate-overhead savings were expected to result principally from eliminating duplicative costs associated with
operating Harte Hanks as a standalone public company, including listing, audit, legal, insurance, investor-relations and corporate general-and-administrative
expenses. The operational cost savings were expected to result from the consolidation of certain back-office functions onto Hudson Talent
Solutions’ infrastructure, including systems, facilities and procurement, as well as from leveraging Star’s sales, marketing,
finance, human-resources and information-technology capabilities across the combined business-services platform.
For
purposes of Star’s preliminary pro forma analysis, Star management assumed the realization of $10.0 million of public-company cost
synergies in each of fiscal years 2027, 2028 and 2029, and operational cost synergies of $2.0 million in fiscal year 2027, $4.0 million
in fiscal year 2028 and $5.0 million in fiscal year 2029. The presentation did not assume any revenue synergies in the pro forma financial
projections.
Star
management also identified potential revenue opportunities from cross-selling among Hudson Talent Solutions, Harte Hanks and Star’s
other business-services operations. In particular, Star management believed that the businesses’ shared blue-chip clients and common
purchasing decision-makers could create opportunities to offer a broader range of outsourcing services across the combined platform.
However, Star management had not quantified these potential revenue opportunities, did not include them in the preliminary pro forma
analysis and did not treat them as part of the estimated cost synergies described above.
The
preliminary estimates also did not quantify the one-time costs necessary to achieve the anticipated synergies. Star identified severance,
systems migration, the wind-down of duplicative corporate and public-company functions, employee retention, pension administration and
other integration-related matters as items requiring further diligence and integration planning.
92
The
estimated synergies are forward-looking statements and are subject to numerous assumptions, risks and uncertainties. The estimated synergies
may not be achieved in full or at all, may be achieved later than anticipated, and may be offset in whole or in part by integration costs,
transaction costs, costs necessary to retain employees or customers, operating dis-synergies, revenue declines, changes in market conditions
or other factors. In particular, the preliminary presentation noted that the estimates were subject to confirmatory diligence and that
actual results could differ materially.
See
above in this section for further information regarding the uncertainties underlying the prospective financial information, including
the synergy estimates, as well as the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk
Factors” beginning on pages 40 and 42, respectively, for further information regarding the uncertainties and factors associated
with realizing synergies in connection with the Merger.
Interests
of Harte Hanks Directors and Executive Officers in the Merger
The
interests of Harte Hanks directors and executive officers in the Merger are described below, including the treatment of equity awards,
transaction bonuses, severance amendments and Voting and Support Agreements.
Voting
and Support Agreements
Each
supporting stockholder entered into the applicable Voting and Support Agreement solely in his or her capacity as a Harte Hanks stockholder
and not in his or her capacity as a director, officer or employee of Harte Hanks.
As
of the Record Date, the supporting stockholders beneficially own, in the aggregate, [____] shares of Harte Hanks Common Stock, representing
approximately [____]% of the outstanding shares of Harte Hanks Common Stock. The Voting and Support Agreements cover the Owned Shares.
Until the applicable Voting and Support Agreement terminates, each supporting stockholder has agreed, at every Harte Hanks stockholder
meeting, including the Harte Hanks Special Meeting, and at every adjournment or postponement of any such meeting, and in any written
consent or other circumstance in which Harte Hanks stockholder approval is sought, to appear at the meeting or otherwise cause his or
her owned shares to be counted as present for purposes of establishing a quorum; to vote, or cause to be voted, all owned shares in favor
of the adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated by the Merger Agreement; to
vote all owned shares against any action that would reasonably be expected to impede, frustrate, interfere with, delay, postpone, prevent,
nullify or adversely affect the approval of the Merger Agreement or the Merger, result in a breach of the supporting stockholder’s
obligations under the applicable Voting and Support Agreement or, to the supporting stockholder’s knowledge, result in a material
breach by Harte Hanks of its obligations under the Merger Agreement; and to vote all owned shares against any Acquisition Proposal, other
than the Merger, any proposal made in opposition to, in competition with or inconsistent with the Merger, or any alternative Merger,
consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up involving
Harte Hanks. Each supporting stockholder also agreed not to commit, agree or publicly propose to take any action inconsistent with these
voting commitments.
Each
supporting stockholder has agreed not to transfer any owned shares before the applicable Voting and Support Agreement terminates, except
for specified permitted transfers. Permitted transfers include transfers by operation of laws of descent and distribution upon death,
pursuant to a qualified domestic-relations order, divorce settlement, divorce decree or separation agreement, in connection with a legal,
regulatory or other order, or to or with an affiliate of the supporting stockholder; any transferee in a permitted transfer must agree
to be bound by the applicable Voting and Support Agreement. The agreement expressly provides that holding shares in a margin account
or pledging shares under the terms of such an account does not itself constitute a prohibited transfer. Each supporting stockholder also
agreed not to enter into a voting agreement or voting trust, grant a proxy or power of attorney, or enter into any other agreement or
undertaking, in each case with respect to owned shares, that is inconsistent with or would interfere with the obligations under the applicable
Voting and Support Agreement. Any purported transfer or vote in violation of the applicable Voting and Support Agreement is void ab initio.
93
Each
supporting stockholder agreed to comply with the Merger Agreement’s no-solicitation and public-statements-and-disclosure provisions
as though the supporting stockholder were an original signatory to the Merger Agreement and, for purposes of the no-solicitation provision,
as though references to Harte Hanks also referred to the supporting stockholder. These obligations do not require a supporting stockholder
to take or refrain from taking any action in his or her capacity as a Harte Hanks director or officer and do not limit the exercise of
the supporting stockholder’s fiduciary duties in that capacity. Until termination of the applicable Voting and Support Agreement,
each supporting stockholder also has agreed not to commence, join, facilitate, assist or encourage, and to take all actions within his
or her power necessary to opt out of, a class action or other claim against Star, Merger Sub, Harte Hanks or their respective successors
or directors that challenges the validity of, or seeks to enjoin the operation of, any provision of the Voting and Support Agreement
or alleges a breach of fiduciary duty in connection with the evaluation, negotiation or entry into the Merger Agreement. This covenant
does not apply to claims arising out of fraud and does not limit a supporting stockholder’s ability to enforce rights under the
Voting and Support Agreement or other transaction agreements to which he or she is a party.
Each
Voting and Support Agreement terminates upon the earliest of the Effective Time; the valid termination of the Merger Agreement in accordance
with its terms; an adverse recommendation change by the board of directors of Harte Hanks in accordance with the Merger Agreement; an
amendment or modification of the Merger Agreement, without the applicable supporting stockholder’s consent, that reduces or changes
the form, timing or allocation of the Merger Consideration payable to Harte Hanks stockholders or otherwise changes the material terms
of the Merger Agreement in a manner materially adverse to Harte Hanks stockholders; or the mutual written agreement of Star, Harte Hanks
and the applicable supporting stockholder. Termination does not relieve a party of liability for a material willful or intentional breach
of, or fraud in connection with, the applicable Voting and Support Agreement.
See
“Voting and Support Agreements” for additional information about these agreements.
Amendments
to Employment Agreements
In
connection with the Merger, Harte Hanks amended the employment agreement with each of David Fisher, President of Harte Hanks, and David
A. Garrison, Chief Financial Officer of Harte Hanks, in each case, to provide for a closing incentive bonus and to modify the treatment
of severance payable under the employment agreement. Each amendment is conditional upon, and effective as of, the Closing.
In
consideration of their efforts to consummate the Merger, and in lieu of any 2026 annual bonus award for which they otherwise would have
been eligible under the Harte Hanks annual incentive plan, Mr. Fisher and Mr. Garrison will receive a closing incentive bonus of $200,000
and $150,000, respectively. The bonus will be payable to each executive upon the Closing, provided that he has not voluntarily left employment
with Harte Hanks before the Closing.
Before
the amendment, the severance, in the form of continued payment of base salary for 12 months, that would be payable to each of Mr. Fisher
and Mr. Garrison under his employment agreement on termination without “cause” or resignation for “good reason”
(as such terms are defined in the employment agreement) ceased if he obtained other employment before the severance was paid in full.
The amendment waives the requirement that he remain unemployed in order to receive the severance benefits, provided that he remains employed
by Harte Hanks through the Closing.
Other
than these revisions, the terms of each executive’s employment agreement remain unchanged.
Acceleration
of Equity Awards and Conversion into Merger Consideration
At
the Effective Time, each RSU identified on the disclosure schedules to the Merger Agreement that remains outstanding immediately prior
to the Effective Time will be cancelled and converted into the right to receive Merger Consideration with respect to each share of Harte
Hanks Common Stock underlying such RSU, and each Harte Hanks stock option identified on the disclosure schedules to the Merger Agreement
that is outstanding and unexercised immediately prior to the Effective Time will automatically be cancelled and converted into the right
to receive Merger Consideration based on the in-the-money value of such option.
94
The
following table sets forth the number of RSUs held by each director and executive officer of Harte Hanks as of the Record Date, and the
value of those RSUs, assuming that the value per share of Harte Hanks Common Stock at the Effective Time is $3.97 (which, in accordance
with SEC requirements, is the average price of Harte Hanks Common Stock over the first five business days following the first public
announcement of the Merger).
Name
RSUs
(#)
RSUs
($)
Benjamin Chacko
30,834
122,411
Patrick O’Brien
4,167
16,543
David Fisher
53,334
211,736
David A. Garrison
16,667
66,168
John H. Griffin, Jr
27,861
110,608
Genevieve C. Combes
27,861
110,608
Bradley L. Radoff
27,861
110,608
Elizabeth Ross
27,861
110,608
As
of the Record Date, David Fisher held a stock option to purchase 32,400 shares of Harte Hanks Common Stock with an exercise price of
$4.55 per share. At the $3.97 assumed value per share of Harte Hanks Common Stock, this option would have no in-the-money value at the
Effective Time.
Golden
Parachute Compensation
In
accordance with Item 402(t) of Regulation S-K, the table below sets forth the estimated amounts of the payments and benefits that each
of Harte Hanks’ named executive officers would have received in connection with the Merger, assuming the Effective Time had occurred
on the Record Date and, immediately thereafter, each named executive officer had experienced a qualifying termination. This compensation
is subject to an advisory vote of Harte Hanks’ stockholders, as described under the section titled “
The Non-Binding Advisory
Compensation Proposal
.”
The
amounts below have been calculated assuming that (a) the value per share of Harte Hanks Common Stock at the Effective Time is $3.97 (which,
in accordance with SEC requirements, is the average price of Harte Hanks Common Stock over the first five business days following the
first public announcement of the Merger), (b) neither of the currently employed named executive officers receives any additional equity
awards or increases in base salary before the Effective Time, and (c) each of the currently employed named executive officers executes
the release of claims necessary to receive the “double trigger” severance payments below.
Name
Cash
($) (1)
Equity
($) (2)
Perquisites/
Benefits
($)
Total
($)
David Fisher
President
600,000
211,736
—
811,736
David A. Garrison
Chief Financial Officer
525,000
66,168
—
591,168
Kirk Davis (3)
Former Chief Executive Officer
—
—
—
—
Robert Wyman (4)
Former General Counsel
—
—
—
—
(1)
These
amounts reflect (a) the “double trigger” severance, in the form of continued
payment of base salary for 12 months, that would be payable to each of Mr. Fisher and Mr.
Garrison under his employment agreement on termination without “cause” or resignation
for “good reason” and (b) the “single trigger” closing incentive
bonus that would be payable to each of Mr. Fisher and Mr. Garrison upon the Closing, provided
that he has not voluntarily left employment with Harte Hanks before the Closing. The breakdown
of the amounts in this column is as follows:
95
Name
Severance
($)
Closing Incentive Bonus
($)
David Fisher
400,000
200,000
David A. Garrison
375,000
150,000
(2)
These
amounts reflect the value of the “single trigger” acceleration, and cancellation
and conversion into the right to receive Merger Consideration, at the Effective Time pursuant
to the terms of the Merger Agreement, of the RSUs held by each of Mr. Fisher and Mr. Garrison.
This amount for Mr. Fisher does not include his stock option to purchase 32,400 shares of
Harte Hanks Common Stock with an exercise price of $4.55 per share because, at the $3.97
assumed value per share of Harte Hanks Common Stock, this option would have no in-the-money
value at the Effective Time.
(3)
Kirk
Davis ceased to serve as Harte Hanks’ Chief Executive Officer effective February 14,
2025. Mr. Davis is not eligible to receive any payments or benefits that are based on or
otherwise relate to the Merger.
(4)
Robert
Wyman ceased to serve as Harte Hanks’ General Counsel effective December 22, 2025.
Mr. Wyman is not eligible to receive any payments or benefits that are based on or otherwise
relate to the Merger.
Governance
of the Combined Company After the Merger
Star
will remain the publicly traded parent company following the Merger. Accordingly, the directors and officers of Star immediately before
the Effective Time will continue to serve as the directors and officers of Star following the Effective Time. Harte Hanks will survive
the Merger as a wholly owned subsidiary of Star. The directors of Merger Sub immediately before the Effective Time will become the directors
of Harte Hanks as the Surviving Corporation, and the officers of Merger Sub immediately before the Effective Time will become the officers
of Harte Hanks as the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified
in accordance with applicable law and the organizational documents of the Surviving Corporation. The certificate of incorporation and
bylaws of Merger Sub, subject to specified conforming changes, will become the certificate of incorporation and bylaws of Harte Hanks
as the Surviving Corporation.
Accounting
Treatment
Star
and Harte Hanks prepare their respective financial statements in accordance with GAAP. The Merger will be accounted for as an acquisition
of Harte Hanks by Star under the acquisition method of accounting, and Star will be treated as the acquirer for accounting purposes.
Regulatory
Approvals and Other Conditions to Closing
The
Merger is not subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 because the transaction does not meet the applicable
size-of-transaction threshold. Accordingly, no filing under the HSR Act is required and no HSR waiting period applies. To complete the
Merger, Star, Merger Sub and Harte Hanks must file a certificate of Merger with the Secretary of State of the State of Delaware and make
any corresponding filings required under the laws of the states in which Harte Hanks and its subsidiaries are qualified to do business.
Star
filed this Registration Statement on Form S-4 with the SEC on [___], 2026, registering the shares of Star Preferred Stock to be issued
in the Merger. As of the date of this proxy statement/prospectus, the Registration Statement has not yet been declared effective by the
SEC. Completion of the Merger is conditioned on the Form S-4 having been declared effective under the Securities Act and not being subject
to any stop order or proceedings seeking a stop order.
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The
Merger cannot be completed if any law, injunction, judgment, order or other legal restraint issued by a governmental authority prohibits,
restrains or makes illegal the consummation of the Merger. Accordingly, a condition to Closing is the absence of any governmental order
or legal restraint preventing the parties from completing the transaction. Although the Merger is not subject to federal antitrust notification
requirements, state attorneys general could take action under applicable state antitrust laws as they deem necessary or desirable in
the public interest, including seeking to enjoin completion of the Merger or permitting completion subject to conditions.
The
Merger is also conditioned on the delivery of the ABL Loan Agreement Amendment with Texas Capital Bank, and on the availability of not
less than $15.0 million of proceeds under such facility (or any permitted Alternative Debt Financing) on the Closing Date. As of the
date of this proxy statement/prospectus, the parties are continuing to negotiate the ABL Loan Agreement Amendment with Texas Capital
Bank. There can be no assurance that the ABL Loan Agreement Amendment will be obtained on the anticipated terms or at all. For additional
information, see “Debt Financing and Alternative Debt Financing” beginning on page 34.
In
addition, the Merger Agreement requires the receipt of certain third-party consents, waivers, approvals and notices under specified contracts
and arrangements identified in the Merger Agreement and related disclosure schedules. Star’s obligation to consummate the Merger
is conditioned upon receipt of such specified consents, except where failure to obtain a consent would not have a Company Material Adverse
Effect.
Although
neither Star nor Harte Hanks is aware of any reason why the requisite approvals, consents and conditions cannot be satisfied in a timely
manner, there can be no assurance as to when or if they will be obtained or satisfied, or that the granting of any approval or satisfaction
of any condition will not involve the imposition of additional conditions on the completion of the Merger.
Stock
Exchange Listing
Star’s
Preferred Stock is listed on the Nasdaq Global Select Market under the symbol “STRRP.” Harte Hanks stockholders that elect,
or are allocated, Preferred Stock Consideration in the Merger will receive shares of Star Preferred Stock, not shares of Star Common
Stock. The Merger Agreement provides that, before the Effective Time, Star will authorize and reserve for issuance a sufficient number
of shares of Star Preferred Stock to pay the Preferred Stock Consideration. The Star Preferred Stock issued in the Merger will have the
rights, preferences, privileges and restrictions set forth in the certificate of designations, rights and preferences of Star’s
10% Series A Cumulative Perpetual Preferred Stock. Star Common Stock and Star Preferred Stock are expected to continue to trade on the
Nasdaq Global Select Market following the Merger.
Dissenters’
Rights in the Merger
Neither
Star stockholders nor Harte Hanks stockholders are entitled to dissenters rights under the DGCL for the Merger.
97
THE
MERGER AGREEMENT
This
section of the proxy statement/prospectus describes the material terms of the Merger Agreement. The description in this section and
elsewhere in this proxy statement/prospectus is subject to, and qualified in its entirety by reference to, the complete text of the
Merger Agreement, which is attached as
Annex A
to this document and incorporated by reference herein. This summary does not
purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. We urge you
to read the full text of the Merger Agreement, as it is the legal document governing the Merger. This section is not intended to
provide you with any factual information about Star or Harte Hanks. Such information can be found elsewhere in this proxy
statement/prospectus and in the public filings Star makes with the SEC, as described in the section entitled “Where You Can
Find More Information” beginning on page 135 of this proxy statement/prospectus.
Explanatory
Note Regarding the Merger Agreement
The
Merger Agreement and this summary of terms are included to provide you with information regarding the terms of the Merger Agreement.
Factual disclosures about Star and Harte Hanks contained in this proxy statement/prospectus or in the public reports of Star filed with
the SEC may supplement, update or modify the factual disclosures about Star and Harte Hanks contained in the Merger Agreement. The Merger
Agreement contains representations and warranties by Harte Hanks, on the one hand, and by Star and Merger Sub, on the other hand, made
solely for the benefit of the other. The representations, warranties and covenants made in the Merger Agreement by Star, Merger Sub,
and Harte Hanks were made solely for the benefit of the parties to the Merger Agreement and are qualified and subject to important limitations
agreed to by Star, Merger Sub, and Harte Hanks in connection with negotiating the terms of the Merger Agreement. In particular, in your
review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear
in mind that the representations and warranties were negotiated with the principal purpose of establishing circumstances in which a party
to the Merger Agreement may have the right not to consummate the Merger if the representations and warranties of the other party prove
to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the Merger Agreement, rather than
establishing matters as facts. The representations and warranties also may be subject to a contractual standard of materiality different
from those generally applicable to stockholders and reports and documents filed by Star with the SEC, and some are qualified by the matters
contained in the confidential disclosure schedules that Harte Hanks delivered in connection with the Merger Agreement and certain documents
filed by Star with the SEC. Moreover, information concerning the subject matter of the representations and warranties, which do not purport
to be accurate as of the date of this proxy statement/prospectus, may have changed since the date of the Merger Agreement. Accordingly,
the representations and warranties in the Merger Agreement should not be relied on by any persons as characterizations of the actual
state of facts about Star and Harte Hanks at the time they were made or otherwise.
Structure
of the Merger
Each
of Star and Harte Hanks’ respective board of directors has unanimously approved and adopted the Merger Agreement. The Merger Agreement
provides that, at the Effective Time of the Merger, Merger Sub will merge with and into Harte Hanks. Merger Sub will cease to exist as
a separate corporation, and Harte Hanks will continue as the Surviving Corporation and a wholly owned subsidiary of Star.
Closing
and Effective Time of the Merger
The
Closing of the Merger will occur by remote exchange of electronic copies of documents and signatures on (a) a date to be agreed upon
by Star, Merger Sub and Harte Hanks that is no later than the second business day after the satisfaction or waiver, to the extent permitted,
of the last condition to Closing set forth in Article VII of the Merger Agreement, other than conditions that by their terms are to be
satisfied at the Closing, or (b) such other time, location and date as Star, Merger Sub and Harte Hanks may mutually agree in writing.
The date on which the closing occurs is the “
Closing Date
”.
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On
the Closing Date, the parties will file a certificate of Merger with the Secretary of State of the State of Delaware. The Merger will
become effective at the Effective Time.
Merger
Consideration
At
the Effective Time, each issued and outstanding share of Harte Hanks Common Stock, par value $1.00 per share, other than shares held
by Harte Hanks as treasury stock, or owned by Star, Merger Sub or any direct or indirect wholly owned subsidiary of Star or Merger Sub,
will be converted into the right to receive, at the holder’s election and subject to the election, proration and adjustment provisions
described below, either: (i) the Cash Consideration; or (ii) the Preferred Stock Consideration. A holder may elect Cash Consideration
for all of the holder’s shares, Preferred Stock Consideration for all of the holder’s shares, or a combination of both by
electing Cash Consideration for some shares and Preferred Stock Consideration for others, subject to the election, proration and adjustment
provisions described below. The Cash Consideration, Preferred Stock Consideration, any combination of the two and any cash paid instead
of fractional shares of Star Preferred Stock, are referred to collectively, as the “
Merger Consideration
”. Shares
for which a holder does not properly make a cash or preferred-stock election, or for which an election is revoked or lost, are referred
to as “
Non-Electing Company Shares
”. Non-Electing Company Shares may be converted into Cash Consideration, Preferred
Stock Consideration or a combination of both, as Star elects, subject to the maximum aggregate cash limit described below.
Each
share of Harte Hanks Common Stock held as treasury stock or owned by Star, Merger Sub or any direct or indirect wholly owned subsidiary
of Star or Merger Sub immediately before the Effective Time will be cancelled and extinguished without conversion or payment of consideration.
The
Merger Agreement provides for adjustment of the Merger Consideration to reflect the effect of a stock split, reverse stock split, stock
dividend, reorganization, recapitalization, reclassification, combination, share exchange or similar change in Harte Hanks Common Stock
occurring after August 14, 2026 and before the Effective Time.
Maximum
Cash Amount and Proration
The
aggregate cash payable for Harte Hanks Common Stock and Company equity awards under the Merger Agreement, together with cash paid instead
of fractional shares of Star Preferred Stock, may not exceed the Maximum Cash Amount.
If
the aggregate cash that would be payable for all shares as to which holders validly elect cash is less than the Maximum Cash Amount,
each cash-electing share will receive the Cash Consideration and each preferred-stock-electing share will receive the Preferred Stock
Consideration. Star may determine whether each Non-Electing Company Share receives Cash Consideration, Preferred Stock Consideration
or a combination of the two, provided that the aggregate cash payment does not exceed the Maximum Cash Amount.
If
the aggregate cash that would be payable for all cash-electing shares exceeds the Maximum Cash Amount, each Preferred-Stock-electing
share and each Non-Electing Company Share will receive Preferred Stock Consideration. Each cash-electing share will receive a prorated
portion of the Cash Consideration, determined by multiplying the Cash Consideration by a fraction whose numerator is the Maximum Cash
Amount and whose denominator is the aggregate cash that would have been payable if all cash-electing shares received the Cash Consideration
in full. The remaining portion of each cash-electing share will receive Preferred Stock Consideration.
No
fractional shares of Star Preferred Stock will be issued. Instead, a holder otherwise entitled to a fractional share will receive cash,
without interest, equal to the fractional share multiplied by $10.00.
Before
the Effective Time, Star must authorize and reserve enough shares of Star Preferred Stock to satisfy the Preferred Stock Consideration.
The Star Preferred Stock issued in the Merger will have the rights, preferences, privileges and restrictions stated in the certificate
of designations, rights and preferences of Star’s 10% Series A Cumulative Perpetual Preferred Stock.
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Election
Procedures
Star
will prepare a form of election, and Harte Hanks will have a reasonable opportunity to review and comment on it. Each record holder of
Harte Hanks Common Stock and each holder of Award Company Shares may use the form of election to elect to receive Cash Consideration,
Preferred Stock Consideration or a combination of both with respect to the holder’s shares of Harte Hanks Common Stock or Award
Company Shares, as applicable, in each case subject to the Maximum Cash Amount and proration procedures.
Star
and Harte Hanks will use reasonable best efforts to mail it to record holders as of the Record Date for the Harte Hanks stockholder meeting,
either with the proxy statement or separately, and to make it available to persons who become record holders between that Record Date
and the Election Date.
To
make a valid election, the payment agent must receive by 5:00 p.m., Eastern Time, on the Election Date, a properly completed and signed
form of election and the required supporting materials. The “
Election Date
” will be the date of the Harte Hanks stockholder
meeting, unless the Closing Date is more than four business days after that meeting; in that case, it will be two business days before
the Closing Date. Star and Harte Hanks may agree to, and publicly announce, another Election Date. Star and Harte Hanks will publicly
announce the anticipated Election Date at least five business days before the anticipated Closing Date. If the Closing Date is delayed,
the Election Date will be similarly delayed and the parties will announce the delay and rescheduled Election Date when determined.
A
holder may revoke an election, in whole or in part, by delivering written notice to the payment agent by 5:00 p.m., Eastern Time, on
the Election Date. An election will be deemed lost or not properly made if the payment agent determines that the election form was not
properly completed, signed or timely received. Shares subject to a revoked, lost or invalid election will be treated as Non-Electing
Company Shares. All elections will automatically be revoked if the Merger Agreement is terminated. The payment agent’s determinations
concerning the validity, revocation or loss of elections and its proration computations will be conclusive and binding absent manifest
error.
Exchange
and Payment Procedures
No
later than three business days before the Closing Date, Star will select a bank or trust company reasonably acceptable to Harte Hanks
to act as payment agent and will enter into a customary payment-agent agreement reasonably acceptable to Harte Hanks.
At
or promptly after the Effective Time, Star will deposit or cause to be deposited with the payment agent the cash and book-entry shares
of Star Preferred Stock necessary to pay the aggregate Cash Consideration, Preferred Stock Consideration and cash payable instead of
fractional shares. The cash and Preferred Stock deposited with the payment agent, together with any investment proceeds, are referred
to as the “
Exchange Fund
”. To the extent the amendment to Harte Hanks’ asset-based lending loan agreement is
effective at that time, the Exchange Fund may include proceeds of borrowings by Harte Hanks or a subsidiary under that facility, up to
$15,000,000 (the “
Maximum Debt Financing Amount
”).
The
payment agent may invest the cash portion of the Exchange Fund, as directed by Star or the Surviving Corporation, only in specified short-term
United States government obligations, highly rated commercial paper or specified bank instruments. Star or the Surviving Corporation
must promptly replace or restore any shortfall in the Exchange Fund so that it remains sufficient to make the required payments and deliveries.
Investment income belongs to Star or the Surviving Corporation, as Star directs.
Within
five business days after the Effective Time, Star and the Surviving Corporation will cause the payment agent to mail record holders of
certificated and uncertificated Harte Hanks shares a customary letter of transmittal and instructions for surrendering certificated shares
or transferring uncertificated shares. Upon proper surrender of certificates or book-entry transfer of uncertificated shares, a holder
will receive the Merger Consideration to which the holder is entitled, including cash instead of any fractional share of Star Preferred
Stock. No interest will be paid on Cash Consideration. A holder of uncertificated shares will not be required to deliver a certificate
or an executed letter of transmittal to receive the Merger Consideration.
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Star
and Harte Hanks will establish procedures with the payment agent and The Depository Trust Company so that, after the Effective Time and
final proration calculations, the payment agent can transmit the applicable Merger Consideration through The Depository Trust Company
for shares held of record by it or its nominees.
If
Merger Consideration is to be delivered to a person other than the registered holder, the applicable certificate must be properly endorsed,
or appropriate transfer instructions must be presented for uncertificated shares. The requesting person also must pay any required transfer
taxes or establish to Star’s reasonable satisfaction that those taxes have been paid or are not payable.
Any
portion of the Exchange Fund that remains undistributed one year after the Effective Time may be delivered to Star upon demand. Thereafter,
holders that have not surrendered or transferred their shares will look only to Star, as general creditors, for payment or delivery of
the Merger Consideration, subject to abandoned-property, escheat and similar laws. Any unclaimed amounts or shares remaining two years
after the Effective Time, or earlier if required to avoid escheat, may become the property of Star or the Surviving Corporation to the
extent permitted by applicable law. Neither the payment agent, Star nor the Surviving Corporation will be liable for amounts properly
paid to a public official under applicable abandoned-property, escheat or similar laws.
Following
the Effective Time, shares of Harte Hanks Common Stock will cease to be outstanding and will cease to exist, other than the right to
receive the Merger Consideration. No further transfers of Harte Hanks Common Stock will be registered, other than transfers reflecting
customary settlement procedures for trades made before the Effective Time. If a certificate is lost, stolen or destroyed, the holder
must provide an affidavit of that fact and may be required by Star or the payment agent to provide a customary indemnity bond before
receiving the applicable Merger Consideration.
No
dividends or distributions on Surviving Corporation capital stock with a Record Date on or after the Effective Time will be paid to holders
of unsurrendered certificates or uncertificated shares.
Treatment
of Harte Hanks Equity Awards
At
the Effective Time, each outstanding and unexercised Harte Hanks option identified on the Harte Hanks disclosure letter will be cancelled
and converted into the right to receive the Cash Consideration, Preferred Stock Consideration or a combination of both, as elected by
its holder and subject to the same Maximum Cash Amount and proration procedures that apply to Harte Hanks Common Stock. The amount payable
for a listed option will equal the excess, if any, of the applicable Merger Consideration over the option’s per-share exercise
price, multiplied by the number of shares subject to that option. Any Harte Hanks option not identified on the disclosure letter will
be cancelled without payment or other consideration.
Each
outstanding Harte Hanks restricted stock unit identified on the disclosure letter will be cancelled and converted into the right to receive
the Cash Consideration, Preferred Stock Consideration or a combination of both, as elected by its holder and subject to the same Maximum
Cash Amount and proration procedures, for each share of Harte Hanks Common Stock covered by the restricted stock unit.
Each
Harte Hanks performance stock unit will be cancelled at the Effective Time without payment or other consideration. Star will cause the
Surviving Corporation to maintain sufficient cash and shares of Star Preferred Stock to satisfy its obligations to holders of Harte Hanks
equity awards. Star will cause the Surviving Corporation to pay amounts due for equity awards through its payroll system as promptly
as practicable after the Effective Time, subject to the Merger Agreement’s requirements applicable to awards subject to Section
409A of the Internal Revenue Code.
Withholding
The
payment agent, Star, Merger Sub, and Harte Hanks may deduct and withhold from amounts otherwise payable or deliverable to holders of
Harte Hanks Common Stock or equity awards any amounts required to be withheld under tax law. Amounts so withheld and remitted to the
appropriate governmental authority will be treated as paid or delivered to the applicable holder. If withholding is required with respect
to Preferred Stock Consideration, Star or the payment agent may satisfy that obligation by deducting from cash otherwise payable or withholding
a portion of the Star Preferred Stock otherwise deliverable.
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If
Star determines that withholding is required with respect to a payment or delivery, Star must notify the affected holder in writing promptly
and no later than 10 business days before the Closing Date, describe the basis for the withholding and reasonably cooperate with the
holder to eliminate or reduce it, including through forms or certificates provided by the holder.
Intended
Tax Treatment of the Merger
Star
and Harte Hanks will treat the Merger as a taxable transaction for U.S. federal income tax purposes, report, act and file all tax returns
in all respects and for all purposes consistent with such tax treatment and not take any action or position for tax purposes that is
inconsistent with such tax treatment, except as otherwise required by a “determination” as defined in Section 1313(a) of
the Code or any corresponding or similar resolution under applicable state or local law.
Certificate
of Incorporation, Bylaws, Directors and Officers
At
the Effective Time, Harte Hanks’ certificate of incorporation will be amended and restated to be substantially identical to Merger
Sub’s certificate of incorporation immediately before the Effective Time, subject to specified modifications preserving Harte Hanks’
name, date of incorporation, registered office and registered agent and omitting provisions naming Merger Sub’s incorporator, initial
directors or original subscribers. The amended and restated certificate of incorporation will become the Surviving Corporation’s
certificate of incorporation, subject to later amendment in accordance with its terms and Delaware law.
At
the Effective Time, Merger Sub’s bylaws will become the bylaws of the Surviving Corporation, subject to later amendment in accordance
with their terms, the Surviving Corporation’s certificate of incorporation and Delaware law.
The
directors of Merger Sub immediately before the Effective Time will become the directors of the Surviving Corporation, and Merger Sub’s
officers immediately before the Effective Time will become the Surviving Corporation’s officers. Each will serve in accordance
with the Surviving Corporation’s organizational documents and Delaware law until a successor is duly elected or appointed and qualified.
Proxy
Statement and Harte Hanks Stockholder Meeting
The
affirmative vote of the holders of a majority of the voting power of the outstanding shares of Harte Hanks Common Stock entitled to vote
on the Merger is the only vote of Harte Hanks stockholders required to adopt the Merger Agreement and approve the Merger. Star stockholder
approval is not required to adopt the Merger Agreement or consummate the Merger. The Non-Binding Advisory Compensation Proposal is advisory
only, is separate and apart from the Harte Hanks Merger Proposal and is not a condition to completion of the Merger.
Harte
Hanks must establish a Record Date for, duly call, give notice of, convene and hold a meeting of its stockholders as promptly as reasonably
practicable after mailing the proxy statement, for the purpose of obtaining the required Harte Hanks stockholder approval. Harte Hanks
may not change the meeting Record Date without Star’s prior written consent, which Star may not unreasonably withhold, condition
or delay. Subject to the Merger Agreement’s provisions regarding Acquisition Proposals and recommendation changes, Harte Hanks
must use reasonable best efforts to solicit proxies in favor of adoption of the Merger Agreement and must include the board of directors
of Harte Hanks’ recommendation in the proxy statement.
Conduct
of Harte Hanks’ Business Pending the Merger
From
August 14, 2026 until the earlier of the Effective Time and termination of the Merger Agreement, Harte Hanks must, subject to specified
exceptions, operate its business in the ordinary course of business, maintain its existence and good standing, preserve its assets, properties,
contracts, licenses and business organization, keep its current officers and key employees available and preserve relationships with
material customers, suppliers, distributors, lessors, licensors, licensees, creditors, contractors and other business counterparties.
102
Except
as expressly contemplated or permitted by the Merger Agreement, required by law or a binding governmental order, disclosed in the applicable
sections of the Harte Hanks disclosure letter or approved by Star in writing, Harte Hanks and its subsidiaries may not, among other things:
●
amend
their organizational documents or adopt a plan of liquidation, dissolution, Merger, consolidation,
restructuring, recapitalization or other reorganization;
●
issue
or sell Harte Hanks securities, other than specified equity awards and issuances upon exercise
or settlement of equity awards under their existing terms; repurchase or redeem securities,
subject to specified exceptions; split, combine or reclassify capital stock; declare or pay
dividends or other distributions, other than certain dividends by wholly owned subsidiaries;
pledge or encumber capital stock; or modify the terms of capital stock;
●
incur
borrowed-money indebtedness or issue debt securities, except for specified ordinary-course
items, indebtedness under the existing asset-based lending facility or other existing arrangements
in the circumstances permitted by the Merger Agreement, and other indebtedness up to $750,000
in aggregate principal amount;
●
make
loans, advances, capital contributions or investments, except for specified ordinary-course
customer credit, employee expense advances, indemnification obligations and transactions
with wholly owned subsidiaries;
●
acquire,
lease, license, sell, abandon, transfer, assign, guarantee, exchange, mortgage, pledge or
otherwise encumber assets above specified thresholds, subject to enumerated ordinary-course,
financing, capital-expenditure and other exceptions;
●
except
as required under an employee plan, materially alter employee plans or benefits, increase
compensation, pay special bonuses, grant new pension, severance, retention, transaction or
change-in-control benefits, enter into or amend specified compensatory arrangements, accelerate
compensation or equity awards, grant equity awards, or take specified hiring, promotion,
termination, furlough or layoff actions involving officers or employees whose annual compensation
exceeds $150,000;
●
settle,
release, waive or compromise claims, except for specified claims and settlements, including
solely monetary settlements of no more than $100,000 individually and $250,000 in the aggregate;
●
make
material changes in accounting principles, practices, policies or procedures, or make, change
or settle specified material tax matters in a manner reasonably expected to materially increase
taxes payable by the Harte Hanks group;
●
make
capital expenditures other than those permitted by the agreed capital-expenditure budget,
certain insured casualty repairs or replacements, or other capital expenditures of up to
$250,000 in the aggregate;
●
enter
into, modify, amend, waive material rights under, consent to assignment of, or terminate
material contracts, subject to specified exceptions; or
●
enter
into related-party transactions required to be disclosed under Item 404 of Regulation S-K;
take actions reasonably expected to trigger notice, consultation, bargaining, consent or
similar obligations under the WARN Act or comparable law; materially modify restrictive-covenant
obligations; materially modify privacy or information-security policies and safeguards; grant
material refunds or credits outside the ordinary course; acquire another person or material
equity interest or enter into specified joint ventures; enter into a collective bargaining
agreement; or adopt a stockholder rights plan applicable to the Merger.
103
Harte
Hanks also may not agree or commit to take an action prohibited by these covenants. The foregoing restrictions are subject to the Merger
Agreement’s stated exceptions, including matters disclosed in the Harte Hanks disclosure letter and Star’s consent right.
No
Solicitation of Acquisition Proposals; Go-Shop Process
During
the Go-Shop Period, Harte Hanks and its affiliates and representatives may solicit, initiate, propose or induce, and knowingly encourage,
facilitate or assist, Acquisition Proposals. During that Go-Shop Period, Harte Hanks may, subject to an acceptable confidentiality agreement,
furnish nonpublic information about Harte Hanks to, and afford access to, potential bidders and participate in discussions or negotiations
concerning Acquisition Proposals.
If
Harte Hanks provides nonpublic information to a potential bidder that it has not previously provided to Star, Harte Hanks must provide
that information or access to Star promptly and in any event within 48 hours. At the conclusion of the Go-Shop Period, Harte Hanks must
notify Star in writing of each Exempted Party, parties that entered into acceptable confidentiality agreements and parties that submitted
Acquisition Proposals during the Go-Shop Period, together with the information and documents required by the Merger Agreement to the
extent not previously delivered to Star.
An
“
Exempted Party
” is a person or group from which Harte Hanks received a qualifying Acquisition Proposal during the
Go-Shop Period that the board of directors of Harte Hanks, after consulting with outside counsel and its financial advisor, determines
in good faith before the start of the No-Shop Period either is a Superior Proposal or is reasonably expected to result in a Superior
Proposal. An Exempted Party ceases to be an Exempted Party if its proposal is withdrawn, terminated or modified so that it no longer
constitutes or is reasonably expected to result in a Superior Proposal.
No-Shop
Restrictions After the Go-Shop Period
Beginning
at the end of the Go-Shop Period and until the earlier of the Effective Time and termination of the Merger Agreement (the “
No-Shop
Period
”), Harte Hanks must cease prohibited solicitations, discussions and negotiations, seek the prompt return or destruction
of nonpublic information provided to specified parties during the preceding six months and terminate their data-room access. Except as
expressly permitted by the Merger Agreement, Harte Hanks may not solicit, initiate, propose or knowingly encourage, facilitate or assist
an Acquisition Proposal; provide nonpublic information or access to a potential bidder to induce an Acquisition Proposal; engage in related
discussions or negotiations; or enter into a letter of intent, memorandum of understanding, Merger Agreement, acquisition agreement or
other agreement relating to an Acquisition Transaction.
Harte
Hanks may continue to engage with an Exempted Party after the Go-Shop Period only while that party remains an Exempted Party and the
board of directors of Harte Hanks determines in good faith, after consulting with its financial advisor and outside counsel, that discontinuing
the discussions would be inconsistent with the directors’ fiduciary duties under applicable law. In that event, Harte Hanks must
provide Star with specified nonpublic information and written materials within 48 hours and keep Star reasonably informed, on a current
basis and in any event within 48 hours, of material developments, discussions and negotiations.
After
the Go-Shop Period but before Harte Hanks obtains the required stockholder approval, Harte Hanks may clarify the terms of an unsolicited
Acquisition Proposal that did not result from a material breach of its non-solicitation obligations. If the board of directors of Harte
Hanks determines in good faith, after consulting with its independent financial advisor and outside legal counsel, that such proposal
constitutes or is reasonably expected to result in a Superior Proposal, Harte Hanks may negotiate with the bidder, enter into an acceptable
confidentiality agreement and provide nonpublic information, subject to providing Star with any new nonpublic information within 48 hours.
Harte Hanks must also provide Star with written Acquisition Proposals, term sheets, draft agreements, financing commitments and other
material written materials within 48 hours and keep Star informed of material developments.
For
these purposes, a “
Superior Proposal
” is a bona fide written Acquisition Proposal for a transaction involving more
than 50% of Harte Hanks’ outstanding voting power or assets, revenue or net income that the board of directors of Harte Hanks determines
in good faith, after consulting with its financial advisor and outside legal counsel, is reasonably likely to be completed and would
be more favorable to Harte Hanks stockholders from a financial point of view than the Merger, after considering the proposal’s
legal, regulatory, financing and other aspects, certainty of closing, bidder identity and any written revisions to the Merger Agreement
proposed by Star.
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Recommendation
of the Board of Directors of Harte Hanks; Recommendation Changes
The
Merger Agreement prohibits the board of directors of Harte Hanks from withdrawing, amending, qualifying or modifying its recommendation
in a manner materially adverse to Star; approving, endorsing or recommending an Acquisition Proposal; failing to reaffirm its recommendation
within 10 business days after Star’s written request following public disclosure of an Acquisition Proposal, subject to a maximum
of two requests; failing to take the required position on a tender or exchange offer; or failing to include its recommendation in the
proxy statement. Each of these actions is a “
Company Board Recommendation Change
”, subject to the exceptions described
below.
Before
Harte Hanks obtains the required stockholder approval, its board of directors may make a recommendation change in response to an intervening
event if the board of directors of Harte Hanks determines in good faith, after consultation with outside legal counsel, that not doing
so would be inconsistent with its fiduciary duties. An “
Intervening Event
” is a material development regarding Harte
Hanks that was not known to or reasonably expected by the board of directors of Harte Hanks on August 14, 2026, other than an Acquisition
Proposal and subject to specified exclusions concerning forecasts and market-price changes. Harte Hanks must give Star at least three
business days’ prior written notice identifying the Intervening Event in reasonable detail and must negotiate in good faith with
Star during that period, if Star wishes to negotiate, over proposed Merger Agreement adjustments.
The
board of directors of Harte Hanks may also make a Company Board Recommendation Change or authorize Harte Hanks to terminate the Merger
Agreement to enter into an alternative acquisition agreement for a Superior Proposal, but only if the board of directors of Harte Hanks
determines in good faith, after consulting with its financial advisor and outside legal counsel, that failing to do so would be inconsistent
with its fiduciary duties; Harte Hanks has complied in all material respects with its non-solicitation obligations; and Harte Hanks gives
Star at least three business days’ prior written notice. The notice must identify the Superior Proposal, the bidder, the material
terms and the board of directors of Harte Hanks’ intended action and provide copies of the material proposal documents. During
the notice period, Harte Hanks must negotiate in good faith with Star if Star elects to negotiate. A material revision to the Acquisition
Proposal requires a new notice and a two-business-day notice period. If Harte Hanks terminates to enter into an alternative acquisition
agreement, it must pay the applicable Harte Hanks termination fee before or concurrently with termination.
From
the beginning of the No-Shop Period until the earlier of the Effective Time and termination of the Merger Agreement, Harte Hanks must
promptly, and in any event within 48 hours, notify Star of the receipt of an Acquisition Proposal, identify the bidder, provide copies
of written proposals and related written materials or a written summary of an oral proposal, and keep Star reasonably informed about
the proposal and related discussions.
Additional
Covenants
Efforts;
Consents and Approvals
Star,
Merger Sub and Harte Hanks must use commercially reasonable efforts to take the actions and do the things necessary, proper or advisable
to consummate the Merger as expeditiously as practicable. These obligations include working to satisfy closing conditions, obtain required
governmental consents, waivers, approvals, orders and authorizations, make required governmental filings, and obtain third-party consents,
waivers, approvals and notices under material contracts to preserve for the Surviving Corporation the benefits of those contracts. Harte
Hanks is not required to agree to consent fees, profit-sharing payments, increased or accelerated payments, additional security or guarantees
in connection with obtaining material-contract consents.
Harte
Hanks agreed to provide Star updates at least every 15 days regarding material increases in anticipated transaction expenses compared
to the transaction expense estimate delivered in connection with the Merger Agreement.
105
Access
to Information
Until
the earlier of the Effective Time and termination of the Merger Agreement, Harte Hanks must provide Star and its representatives reasonable
access during normal business hours and upon reasonable advance notice to Harte Hanks’ properties, books, records and personnel,
subject to customary limitations. Harte Hanks may restrict access where required by law, where access would create a material risk of
waiver of privilege, violate or create a default under a contract, disclose a third party’s trade secrets, relate to the negotiation
and execution of the Merger Agreement or specified adverse litigation, or relate to an Acquisition Proposal. Access must not unreasonably
interfere with Harte Hanks’ business or create risk of property damage, and does not include invasive environmental testing.
Public
Statements and Transaction Litigation
The
parties must use commercially reasonable efforts to consult with one another before participating in media interviews, analyst or investor
meetings or calls, or making public statements reasonably likely to become public concerning the Merger, subject to specified exceptions,
including disclosures required by law, regulation or stock-exchange requirements.
Harte
Hanks must promptly notify Star of litigation relating to the Merger, provide copies of pleadings and keep Star reasonably informed.
Star has the opportunity to participate in the defense, settlement or prosecution of that litigation, and Harte Hanks must consult with
Star; Harte Hanks may not settle or compromise transaction litigation without Star’s written consent, which may not be unreasonably
withheld, conditioned or delayed. Star must similarly provide Harte Hanks prompt notice of its transaction litigation and keep Harte
Hanks reasonably informed.
Delisting
and Deregistration
Before
the Effective Time, Harte Hanks will cooperate with Star and use commercially reasonable efforts to cause Harte Hanks Common Stock to
be delisted from Nasdaq as promptly as practicable after the Effective Time and deregistered under the Exchange Act as promptly as practicable
after delisting.
Debt
Financing
The
Merger Agreement contemplates the debt financing of a portion of the Cash Consideration and cash paid instead of fractional shares of
Star Preferred Stock, up to the Maximum Debt Financing Amount, through a draw by Harte Hanks under its existing $25,000,000 secured revolving
credit facility, subject to an amendment to that facility.
The
Merger Agreement requires Harte Hanks to use commercially reasonable efforts to arrange and consummate the Debt Financing or, if necessary,
Star and Merger Sub to use commercially reasonable efforts to obtain Alternative Debt Financing, in each case, including by negotiating
and executing definitive agreements, participating in financing due diligence and satisfying or obtaining waivers of financing conditions
applicable to them. Harte Hanks must use commercially reasonable efforts to arrange and consummate the Debt Financing on the Closing
Date, including by complying with the existing credit facility, maintaining availability for borrowing of at least the Maximum Debt Financing
Amount, negotiating the required credit-facility amendment and related financing documents, and satisfying or obtaining waivers of conditions
applicable to Harte Hanks.
If
any portion of the contemplated Debt Financing becomes unavailable or is reasonably expected to become unavailable, Harte Hanks must
promptly notify Star, and Star must use commercially reasonable efforts to obtain Alternative Debt Financing in an amount sufficient,
together with available funds, to pay the Merger Consideration, repay or satisfy indebtedness required to be addressed at Closing, pay
applicable transaction fees and expenses and consummate the transactions.
If
the Merger Agreement is terminated under specified provisions before the Effective Time, Star must reimburse the Harte Hanks group for
specified out-of-pocket debt-financing and alternative-debt-financing costs, including certain fees and expenses of Texas Capital Bank.
If the Closing occurs, costs incurred by the Harte Hanks group in connection with the Debt Financing or Alternative Debt Financing will
be borne by the Surviving Corporation and will not be treated as Harte Hanks transaction expenses for purposes of the Merger Agreement.
106
Employee
Matters
After
the Effective Time, the Surviving Corporation must provide continuing employees severance benefits in accordance with the employees’
written employment agreements in effect at the Effective Time and identified in the Harte Hanks disclosure letter. The Surviving Corporation
must honor each employee plan according to its terms in effect immediately before the Effective Time, including any change in control
triggers, subject to amendments or terminations permitted by that plan.
For
the fiscal year in which the Effective Time occurs, Star will consider in its sole discretion, or cause the Surviving Corporation to
consider, paying an annual cash bonus to each continuing employee. Any bonus will be in an amount determined by Star and, if paid, will
be paid as soon as practicable after the end of the closing year and no later than May 1 of the following fiscal year.
If
a new employee benefit plan is made available to a continuing employee after the Effective Time, the Surviving Corporation and its subsidiaries
must credit the employee’s pre-Effective-Time service with Harte Hanks for eligibility, vesting and benefit purposes where service
is relevant, including vacation accrual and severance-pay entitlement, except to avoid duplication of benefits. For applicable new plans,
continuing employees must receive credit for satisfied waiting periods under comparable Harte Hanks plans, waivers of pre-existing-condition
limitations and actively-at-work requirements to the applicable extent, and credit for eligible expenses incurred during the relevant
prior plan year toward deductibles, coinsurance and out-of-pocket limits.
At
least 10 business days before the Closing Date, Star may request that Harte Hanks terminate its 401(k) plan, effective no later than
the day before the Closing Date. If Star makes that request, Harte Hanks must take all reasonably necessary actions, including adopting
board resolutions, and provide Star drafts of related resolutions, notices, amendments and other documents before taking action. Star
must then take reasonably necessary action to permit continuing employees to participate in a Star or affiliate 401(k) plan on or as
soon as reasonably practicable after the Closing Date and to cause such 401(k) plan to accept eligible rollover distributions, including
loans, from the terminated Harte Hanks 401(k) plan if elected by continuing employees.
The
employee provisions do not guarantee employment or prohibit Star, the Surviving Corporation or their subsidiaries from terminating a
continuing employee’s employment. They also do not require continuation of any employee plan, create third-party-beneficiary rights
or establish, amend or modify any benefit plan, program, agreement or arrangement.
Directors’
and Officers’ Indemnification and Insurance
The
Surviving Corporation and its subsidiaries must honor and fulfill all obligations of the Harte Hanks group under indemnification agreements,
including indemnification provisions in employment agreements, with current or former directors and officers and persons who become directors
or officers before the Effective Time, as well as employees, for acts or omissions occurring before the Effective Time.
For
a period commencing on the Effective Time and ending on the sixth anniversary of Effective Time, the Surviving Corporation and its subsidiaries
must maintain charter, bylaw and similar organizational-document provisions regarding indemnification, exculpation and advancement of
expenses that are at least as favorable as those of Harte Hanks and its subsidiaries in effect on August 14, 2026, unless a change is
required by law. For that same six-year period, the Surviving Corporation must indemnify and hold harmless the applicable indemnified
persons, to the fullest extent provided in the applicable pre-signing organizational documents and indemnification agreements, against
specified costs, expenses, judgments, fines, losses, claims, damages, liabilities and settlement amounts arising from acts or omissions
occurring at or before the Effective Time, including the Merger Agreement and the transactions. A timely asserted indemnification claim
survives until finally resolved.
For
a period commencing on the Effective Time and ending on the sixth anniversary of the Effective Time, the Surviving Corporation must maintain
Harte Hanks’ existing directors’ and officers’ liability insurance for pre-Effective-Time acts or omissions on terms
equivalent to the existing coverage, subject to a maximum annual premium equal to 300% of the amount Harte Hanks paid for coverage in
its last full fiscal year. If equivalent coverage exceeds that limit, the Surviving Corporation must obtain the greatest available coverage
not exceeding the premium limit from a carrier with the same or better credit rating. Before the Effective Time, Harte Hanks may, or
if requested by Star must, purchase a prepaid tail policy meeting the stated credit-rating and cost conditions. If Harte Hanks purchases
that policy, the Surviving Corporation must maintain it and honor its obligations while it remains in force.
107
Conditions
to Complete the Merger
The
obligations of Star, Merger Sub and Harte Hanks to complete the Merger are subject to the satisfaction or waiver, to the extent legally
permissible, of the following conditions before the Effective Time:
●
Harte
Hanks must receive the required stockholder approval at the Harte Hanks Special Meeting.
●
The
Form S-4 must have become effective under the Securities Act and must not be subject to a
stop order or proceedings seeking a stop order.
●
No
temporary restraining order, preliminary or permanent injunction, judgment, order or other
legal or regulatory restraint or prohibition preventing the Merger may be in effect; no action
may have been taken by a governmental authority of competent jurisdiction; and no statute,
rule, regulation or order may have been enacted, entered, enforced or deemed applicable to
the Merger, that, in each case, prohibits, makes illegal or enjoins the Merger.
Star’s
and Merger Sub’s obligations are also subject to the satisfaction or waiver by Star of the following conditions:
●
Harte
Hanks’ representations and warranties must be true and correct at Closing, subject
to the distinct materiality, Company Material Adverse Effect and de minimis standards specified
in the Merger Agreement for different categories of representations.
●
Harte
Hanks must have performed and complied in all material respects with its required covenants,
obligations and conditions, and Star and Merger Sub must have received an officer’s
certificate of Harte Hanks certifying that the applicable representation-and-warranty and
performance conditions have been satisfied.
●
No
Company Material Adverse Effect may have occurred after August 14, 2026 and be continuing.
●
Harte
Hanks must have delivered the ABL Loan Agreement Amendment, duly executed by each party thereto
other than Star or Merger Sub.
●
All
conditions precedent to the debt financing or alternative debt financing, as applicable,
must have been satisfied or waived by Texas Capital Bank or the applicable alternative lender
or lenders, other than conditions that by their nature are to be satisfied at Closing, and
Harte Hanks and its subsidiaries must have at least the Maximum Debt Financing Amount available
for borrowing on the Closing Date under the ABL Loan Agreement or alternative debt financing,
as applicable.
●
Star
must have received evidence reasonably satisfactory to it that all required notices, consents,
waivers, approvals and assignment notices, including those identified on Schedule 7.2(g)
to the Merger Agreement, have been given, obtained or delivered, as applicable, and remain
in full force and effect, except where the failure to obtain the applicable consent would
not have a Company Material Adverse Effect.
Harte
Hanks’ obligation is also subject to the satisfaction or waiver by Harte Hanks of the following conditions:
●
Star’s
representations and warranties must be true and correct at Closing, subject to the distinct
materiality, Parent Material Adverse Effect and de minimis standards specified in the Merger
Agreement for different categories of representations.
108
●
Star
and Merger Sub must have performed and complied in all material respects with their required
covenants, obligations and conditions, and Harte Hanks must have received an officer’s
certificate of Star and Merger Sub certifying that the applicable representation-and-warranty
and performance conditions have been satisfied.
●
No
Parent Material Adverse Effect may have occurred after August 14, 2026 and be continuing.
No
party may rely on the failure of a closing condition as a basis for failing to complete the Merger or terminating the Merger Agreement
if that party’s breach of a representation, warranty, covenant or agreement, or failure to perform its obligations, primarily caused
or primarily resulted in the condition’s failure or otherwise gave rise to a termination right.
Representations
and Warranties
The
Merger Agreement contains representations and warranties made by Harte Hanks to Star and Merger Sub and by Star and Merger Sub to Harte
Hanks. These representations and warranties are qualified by the matters disclosed in specified Securities and Exchange Commission filings,
subject to the limitations set forth in the Merger Agreement, and, in the case of Harte Hanks, by the Harte Hanks disclosure letter.
The representations and warranties are made as of the dates specified in the Merger Agreement and should not be read as statements of
fact made as of any other date. The representations and warranties are subject to materiality, material-adverse-effect, knowledge and
other qualifications contained in the Merger Agreement.
Harte
Hanks’ representations and warranties address, among other matters:
●
its
organization, good standing, corporate power and authority, enforceability of the Merger
Agreement and the validity of its organizational documents;
●
the
unanimous approval and recommendation of the board of directors of Harte Hanks, receipt of
the Citizens JMP Securities, LLC fairness opinion, the inapplicability of Section 203 of
the Delaware General Corporation Law and other takeover laws, and the absence of a stockholder
rights plan;
●
the
required Harte Hanks stockholder approval as the only Harte Hanks capital-stockholder vote
required to adopt the Merger Agreement and complete the Merger;
●
non-contravention
of organizational documents, material contracts and applicable law; required governmental
approvals; and the absence of impermissible liens resulting from the Merger;
●
capitalization,
including the number of authorized, issued, outstanding and treasury shares of Harte Hanks
Common Stock as of June 30, 2026, as well as outstanding options, restricted stock units
and performance stock units as of that date;
●
subsidiaries
and their capitalization, ownership and organizational status;
●
Securities
and Exchange Commission reports, financial statements, disclosure controls, internal controls,
indebtedness and undisclosed liabilities;
●
the
absence of specified changes, including the absence of a Company Material Adverse Effect
through the signing date, and the absence of specified actions since March 31, 2026;
●
material
contracts, real property and tangible assets, environmental matters, intellectual property,
privacy and data security, taxes, employee plans, labor matters, permits and legal compliance,
litigation, insurance and related-person transactions;
●
brokers,
trade controls, sanctions and anti-corruption matters;
109
●
information
supplied for inclusion or incorporation by reference in the Form S-4 and proxy statement/prospectus;
and
●
Harte
Hanks’ good-faith estimate, as of signing, of its transaction expenses.
Star
and Merger Sub make representations and warranties to Harte Hanks concerning, among other matters:
●
their
organization, good standing, power and authority, enforceability of the Merger Agreement,
non-contravention and required governmental approvals;
●
Star’s
capitalization, including the authorization and reservation of sufficient shares of Star
Preferred Stock for the Preferred Stock Consideration, and the valid issuance of that stock
when issued in accordance with the Merger Agreement and the applicable certificate of designations;
●
subsidiaries
and their capitalization and ownership; Securities and Exchange Commission reports; financial
statements; disclosure controls; internal controls; undisclosed liabilities; absence of specified
changes; permits; legal compliance; and litigation;
●
ownership
of Harte Hanks Common Stock, brokers, the limited operations of Merger Sub and the absence
of a required Star stockholder vote;
●
the
absence, as of signing, of specified stockholder and management arrangements with Harte Hanks
stockholders, directors, officers, employees and other affiliates, except for the Voting
and Support Agreements;
●
sufficiency
of available cash and/or immediately available funds, assuming the Debt Financing is provided
or Alternative Debt Financing is secured, to pay the Merger Consideration, repay or otherwise
satisfy specified Harte Hanks indebtedness, pay applicable fees and expenses and complete
the transactions;
●
the
absence of exclusive financial-advisory or debt-financing arrangements of the type specified
in the Merger Agreement;
●
solvency
of Star and the Surviving Corporation and its subsidiaries immediately after the transactions;
and
●
information
supplied for inclusion or incorporation by reference in the Form S-4 and proxy statement/prospectus.
The
representations and warranties of Star, Merger Sub and Harte Hanks terminate at the Effective Time, except for covenants that by their
terms survive the Effective Time.
Voting
and Support Agreements
Immediately
after execution and delivery of the Merger Agreement, certain Harte Hanks stockholders, John H. Griffin, Jr., Genevieve C. Combes, Bradley
L. Radoff, Elizabeth Ross, David Fisher and David A. Garrison entered into voting and support agreements with Harte Hanks and Star under
which those stockholders will agree, among other things, to vote their Harte Hanks Common Stock in favor of adoption of the Merger Agreement,
subject to the terms and conditions of those agreements. As of the Record Date, these directors and executive officers held [____] shares
of Harte Hanks Common Stock, which represented approximately [____]% of the outstanding shares of Harte Hanks Common Stock.
110
Termination
of the Merger Agreement
The
Merger Agreement may be terminated before the Effective Time only in the following circumstances:
●
Star
and Harte Hanks may terminate the Merger Agreement at any time before the Effective Time
by mutual written agreement.
●
Either
Star or Harte Hanks may terminate the Merger Agreement before the Effective Time if a final
and nonappealable injunction, judgment, order or other legal or regulatory restraint or prohibition,
or any action by a governmental authority, prohibits, makes illegal or enjoins the Merger,
or if any statute, rule, regulation or order has been enacted, entered, enforced or deemed
applicable to the Merger that prohibits, makes illegal or enjoins the Merger. This termination
right is unavailable to a party that has failed to comply with its obligations under the
Merger Agreement to use commercially reasonable efforts to resist, appeal, obtain consent
for, resolve or lift the applicable restraint or prohibition.
●
Either
Star or Harte Hanks may terminate the Merger Agreement before the Effective Time if the Effective
Time has not occurred by 11:59 p.m., Eastern Time, on March 1, 2027 (the “
Termination
Date
”), subject to the limitations in the Merger Agreement. Those limitations include
that this termination right is unavailable if the other party has the applicable valid termination
right under the Merger Agreement or if the terminating party’s breach was the primary
cause of the failure to satisfy its closing conditions or consummate the Merger by the Termination
Date.
●
Either
Star or Harte Hanks may terminate the Merger Agreement before the Effective Time if Harte
Hanks does not obtain the required stockholder approval at the Harte Hanks Special Meeting
or any adjournment or postponement thereof at which a vote is taken.
●
Star
may terminate the Merger Agreement before the Effective Time if a condition to Star’s
and Merger Sub’s obligations to complete the Merger has failed to be satisfied or has
become incapable of being satisfied by the Termination Date. If the failure is capable of
being cured by the Termination Date, Star must first provide Harte Hanks with written notice
and wait until the earlier of 30 days after that notice and the Termination Date, unless
the failure is cured before then.
●
Star
may terminate the Merger Agreement before Harte Hanks receives the required stockholder approval
if the board of directors of Harte Hanks or a committee thereof has effected a Company Board
Recommendation Change.
●
Harte
Hanks may terminate the Merger Agreement before the Effective Time if a condition to Harte
Hanks’ obligation to complete the Merger has failed to be satisfied or has become incapable
of being satisfied by the Termination Date. If the failure is capable of being cured by the
Termination Date, Harte Hanks must first provide Star with written notice and wait until
the earlier of 30 days after that notice and the Termination Date, unless the failure is
cured before then.
●
Before
Harte Hanks receives the required stockholder approval, Harte Hanks may terminate the Merger
Agreement if it has received a Superior Proposal; the board of directors of Harte Hanks or
a committee thereof has authorized Harte Hanks to enter into, and Harte Hanks substantially
concurrently enters into, a definitive alternative acquisition agreement for that Superior
Proposal; Harte Hanks has complied in all material respects with its non-solicitation obligations;
and Harte Hanks pays, or causes to be paid, the Company Termination Fee before or concurrently
with the termination.
●
Harte
Hanks may terminate the Merger Agreement before the Effective Time if: (i) the mutual closing
conditions and the closing conditions in favor of Star and Merger Sub have been satisfied
or waived, other than closing conditions that are capable of being satisfied at closing;
(ii) Harte Hanks has irrevocably notified Star in writing that it is ready, willing and able
to close and that its closing conditions have been satisfied, other than closing conditions
that are capable of being satisfied at closing, or that Harte Hanks is willing to waive any
unsatisfied Harte Hanks closing conditions; (iii) Star and Merger Sub fail to complete the
Merger on the date required by the Merger Agreement; (iv) Harte Hanks has provided at least
three business days’ prior written notice of its intention to terminate; and (v) Star
and Merger Sub fail to complete the Merger by the end of that three-business-day period and
on the required closing date.
111
If
the Merger Agreement is validly terminated, it will generally be of no further force or effect. Termination does not relieve a party
of liability for a willful breach. A “
willful breach
” is a material breach resulting from an act or omission made
with actual knowledge or intent that it would constitute, or reasonably be expected to constitute, a material breach.
Fees
and Expenses
Except
as otherwise provided in the Merger Agreement, each party will pay its own fees and expenses, whether or not the Merger is completed.
Star or the Surviving Corporation will pay all payment-agent fees and expenses. Star will pay transfer, stamp, documentary, sales, use,
real-property transfer and similar taxes or fees arising from the Merger Agreement and the Merger, and will timely file the related tax
returns with reasonable cooperation from Harte Hanks.
Harte
Hanks Termination Fee
Harte
Hanks may be required to pay Star a termination fee of $1,152,000 if:
●
the
Merger Agreement is terminated because the Merger has not closed by the Termination Date,
Harte Hanks has not obtained the required stockholder approval, or a closing condition in
favor of Star and Merger Sub has failed; an Acquisition Proposal for an Acquisition Transaction
has been publicly announced or disclosed before the termination; and, within one year after
termination, Harte Hanks enters into a definitive agreement for or consummates an Acquisition
Transaction meeting the modified 50% threshold stated in the Merger Agreement; or
●
Star
terminates following a Company Board Recommendation Change.
If
Harte Hanks terminates the Merger Agreement to enter into an alternative acquisition agreement for a Superior Proposal, Harte Hanks must
pay the $1,152,000 termination fee before or concurrently with termination. The Merger Agreement provided for a reduced $576,000 fee
only if the alternative acquisition agreement was with an Exempted Party, that party was an Exempted Party when Harte Hanks terminated
and the agreement was entered into on or before the No-Shop Period Start Date. Because no Alternative Acquisition Agreement was entered
into on or prior to September 13, 2026, the reduced fee is no longer available and any later termination to enter into an Alternative
Acquisition Agreement with an Exempted Party requires the full $1,152,000 Company Termination Fee.
The
Merger Agreement also contains special limitations relating to Debt Financing and Alternative Debt Financing. In particular, Harte Hanks
will not be required to pay the termination fee or damages based solely on specified financing failures, financing defaults, financing-condition
failures or unavailability, except to the extent those matters were materially caused by Harte Hanks’ failure to comply with specified
financing-cooperation obligations.
Star
Termination Fee
Star
must pay Harte Hanks a termination fee of $1,152,000 if Harte Hanks validly terminates because a condition to its obligation has failed
or become incapable of satisfaction, or because Star and Merger Sub fail to close after Harte Hanks delivers the required three-business-day
notice and otherwise satisfies the applicable conditions.
The
aggregate monetary recovery from Star, Merger Sub and related parties for claims arising from the Merger Agreement, the transactions,
termination, breach or failure to close is generally capped at $1,152,000, plus applicable debt-financing costs payable under the Merger
Agreement.
Amendment
and Waiver
The
parties may amend the Merger Agreement at any time by a written instrument signed on behalf of Star, Merger Sub and Harte Hanks. After
Harte Hanks receives the required stockholder approval, the parties may not amend the Merger Agreement in a way that requires additional
Harte Hanks stockholder approval under Delaware law without obtaining that approval.
112
Before
the Effective Time, a party may extend performance deadlines, waive inaccuracies in representations and warranties made to it, or waive
compliance with agreements or conditions for its benefit, in each case to the extent legally permitted. Any extension or waiver must
be in a written instrument signed by the party granting it.
Specific
Performance; Governing Law; Forum and Jury-Trial Waiver
The
parties acknowledge that a breach of the Merger Agreement may cause irreparable harm for which monetary damages are not an adequate remedy.
Subject to the Merger Agreement’s limitations, each party may seek injunctions, specific performance and other equitable relief,
in addition to other available remedies. Harte Hanks may specifically enforce Star’s and Merger Sub’s obligation to close
only if the conditions to Star’s and Merger Sub’s closing obligations have been satisfied or waived, the Debt Financing or
Alternative Debt Financing has been or will be funded substantially concurrently, Harte Hanks confirms in writing that it will close
if specific performance is granted and financing is funded, and Star and Merger Sub are otherwise required to close.
Harte
Hanks may not receive both specific performance that results in the Closing and monetary damages, including the Star termination fee
or monetary damages in lieu of specific performance. A party seeking equitable relief is not required to post a bond or other security.
The
Merger Agreement is governed by Delaware law, without regard to Delaware conflicts-of-law principles. The parties have agreed to the
exclusive jurisdiction of the Delaware Court of Chancery and Delaware appellate courts, or, if the Court of Chancery declines jurisdiction
over a particular matter, a federal court in Delaware, for disputes arising out of the Merger Agreement. Each party has irrevocably waived
any right to a jury trial in a legal proceeding arising out of or relating to the Merger Agreement, the Merger, the Debt Financing or
any Alternative Debt Financing.
113
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The
following is a discussion of the material U.S. federal income tax consequences of the Merger to U.S. holders and non-U.S. holders (collectively
referred to as “
holders
”) which hold their shares of Harte Hanks Common Stock (“
Shares
”) as capital
assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all
U.S. federal income tax consequences relevant to a holder’s particular circumstances, including the Medicare contribution tax on
net investment income or the Foreign Account Tax Compliance Act (including the U.S. Treasury regulations promulgated thereunder and intergovernmental
agreements entered pursuant thereto or in connection therewith), nor does it address any tax consequences arising under the laws of any
U.S. state or local or non-U.S. jurisdiction, or under any U.S. federal laws other than those pertaining to U.S. federal income taxes.
In addition, it does not address tax consequences relevant to holders subject to special rules under the U.S. federal income tax laws,
including, without limitation:
●
banks, financial institutions or insurance companies;
●
real estate investment trusts;
●
regulated investment companies or mutual funds;
●
dealers and brokers in stocks and securities or currencies;
●
traders in securities that use a mark-to-market method of tax accounting;
●
tax-exempt entities or governmental organizations;
●
certain former citizens or long-term residents of the United States;
●
persons that received Shares pursuant to the exercise of compensatory options or stock purchase plans or otherwise as compensation
for the performance of services;
●
persons that hold Shares through individual retirement or other tax-deferred accounts;
●
persons that hold Shares as part of a hedge, straddle, appreciated financial position, conversion or other “synthetic
security” or integrated investment or risk reduction transaction for U.S. federal income tax purposes;
●
S-corporations or other pass-through entities (or investors in S-corporations or other pass-through entities);
●
persons whose “functional currency” is not the U.S. dollar;
●
persons subject to special tax accounting rules as a result of any item of gross income with respect to the Shares being taken into
account in an applicable financial statement;
●
controlled foreign corporations;
●
persons that own or have owned (directly, indirectly or constructively) 5% or more of the Shares (by vote or value);
●
passive foreign investment companies; or
●
persons that are subject to the alternative minimum tax.
If
a partnership, or any entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds Shares, the tax treatment
of a partner in such entity or arrangement will generally depend on the status of the partner and the activities of the entity or arrangement.
A partner in such an entity or arrangement holding Shares should consult its own tax advisor regarding the tax consequences of the Merger.
114
This
discussion is based on current provisions of the Code, the U.S. Treasury regulations promulgated thereunder, judicial opinions and published
positions of the Internal Revenue Service (“
IRS
”), each as in effect as of the date of this proxy statement/prospectus
and all of which are subject to change or differing interpretations, possibly with retroactive effect. Any such change or differing interpretation
could affect the accuracy of the statements and conclusions set forth herein. Neither Star nor Harte Hanks has sought, or intends to
seek, any opinion of counsel or any ruling from the IRS with respect to the statements made and the conclusions reached in the following
discussion, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any
challenge by the IRS in the event of litigation. As a result, there can be no assurances that the IRS will not assert, or that a court
would not sustain, a position contrary to any of the conclusions set forth below.
Definitions
of U.S. Holder and Non-U.S. Holder
For
purposes of this discussion, a “
U.S. holder
” is a beneficial owner of Shares who or which is for U.S. federal income
tax purposes:
●
a citizen or resident of the United States;
●
a corporation (or other entity or arrangement treated as a corporation for U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof, or the District of Columbia;
●
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
●
a trust if such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or if (1) a court
within the United States is able to exercise primary supervision over its administration and (2) one or more U.S. persons have the
authority to control all of the substantial decisions of such trust.
For
purposes of this discussion, the term “
non-U.S. holder
” means a beneficial owner of Shares who or which is not a U.S.
holder and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes.
THIS
DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND IS NOT A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER. EACH HOLDER IS STRONGLY URGED TO CONSULT WITH AND RELY UPON ITS OWN TAX ADVISOR AS TO THE SPECIFIC U.S.
FEDERAL, STATE OR LOCAL OR NON-U.S. TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER, TAKING INTO ACCOUNT ITS OWN PARTICULAR CIRCUMSTANCES.
Consequences
to U.S. Holders of the Merger
The
Merger will constitute a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder generally will recognize
gain or loss equal to the difference between: (a) the sum of (i) the amount of cash received in the Merger, including cash received in
lieu of any fractional share of Star Preferred Stock, and (ii) the fair market value, determined as of the Effective Time, of any Star
Preferred Stock received in the Merger; and (b) the U.S. holder’s adjusted tax basis in the Shares surrendered in the Merger.
Such
gain or loss will be capital gain or loss and generally will be long-term capital gain or loss if the U.S. holder’s holding period
for the surrendered Shares exceeds one year as of the Effective Time. Long-term capital gain recognized by certain non-corporate U.S.
holders generally is eligible for preferential rates, subject to applicable limitations. The deductibility of capital losses is subject
to limitations. If a U.S. holder acquired different blocks of Shares at different times or different prices, such U.S. holder must determine
its adjusted tax basis and holding period separately with respect to each block of Shares that it holds.
115
A
U.S. holder’s aggregate initial tax basis in the Star Preferred Stock received in the Merger generally will equal the fair market
value of that Star Preferred Stock as of the Effective Time. A U.S. holder’s holding period for the Star Preferred Stock generally
will begin on the day after the Effective Time.
Consequences
to Non-U.S. Holders of the Merger
Subject
to the below discussion regarding backup withholding, a non-U.S. holder who or which receives the Merger Consideration in exchange for
such non-U.S. holder’s Shares in the Merger generally will not be subject to U.S. federal income tax on any gain realized on the
disposition, unless (i) such non-U.S. holder is an individual who is present in the United States for 183 or more days during the taxable
year of the completion of the Merger and certain other conditions are met, or (ii) the gain is effectively connected with the conduct
of a trade or business in the United States by the non-U.S. holder (and, in the case of certain income tax treaties, is attributable
to a permanent establishment or fixed base within the United States).
If
you are a non-U.S. holder who is an individual and has been present in the United States for 183 or more days during the taxable year
of the completion of the Merger and certain other conditions are satisfied, you will be subject to tax at a rate of 30% (or such lower
rate as may be specified in an applicable income tax treaty) on any gain realized, which generally may be offset by certain U.S. source
capital losses.
If
you are a non-U.S. holder and your gain is effectively connected with the conduct of a United States trade or business by you (and, in
the case of certain income tax treaties, is attributable to a permanent establishment or fixed base within the United States), you will
be subject to U.S. federal income tax on any gain realized on a net basis in the same manner as a U.S. holder. Non-U.S. holders which
are corporations also may be subject to a branch profits tax on such effectively connected income at a rate of 30% (or such lower rate
as may be specified in an applicable income tax treaty), subject to adjustments.
Each
Non-U.S. holder is strongly urged to consult its own tax advisor with respect to such NON-U.S. holder’s specific tax consequences
of the merger, taking into account its own particular circumstances.
Potential
Application of Section 304
Notwithstanding
the discussion above, the receipt of Cash Consideration by holders that also actually or constructively own Star stock may be subject
to Section 304 of the Code if holders who own (including by attribution) 50% or more of the total combined voting power or total value
of the Shares before the Merger own (including by attribution), immediately after the Merger, 50% or more of the total combined voting
power or total value of the Star stock. If Section 304 of the Code applies to the Cash Consideration received in the Merger, then a holder
that actually or constructively owns Star stock might recognize dividend income up to the amount of such Cash Consideration unless such
holder’s receipt of the Cash Consideration qualifies for exchange treatment under the tests set forth in Section 302 of the Code.
To the knowledge
of Star and Harte Hanks, one or more persons do not control both Star and Harte Hanks within the meaning of Section 304 of the Code.
However, because of the complex constructive ownership rules, Star and Harte Hanks do not have sufficient information to determine definitively
that Section 304 of the Code does not apply to the Merger. In light of the potential application of Section 304 of the Code to the Cash
Consideration, holders should consult their own tax advisors regarding the application of the foregoing rules to their particular circumstances,
and any actions that may be taken to mitigate the potential application of such rules. Additionally, non-U.S. holders are urged to consult
their own tax advisors regarding the possibility that, in the event that an applicable withholding agent is unable to determine whether
the Cash Consideration should be treated as a dividend for U.S. federal income tax purposes, such withholding agent may withhold tax
at a rate of 30% (or such lower rate as may be specified in an applicable income tax treaty) on the gross amount of any Cash Consideration
payable to such non-U.S. holder, regardless of whether such Cash Consideration is properly treated as a dividend for U.S. federal income
tax purposes.
Information
Reporting and Backup Withholding
The
receipt of the Merger Consideration in exchange for Shares pursuant to the Merger may be subject, under certain circumstances, to information
reporting and backup withholding (currently at a rate of 24%). To avoid backup withholding, a U.S. holder that does not otherwise establish
an exemption should properly complete and execute and timely return to the applicable paying agent an IRS Form W-9, certifying that such
U.S. holder is a “United States person” (within the meaning of the Code), that the taxpayer identification number provided
is correct and that such U.S. holder is not subject to backup withholding. Certain types of U.S. holders (including, with respect to
certain types of payments, corporations) are exempt from backup withholding. A Non-U.S. holder generally may establish an exemption from
backup withholding by certifying its status as a non-United States person under penalties of perjury on an IRS Form W-8BEN or other applicable
IRS Form W-8. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or
credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information
to the IRS in a timely manner.
THE
DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE APPLICABLE OR OF IMPORTANCE TO A PARTICULAR HOLDER.
THE TAX CONSEQUENCES OF THE MERGER WILL DEPEND ON A HOLDER’S SPECIFIC SITUATION. EACH HOLDER SHOULD CONSULT HIS, HER OR ITS TAX
ADVISOR ABOUT THE TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER IN LIGHT OF THE HOLDER’S OWN CIRCUMSTANCES, AS WELL AS THE APPLICABILITY
AND EFFECT OF ANY U.S. FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER TAX LAWS.
116
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction
The
following unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the HH Merger
described below and should be read together with the accompanying notes and the historical consolidated financial statements of Star
Equity Holdings, Inc. (“Star,” the “Company,” “we,” “us,” or “our”) and Harte
Hanks, Inc. (“Harte Hanks”).
The
unaudited pro forma condensed combined financial information should be read in conjunction with:
●
the
accompanying notes to the unaudited pro forma condensed combined financial information;
●
the
audited consolidated financial statements of Star for the fiscal year ended December 31,
2025 and the related notes, included in Star’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2025;
●
the
audited consolidated financial statements of Harte Hanks for the fiscal year ended December
31, 2025 and the related notes, included in Harte Hanks’ Annual Report on Form 10-K
for the fiscal year ended December 31, 2025;
●
the
unaudited condensed consolidated financial statements of Star as of and for the fiscal quarter
ended June 30, 2026 and the related notes, included in Star’s Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2026; and
●
the
unaudited condensed consolidated financial statements of Harte Hanks as of and for the fiscal
quarter ended June 30, 2026 and the related notes, included in Harte Hanks’ Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2026.
The
unaudited pro forma condensed combined financial information is presented for informational purposes only. It does not purport to represent
what the actual combined results of operations or financial position of Star and Harte Hanks would have been had the HH Merger occurred
on the dates assumed, nor is it necessarily indicative of future combined results of operations or financial position, and it does not
reflect any cost savings, operating synergies, or revenue enhancements that the combined company may achieve.
Description
of the Merger
Pursuant
to the Plan of Merger (the “HH Merger Agreement”), Merger Sub will merge with and into Harte Hanks, with Harte Hanks surviving
the merger as a wholly owned subsidiary of Star (the “HH Merger”).
At
the effective time of the HH Merger, each share of Harte Hanks common stock outstanding immediately prior to the effective time (other
than shares held in treasury or owned by Star or Merger Sub, which will be cancelled without consideration), and each share underlying
a Harte Hanks equity award entitled to consideration under the HH Merger Agreement, will be converted into the right to receive, at the
holder’s election and subject to proration, (i) $5.00 in cash or (ii) 0.50 shares of Star’s 10% Series A Cumulative Perpetual
Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”). Holders may elect cash for all of their shares,
Series A Preferred Stock for all of their shares, or a combination of both by electing cash for some shares and Series A Preferred Stock
for others, subject to proration. Aggregate cash consideration, including cash payable in lieu of fractional shares of Series A Preferred
Stock, may not exceed $19.2 million. If cash elections exceed that amount, cash will be allocated pro rata among cash-electing shares
and the balance of the consideration will be paid in Series A Preferred Stock.
Each
Harte Hanks equity award that vests in connection with the consummation of the HH Merger will be cancelled in exchange for the same consideration,
in the form elected by the holder. Unvested options, options with an exercise price at or above the per share merger consideration, restricted
stock units that do not vest at closing, and all performance stock units will be cancelled without payment.
A
more complete description of the HH Merger Agreement and its terms and conditions can be found in the section titled “The Merger
Agreement” beginning on page 98 of this proxy statement/prospectus .
Accounting
for the Merger
The
HH Merger will be accounted for using the acquisition method of accounting under ASC 805, Business Combinations, with Star as the accounting
acquirer. That conclusion reflects, among other factors, that Star will transfer cash and issue Series A Preferred Stock as consideration,
that Harte Hanks will become a wholly owned subsidiary of Star, and that holders of Star common stock will retain their voting interest
in the combined company. Star’s cost to acquire Harte Hanks will be allocated to the assets acquired and liabilities assumed based
on their estimated fair values as of the acquisition date, with any excess recorded as goodwill.
The
allocation of the purchase price reflected in the unaudited pro forma condensed combined financial information is preliminary and based
on estimates and assumptions that are subject to change. The final purchase price allocation will not be determinable until consummation
of the HH Merger and may differ materially from the preliminary allocation presented herein. Star will finalize the acquisition accounting
during the measurement period, which will not exceed one year from the acquisition date.
117
Unaudited
Pro Forma Condensed Combined Balance Sheet
As
of June 30, 2026
(In
thousands)
Historical
Pro Forma
ASSETS
Star Equity Holdings, Inc.
Harte
Hanks, Inc.
Transaction Accounting Adjustments
Footnotes
Unaudited
Pro Forma
Combined
Current assets:
Cash and cash equivalents and restricted cash
$
8,374
$
5,188
$
(4,192
)
A
$
9,370
Investments in equity securities
4,262
-
-
4,262
Accounts receivable, net of allowance for doubtful accounts
30,898
27,431
-
58,329
Unbilled accounts receivable and contract assets
4,042
7,971
-
12,013
Inventories, net
6,954
-
-
6,954
Note receivable, current portion
236
-
-
236
Prepaid and other
3,059
4,766
-
7,825
Total current assets
57,825
45,356
(4,192
)
98,989
Property and equipment, net
16,598
6,866
-
23,464
Operating and finance lease right-of-use assets
13,718
18,597
2,441
B
34,756
Goodwill
5,899
295
4,976
C
11,170
Intangible assets, net
1,355
273
30,227
C
31,855
Long term investments
953
-
-
953
Notes receivable, net of current portion
8,948
-
-
8,948
Deferred tax assets, net
2,374
15,982
(15,982
)
D
2,374
Restricted cash, non-current
551
-
-
551
Other assets
15
690
-
705
Total assets
$
108,236
$
88,059
$
17,470
$
213,765
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
5,352
$
13,238
$
-
$
18,590
Accrued salaries, commissions, and benefits
7,734
3,165
350
E
11,249
Accrued expenses and other current liabilities
5,237
8,220
500
E
13,957
Short-term debt
8,962
3,000
-
11,962
Deferred revenue and customer advances
1,442
2,552
-
3,994
Customer postage and program deposits
-
693
-
693
Operating and finance lease obligations, current
729
4,003
-
4,732
Total current liabilities
29,456
34,871
850
65,177
-
Income tax payable
101
-
-
101
Operating and finance lease obligations
13,383
17,035
-
30,418
Pension liabilities - Qualified plans
-
3,390
-
3,390
Pension liabilities - Nonqualified plan
-
16,525
-
16,525
Long-term debt, net of current portion
5,123
-
15,000
F
20,123
Other liabilities
376
888
-
1,264
Total liabilities
48,439
72,709
15,850
136,998
Commitments and contingencies
Stockholders’ equity:
Series A preferred stock
3
-
2
G
5
Common stock
5
12,221
(12,221
)
H
5
Additional paid-in capital
530,922
99,393
(81,925
)
G, H
548,390
(Accumulated deficit) / retained earnings
(441,575
)
808,181
(808,681
)
H
(442,075
)
Accumulated other comprehensive loss, net of applicable tax
(1,528
)
(14,919
)
14,919
H
(1,528
)
Treasury stock
(28,030
)
(889,526
)
889,526
H
(28,030
)
Total stockholders’ equity
59,797
15,350
1,620
76,767
Total liabilities and stockholders’ equity
$
108,236
$
88,059
$
17,470
$
213,765
See
accompanying notes to the unaudited pro forma condensed combined financial information
118
Unaudited
Pro Forma Condensed Combined Statement of Operations
For
the Twelve Months Ended December 31, 2025
(In
thousands, except share and per share amounts)
Historical
Pro Forma
Star Equity Holdings, Inc.
Harte
Hanks, Inc.
Pre-Acquisition
Star Operating Companies, Inc. & Alliance Drilling Tools
Transaction Accounting Adjustments
Footnotes
Unaudited
Pro Forma
Combined
Revenue
$
172,159
$
159,570
$
52,558
$
-
I
$
384,287
Cost of revenues and operating expenses
175,847
159,184
56,644
3,958
I, J, K
395,633
Operating income (loss)
(3,688
)
386
(4,086
)
(3,958
)
(11,346
)
Non-operating income (expense):
Interest income (expense), net
260
(248
)
(182
)
(890
)
I, L
(1,060
)
Other income (expense), net
(428
)
(1,146
)
4,396
394
I , M
3,216
Loss before provision for income taxes
(3,856
)
(1,008
)
128
(4,454
)
(9,190
)
Provision for income taxes
2,061
(197
)
(1,731
)
-
I, Q
133
Net (loss) income
(5,917
)
(811
)
1,859
(4,454
)
I
(9,323
)
Dividend on Series A perpetual preferred stock
(740
)
-
(1,756
)
(1,918
)
I, N
(4,414
)
Net loss attributable to common shareholders
$
(6,657
)
$
(811
)
$
103
$
(6,372
)
$
(13,737
)
Basic Loss per Share
$
(1.85
)
$
(0.11
)
$
(2.54
)
Diluted Loss per Share
$
(1.85
)
$
(0.11
)
$
(2.54
)
Basic Loss per Share, attributable to common shareholders
$
(2.08
)
$
(3.74
)
Diluted Loss per Share, attributable to common shareholders
$
(2.08
)
$
(3.74
)
Basic weighted-average shares outstanding
3,198,000
7,393,000
473,084
(7,393,000
)
O
3,671,084
Diluted weighted-average shares outstanding
3,198,000
7,393,000
473,084
(7,393,000
)
O
3,671,084
Dividends declared per share of Series A perpetual preferred stock
$
0.275
$
0.725
P
$
1.00
119
Unaudited
Pro Forma Condensed Combined Statement of Operations
For
the Six Months Ended June 30, 2026
(In
thousands, except share and per share amounts)
Historical
Star Equity Holdings, Inc.
Harte
Hanks, Inc.
Transaction Accounting Adjustments
Footnotes
Unaudited
Pro Forma
Combined
Revenue
$
105,002
$
75,248
$
-
$
180,250
Cost of revenues and operating expenses
110,387
80,506
1,729
R
192,622
Operating loss
(5,385
)
(5,258
)
(1,729
)
(12,372
)
Non-operating income (expense):
Interest income (expense), net
(13
)
(159
)
(445
)
S
(617
)
Other income (expense), net
(239
)
(464
)
228
T
(475
)
Loss before provision for income taxes
(5,637
)
(5,881
)
(1,946
)
(13,464
)
Provision for (benefit from) income taxes
4
(250
)
-
X
(246
)
Net loss
(5,641
)
(5,631
)
(1,946
)
(13,218
)
Dividend on Series A perpetual preferred stock
(1,195
)
(959
)
U
(2,154
)
Net loss attributable to common shareholders
$
(6,836
)
$
(5,631
)
$
(2,905
)
$
(15,372
)
Basic Loss per Share
$
(1.51
)
$
(0.76
)
$
(3.55
)
Diluted Loss per Share
$
(1.51
)
$
(0.76
)
$
(3.55
)
Basic Loss per Share, attributable to common shareholders
$
(1.84
)
$
(4.13
)
Diluted Loss per Share, attributable to common shareholders
$
(1.84
)
$
(4.13
)
Basic weighted-average shares outstanding
3,723,622
7,423,000
(7,423,000
)
V
3,723,622
Diluted weighted-average shares outstanding
3,723,622
7,423,000
(7,423,000
)
V
3,723,622
Dividends declared per share of Series A perpetual preferred stock
$
0.50
W
$
0.50
120
Notes
to Unaudited Pro Forma Condensed Combined Financial Statements
(amounts
are in thousands except for share and per share data and as otherwise noted)
Note
1. Basis of Presentation
The
unaudited pro forma condensed combined financial statements (the “pro forma financial statements”) are presented to illustrate
the estimated effects of the proposed acquisition of Harte Hanks, Inc. (“Harte Hanks”) by Star Equity Holdings, Inc. (“Star
Equity,” “Star,” the “Company,” “we,” or “our”), pursuant to the Agreement and
Plan of Merger entered into on August 14, 2026 (the “HH Merger Agreement”). Under the terms of the HH Merger Agreement, Merger
Sub – R, Inc., a wholly owned subsidiary of the Company (“Merger Sub” or “HH Merger Sub”), will merge with
and into Harte Hanks, with Harte Hanks surviving the merger as a wholly owned subsidiary of the Company (the “HH Merger”).
At
the effective time of the HH Merger, each share of Harte Hanks common stock outstanding immediately prior to the effective time (other
than shares held in treasury or owned by the Company or HH Merger Sub, which will be cancelled without consideration), and each share
underlying a Harte Hanks equity award entitled to consideration under the HH Merger Agreement, will be converted into the right to receive,
at the holder’s election and subject to proration, (i) $5.00 per share in cash or (ii) 0.50 shares of the Company’s Series
A Preferred Stock. Aggregate cash consideration, including cash payable in lieu of fractional shares of Series A Preferred Stock, may
not exceed $19.2 million. If cash elections exceed that amount, cash will be allocated pro rata among cash-electing shares and the balance
of the consideration will be paid in Series A Preferred Stock.
The
unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, as amended.
The unaudited pro forma condensed combined balance sheet as of June 30, 2026 gives effect to the HH Merger as if it had been consummated
on June 30, 2026. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2025 and the six
months ended June 30, 2026 give effect to the transaction described above as if it had been consummated on January 1, 2025.
The
unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative
of the results of operations or financial position that would have been achieved had the transactions been consummated on the dates indicated,
nor is it indicative of future results of operations or financial position. The pro forma financial information does not reflect any
cost savings, operating synergies, or revenue enhancements that the combined company may achieve, or the costs necessary to achieve them.
Prior
transactions given pro forma effect
The
unaudited pro forma condensed combined statement of operations for the year ended December 31, 2025 also gives effect to (i) the merger
completed on August 22, 2025 pursuant to which Star Operating Companies, Inc. (“Star Operating,” formerly known as Star Equity
Holdings, Inc.) became a wholly owned subsidiary of the Company, following which the Company changed its name to Star Equity Holdings,
Inc. and its Nasdaq trading symbols to STRR and STRRP, and (ii) the acquisition of Alliance Drilling Tools (“ADT”) completed
on March 3, 2025. The historical results of Star Operating and ADT are included in the Company’s historical financial statements
only from their respective acquisition dates. The column captioned “Pre-Acquisition Star Operating Companies, Inc. and Alliance
Drilling Tools” presents the historical results of those businesses for the periods from January 1, 2025 through their respective
acquisition dates.
Note
2. Transaction Consideration and Preferred Stock Terms
At
the effective time of the HH Merger, each outstanding share of Harte Hanks common stock (other than shares held as treasury stock or
held directly by Star or HH Merger Sub, which will be cancelled without consideration) will be converted into the right to receive, at
the holder’s election and subject to proration, (i) $5.00 in cash (the “Cash Consideration”) or (ii) 0.50 shares of
Star’s 10% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”)
(collectively, the “Merger Consideration”). Shares for which no election is made will be converted into cash, Series A Preferred
Stock or a combination of both, as determined by Star. Aggregate cash, including cash payable in lieu of fractional preferred shares
at $10.00 per share, may not exceed $19.2 million (the “Maximum Cash Amount”). If cash elections exceed that amount, cash
is allocated pro rata among cash-electing shares and the balance of the Merger Consideration is paid in Series A Preferred Stock.
121
Each
Harte Hanks equity award that vests in connection with the consummation of the HH Merger will be cancelled in exchange for the Merger
Consideration for each underlying share, in the form elected by the holder. Unvested options, options with an exercise price at or above
the per share Merger Consideration, restricted stock units that do not vest at closing, and all performance stock units will be cancelled
without payment.
No
elections have been made as of the date of this proxy statement/prospectus. For purposes of the pro forma financial information, the
Company has assumed that 50% of the shares entitled to Merger Consideration will elect cash and 50% will elect Series A Preferred Stock.
Under that assumption, aggregate cash does not exceed the Maximum Cash Amount. The actual allocation will depend on the elections made
by Harte Hanks stockholders and may differ materially.
Harte Hanks common shares outstanding at July 31, 2026
7,454,240
Equity Awards Entitled to Merger Consideration
216,446
Total Shares Entitled to Merger Consideration
7,670,686
Total Value Available to Shareholders at $5.00 per share
$
38,353
Shares assumed to elect cash (50%)
3,835,343
Cash Consideration at $5.00 per share
$
19,177
Cash Settlement of Vested in-the-money Stock Options
$
15
Total Cash Consideration
$
19,192
Shares Assumed to Elect Series A Preferred Stock (50%)
3,835,343
Conversion Factor
0.50
Shares of Series A Preferred Stock to be Issued
1,917,672
Series A Preferred Stock Consideration at $9.11 per share
$
17,470
Total Fair Value of Merger Consideration
$
36,662
Share
counts are as of July 31, 2026, the most recent practicable date, and are held constant through the assumed closing. Cash settlement
of vested in-the-money stock options represents $15 payable to Harte Hanks’ Chief Executive Officer in cancellation of vested stock
options with a per share exercise price below the per share Merger Consideration; the related option shares are not included in the 216,446
shares underlying equity awards presented above. Amounts payable in respect of Harte Hanks equity awards include consideration payable
to Harte Hanks’ directors and executive officers. See “Interests of Harte Hanks’ Directors and Executive Officers in
the Merger.”
For
purposes of these pro forma financial statements, the Preferred Stock Consideration has been measured using the closing price of the
Series A Preferred Stock on the Nasdaq Global Select Market (symbol: STRRP) of $9.11 per share on October 14, 2026. The Series A Preferred
Stock will be measured at fair value on the closing date, and the amount ultimately recorded will differ, potentially materially, from
the amount presented.
Sensitivity
of Merger Consideration to the Price of Series A Preferred Stock.
The
fair value of the Preferred Stock Consideration will be measured using the price of the Series A Preferred Stock on the closing date,
which may differ materially from the price used in these pro forma financial statements. The following table shows how the total fair
value of the Merger Consideration would change if the per share price of the Series A Preferred Stock (Nasdaq: STRRP) were $1.00 higher
or $1.00 lower than the closing price of $9.11 per share on October 14, 2026. The table assumes that 50% of the shares entitled to Merger
Consideration elect cash and 50% elect Series A Preferred Stock. Holding the cash consideration and the number of preferred shares issued
constant, a $1.00 change in the per share price of the Series A Preferred Stock would increase or decrease the total fair value of the
Merger Consideration by approximately $1,918, with a corresponding change to goodwill. A change in the price would not affect pro forma
net loss or the dividends on the Series A Preferred Stock.
STRRP Price of $9.11
STRRP Increase $1.00 ($10.11)
STRRP Decrease $1.00 ($8.11)
Total Cash Consideration
$
19,192
$
19,192
$
19,192
Shares Assumed to Elect Series A Preferred Stock (50%)
3,835,343
3,835,343
3,835,343
Conversion Factor
0.50
0.50
0.50
Shares of Series A Preferred Stock to be Issued
1,917,672
1,917,672
1,917,672
Series A Preferred Stock Consideration at assumed price per share
$
17,470
$
19,388
$
15,552
Total Fair Value of Merger Consideration
$
36,662
$
38,580
$
34,744
122
Merger
Consideration Assuming All Holders Elect Series A Preferred Stock.
As
described above, the pro forma financial statements assume that 50% of the shares entitled to Merger Consideration elect cash and 50%
elect Series A Preferred Stock. Because the actual form of consideration will depend on the elections made by Harte Hanks stockholders,
the following table compares that assumption with a scenario in which the holders of all shares entitled to Merger Consideration elect
to receive Series A Preferred Stock, in each case based on the closing price of the Series A Preferred Stock of $9.11 per share on October
14, 2026. Under the all-preferred scenario, Star would issue 3,835,343 shares of Series A Preferred Stock with a fair value of
$34,940 and would pay cash only in settlement of vested in-the-money stock options of $15, resulting in total Merger Consideration of
$34,955, or $1,707 less than under the assumed elections, with a corresponding decrease in goodwill. Because substantially no cash consideration
would be payable, Star would not expect to borrow funds under the TCB facility, and the $15,000 of borrowings and related pro forma interest
expense of $890 for the year ended December 31, 2025 and $445 for the six months ended June 30, 2026 would not be incurred. However,
annual cumulative dividends on the Series A Preferred Stock issued in the HH Merger would increase by $1,917, to $3,835.
50% Cash / 50% Preferred Stock
All Preferred (0% Cash)
Shares Assumed to Elect Cash
3,835,343
0
Cash Consideration at $5.00 per share
$
19,177
$
0
Cash Settlement of Vested in-the-money Stock Options
$
15
$
15
Total Cash Consideration
$
19,192
$
15
Shares Assumed to Elect Series A Preferred Stock
3,835,343
7,670,686
Conversion Factor
0.50
0.50
Shares of Series A Preferred Stock to be Issued
1,917,672
3,835,343
Series A Preferred Stock Consideration at $9.11 per share
$
17,470
$
34,940
Total Fair Value of Merger Consideration
$
36,662
$
34,955
Annual Dividends on Series A Preferred Stock Issued
$
1,918
$
3,835
Borrowings to Fund Cash Consideration
$
15,000
$
0
The
requisite service period with respect to the Harte Hanks equity awards that vest in connection with the HH Merger was completed as of
the acquisition date. Accordingly, the full settlement value of these awards is attributable to pre-combination service and is included
in consideration transferred. No amount related to equity awards is recognized as post-combination compensation expense.
123
The
Series A Preferred Stock has a $10.00 per share liquidation preference and accrues cumulative dividends at a rate of 10.0% per annum,
or $1.00 per share annually, payable quarterly. The Series A Preferred Stock is perpetual, has no mandatory redemption date, and ranks
senior to Star common stock with respect to dividends and distributions upon liquidation. The Series A Preferred Stock issued in connection
with the HH Merger will be part of the same series as Star’s outstanding Series A Preferred Stock and will have the same rights
and priority as the outstanding Series A Preferred Stock. Because the Series A Preferred Stock is not mandatorily redeemable, the shares are classified in permanent equity, and there is no redemption feature outside the Company’s
control that would require temporary equity classification under ASC 480. The Series A Preferred Stock issued in the HH Merger will result
in approximately $1,918 of incremental annual cumulative preferred dividends, which are deducted in determining pro forma net income
available to common shareholders.
Note
3. Accounting Treatment
The
HH Merger is accounted for using the acquisition method of accounting under ASC 805, Business Combinations. Star management has evaluated
the guidance in ASC 805 with respect to the identification of the acquirer and concluded that Star is the acquirer for financial accounting
purposes. That conclusion reflects, among other factors, that Star will transfer cash and issue Series A Preferred Stock as consideration,
that Harte Hanks will become a wholly owned subsidiary of Star, and that holders of Star common stock will retain all of the outstanding
voting interest in the combined company. Accordingly, Star’s cost to acquire Harte Hanks has been allocated to the assets acquired
and liabilities assumed based upon their estimated fair values as of the acquisition date, with any excess recorded as goodwill.
The
allocation of the purchase price is preliminary and is dependent upon estimates and valuations that are subject to change. In addition,
the consideration transferred will not be determinable until the consummation of the HH Merger and, as described in Note 2, is affected
by the fair value of the Series A Preferred Stock on the closing date and by the elections made by Harte Hanks stockholders. Accordingly,
the final acquisition accounting adjustments may be materially different from the preliminary unaudited pro forma adjustments presented.
Star will finalize the acquisition accounting during the measurement period, which will not exceed one year from the acquisition date.
Star
is in the process of reviewing Harte Hanks’ accounting policies. This review may identify differences between the accounting policies
of the two companies that, when conformed, could have a material effect on the combined financial statements. No adjustments for any
such differences are reflected in the pro forma financial statements.
There
were no transactions between Star and Harte Hanks requiring elimination. Acquisition-related transaction costs are expensed as incurred
in accordance with ASC 805 and are not included in consideration transferred. Transaction costs incurred through June 30, 2026 are reflected
in the historical financial statements, and no adjustment has been made to remove them. Estimated remaining transaction costs of $500
are reflected as a transaction accounting adjustment to accrued liabilities and accumulated deficit in the pro forma condensed combined
balance sheet and as an expense in the pro forma condensed combined statement of operations for the year ended December 31, 2025. The
pro forma financial statements do not reflect any cost savings, operating synergies or revenue enhancements that may result from the
HH Merger.
Note
4. Transaction Accounting Adjustments – Unaudited Pro Forma Condensed Combined Balance Sheet and Statements of Operations
The
unaudited pro forma adjustments include the following:
Pro
Forma Balance Sheet as of June 30, 2026:
A.
Cash
and cash equivalents and restricted cash.
Reflects a net decrease in cash of $4,192,
consisting of the payment of $19,192 of cash consideration described in Note 2, partially
offset by $15,000 of proceeds from the debt financing described in F below. The Company expects
to fund the cash portion of the Merger Consideration with available cash together with a
drawdown not to exceed $15,000 under Harte Hanks’ existing credit facility with Texas
Capital Bank, or alternative debt financing acceptable to Star. Consummation of the debt
financing is a condition to closing.
124
B.
Operating
lease right-of-use assets.
This adjustment reflects increasing the value of operating
lease right-of-use assets by approximately $2,441 to equal the value of short- and long-term
operating lease obligations in connection with purchase accounting adjustments. Under ASC
842-10-55-12, the right-of-use asset is measured as if the acquisition date were the lease
commencement date. The Company has not yet remeasured the acquired leases using its own incremental
borrowing rate; the amount presented is preliminary.
C.
Intangible
assets and goodwill.
These adjustments reflect the recognition of net additional amortizable
intangible assets and goodwill, representing the excess of purchase price consideration above
the preliminary estimated fair values of the net assets acquired in the HH Merger.
D.
Deferred
tax assets, net.
Star maintains a full valuation allowance against its own $215.4 million
of federal and state net operating loss carryforwards (as of December 31, 2025). A full valuation
allowance has therefore been recorded against the related U.S. net deferred tax assets
and liabilities, resulting in the elimination of Harte Hanks’ historical net deferred
tax assets of $16.0 million and no net deferred tax liability from the additional amortizable
intangible assets in the unaudited pro forma condensed combined balance sheet. The amounts
presented are preliminary and the final deferred tax amounts, including any change in valuation
allowance, may differ materially. Any change in Star’s valuation allowance resulting
from the HH Merger will be recognized in income tax expense rather than as an adjustment
to goodwill, in accordance with ASC 805-740-30-3.
E.
Accrued
expenses.
Acquisition-related transaction costs are expensed as incurred in accordance
with ASC 805-10-25-23 and are not included in consideration transferred. Transaction costs
incurred through June 30, 2026 are reflected in the historical financial statements, and
no adjustment has been made to remove them. Estimated remaining transaction costs of $500
are reflected as an increase to accrued expenses and other current liabilities, with an offset
in (Accumulated deficit) / retained earnings, and transaction bonuses of $350 are reflected
as an increase to accrued salaries, commissions, and benefits, with an offset in goodwill.
The combined company may incur expenses in addition to these.
F.
Long-term
debt, net of current portion.
Reflects anticipated borrowings of $15,000 incurred to
fund the majority of the cash consideration reflected in the preliminary purchase price.
The borrowings are expected to be drawn under Harte Hanks’ existing credit facility
with Texas Capital Bank (“TCB”), or under alternative debt financing acceptable
to Star, and bear interest at a floating rate equal to the Secured Overnight Financing Rate
(“SOFR”) plus a margin of 225 basis points per annum. For purposes of these unaudited
pro forma condensed combined financial statements, an assumed rate of 5.93% per annum has
been applied, based on SOFR of 3.68% as of August 31, 2026. The related pro forma interest
expense is described in Note 4(L). No adjustment has been made for debt issuance costs, which
have not yet been determined.
G.
Series
A preferred stock and additional paid-in capital.
Reflects the issuance of 1,917,672
shares of Series A Preferred Stock with an aggregate fair value of $17,470, recorded as $2
of par value and $17,468 of additional paid-in capital.
H.
Elimination
of Harte Hanks historical equity.
Reflects the elimination of Harte Hanks’ historical
common stock, additional paid-in capital, accumulated deficit, accumulated other comprehensive
loss and treasury stock, aggregating $15,350.
Pro
Forma Income Statement for the twelve months ended December 31, 2025:
I.
Star
Operating Companies and Alliance Drilling Tools pre-acquisition data.
Pro forma adjustments
related to the merger with Star Operating Companies, Inc. (“Star Operating”),
completed on August 22, 2025, and the acquisition of Alliance Drilling Tools (“ADT”),
completed on March 3, 2025, reflect the inclusion of the results of operations of Star Operating
and ADT for the periods prior to their respective acquisition dates. These adjustments resulted
in the addition of approximately $52.6 million of revenue and $1.9 million of net income,
and net income attributable to common shareholders of $0.1 million. The adjustments were
necessary because the historical financial statements of Star Equity Holdings include the
results of operations of Star Operating and ADT only from their respective acquisition dates.
J.
Amortization
of acquired intangible assets.
Reflects amortization of the identifiable intangible assets
recognized in the preliminary purchase price allocation. A pro forma adjustment has been
included to reflect incremental amortization expense of approximately $3,458 for the twelve
months ended December 31, 2025. This adjustment is based on the estimated fair values assigned
to identifiable amortizable intangible assets acquired in the transaction, representing additional
expense that would have been recognized had the acquisition occurred on January 1, 2025.
125
K.
Transaction
costs.
Estimated remaining transaction costs of $500 are reflected as an increase to
operating expenses in the unaudited pro forma condensed combined statement of operations
for the year ended December 31, 2025. This charge is directly attributable to the HH Merger,
is nonrecurring, and is not expected to have a continuing impact on the results of the combined
company.
L.
Interest
expense.
Reflects interest expense on the $15,000 of borrowings described in Note 4(F),
incurred under Harte Hanks’ existing credit facility with Texas Capital Bank (“TCB”)
in connection with the HH Merger. The borrowings bear interest at a floating rate equal to
the Secured Overnight Financing Rate (“SOFR”) plus a margin of 225 basis points
per annum. For purposes of the unaudited pro forma condensed combined financial information,
an assumed rate of 5.93% per annum has been applied, based on SOFR of 3.68% as of August
31, 2026, resulting in additional interest expense of $890 for the year ended December 31,
2025. A change of 0.125% in the assumed interest rate would change pro forma interest expense
by approximately $19 annually.
M.
Pension
Expense.
Represents the reversal of amounts reflected in net periodic pension benefit
cost amortized out of Accumulated Other Comprehensive Loss of $394, reflecting the elimination
of historical equity account balances in connection with the HH Merger transaction as if
it had been consummated on January 1, 2025.
N.
Dividend
on Series A perpetual preferred stock.
Reflects dividends on the 1,917,672 shares
of Series A Preferred Stock assumed to be issued in the HH Merger, at the stated rate of
10.0% per annum, equivalent to $1.00 per share annually. The adjustment is $1,918 for the
year ended December 31, 2025. Dividends on the Series A Preferred Stock are cumulative and
are deducted in determining net loss attributable to common shareholders in accordance with
ASC 260-10-45-11, whether or not declared. The Series A Preferred Stock is not convertible
into common stock and therefore has no dilutive effect on pro forma net income or loss per
share. Potentially dilutive securities of Star have been excluded from the computation of
diluted net loss per share because their effect would be antidilutive.
O.
Weighted-average
shares outstanding.
Reflects the elimination of the historical weighted-average shares
of Harte Hanks common stock. No shares of Star common stock will be issued in the HH Merger,
and accordingly no adjustment has been made to increase the weighted-average shares of Star
common stock outstanding.
P.
Dividends
declared per share of Series A perpetual preferred stock.
Reflects preferred dividends
as if the acquisitions of Star Operating Companies, Alliance Drilling Tools, and Harte Hanks
took place on January 1, 2025 at the rate of $1.00 per share per annum.
Q.
Income
Taxes.
No adjustment to the provision for income taxes has been reflected. The Company
has recorded valuation allowances against a portion of its deferred tax assets, and the tax
effect of the pro forma adjustments is not expected to be material. The effective tax rate
of the combined company could differ from the rates assumed for purposes of preparing the
pro forma financial information.
Pro
Forma Income Statement for the six months ended June 30, 2026:
R.
Amortization
of acquired intangible assets.
Reflects amortization of the identifiable intangible assets
recognized in the preliminary purchase price allocation. A pro forma adjustment has been
included to reflect incremental amortization expense of approximately $1,729 for the six
months ended June 30, 2026. This adjustment is based on the estimated fair values assigned
to identifiable amortizable intangible assets acquired as part of the Harte Hanks acquisition.
S.
Interest
expense.
Reflects interest expense on the $15,000 of borrowings described in Note 4(F),
incurred under Harte Hanks’ existing credit facility with Texas Capital Bank (“TCB”)
in connection with the HH Merger. The borrowings bear interest at a floating rate equal to
the Secured Overnight Financing Rate (“SOFR”) plus a margin of 225 basis points
per annum. For purposes of the unaudited pro forma condensed combined financial information,
an assumed rate of 5.93% per annum has been applied, based on SOFR of 3.68% as of August
31, 2026, resulting in additional interest expense of $445 for the six months ended June
30, 2026. A change of 0.125% in the assumed interest rate would change pro forma interest
expense by approximately $9 for the six months ended June 30, 2026.
T.
Pension
Expense.
Represents the reversal of amounts reflected in net periodic pension benefit
cost amortized out of Accumulated Other Comprehensive Loss of $228, reflecting the elimination
of historical equity account balances in connection with the HH Merger transaction as if
it had been consummated on January 1, 2025.
126
U.
Dividends
on Series A perpetual preferred stock.
Reflects dividends on the 1,917,672 shares
of Series A Preferred Stock assumed to be issued in the HH Merger, at the stated rate of
10.0% per annum, equivalent to $1.00 per share annually. The adjustment is $959 for the six
months ended June 30, 2026. Dividends on the Series A Preferred Stock are cumulative and
are deducted in determining net loss attributable to common shareholders in accordance with
ASC 260-10-45-11, whether or not declared. The Series A Preferred Stock is not convertible
into common stock and therefore has no dilutive effect on pro forma net loss per share. Potentially
dilutive securities of Star have been excluded from the computation of diluted net loss per
share because their effect would be antidilutive.
V.
Weighted-average
shares outstanding.
Reflects the elimination of the historical weighted-average shares
of Harte Hanks common stock. No shares of Star common stock will be issued in the HH Merger,
and accordingly no adjustment has been made to increase the weighted-average shares of Star
common stock outstanding.
W.
Dividends
declared per share of Series A perpetual preferred stock.
Reflects preferred dividends
as if the acquisitions of Star Operating Companies, Alliance Drilling Tools, and Harte Hanks
took place on January 1, 2025, with outstanding preferred shares earning dividends at the
rate of $1.00 per share per annum.
X.
Income
Taxes.
No adjustment to the provision for income taxes has been reflected. The Company
has recorded valuation allowances against a portion of its deferred tax assets, and the tax
effect of the pro forma adjustments is not expected to be material. The effective tax rate
of the combined company could differ from the rates assumed for purposes of preparing the
pro forma financial information.
Note
5. Preliminary Purchase Price Allocation
The
following is a preliminary estimate of the allocation of the purchase price:
Asset / Liability Amounts
Tangible assets acquired
$
87,491
Intangible assets acquired
568
Liabilities assumed
(72,709
)
Intangible assets
30,227
Goodwill
4,976
Operating lease right-of-use assets step up
2,441
Deferred Tax write down
(15,982
)
Accrued expenses
(350
)
Total estimated purchase price
$
36,662
The
final allocation will be based on fair value appraisals and determinations.
Note
6. Merger Costs
Transaction
costs incurred or expected to be incurred in connection with the merger, such as legal, advisory, accounting, and integration expenses,
are estimated at approximately $500 and are reflected as an adjustment to accumulated deficit.
Note
7. Intangible Assets
Amortization
expense is computed using the straight-line method over the following estimated useful lives:
Brand name
Indefinite
Customer relationships
8 years
Developed technology
3 years
Dividend
Information
Star
has not declared or paid dividends on its common stock. However, holders of Star’s 10% Series A Cumulative Perpetual Preferred
Stock are entitled to receive preferential cumulative cash dividends, when and if declared by the board of directors, at a rate of 10.0%
per annum. Dividends are payable quarterly in arrears in March, June, September, and December, to holders of record as of the first day
of each payment month.
Following
the completion of the merger, the combined company does not expect to pay any cash dividends on its common stock in the foreseeable future.
The board of directors believes that in general, repurchases of Company common stock represent a more effective use of capital. The declaration
and payment of any future dividends by the combined company will be subject to the discretion of its board of directors and will depend
upon many factors, including the combined company’s financial condition, earnings, legal requirements, and other factors the board
of directors deems relevant.
127
DESCRIPTION
OF
STAR 10% Series A Cumulative Perpetual Preferred Stock
As
a result of the Merger, Harte Hanks stockholders who receive shares of Star Preferred Stock in the Merger will become Star Preferred
Stockholders. Your rights as a Star Preferred Stockholder will be governed by Delaware law, Star’s Certificate of Designations,
Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock, Star’s amended and restated certificate of incorporation,
and Star’s bylaws. The following description of the material terms of Star’s Preferred Stock reflects the anticipated state
of affairs upon consummation of the Merger. We urge you to read the applicable provisions of Delaware law, Star’s Certificate of
Designations, Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock and Star’s amended and restated certificate
of incorporation, and Star’s bylaws carefully and in their entirety.
General
The
Company’s certificate of incorporation, as amended (the “
Charter
”), authorizes the issuance of 10,000,000 shares
of preferred stock, par value $0.001 per share. The Charter authorizes the Board of Directors to issue preferred stock in one or more
series and, subject to the Charter, to establish for each series its number of shares and relative rights and preferences, including
dividend, redemption, liquidation, conversion and voting rights.
Pursuant
to the Certificate of Designations, Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock (the “
Certificate
of Designations
”), the Company has designated 8,000,000 shares as 10% Series A Cumulative Perpetual Preferred Stock, par value
$0.001 per share (the “
Star Preferred Stock
”). The Company may issue additional shares of Star Preferred Stock, up
to the 8,000,000 shares constituting the series. As of the Record Date, Star has [_________] shares of Star Preferred Stock issued
and outstanding.
Rank
With
respect to dividend rights and rights upon the liquidation, dissolution or winding up of the Company, the Star Preferred Stock ranks
(i) senior to the Company’s common stock and all other equity securities that expressly rank junior to the Star Preferred Stock;
(ii) on a parity with all equity securities that expressly rank on a parity with the Star Preferred Stock (collectively, “
Parity
Preferred Stock
”); and (iii) junior to all equity securities that expressly rank senior to the Star Preferred Stock and to
all existing and future indebtedness of the Company. For this purpose, “equity securities” does not include convertible debt
securities.
Dividends
Holders
of the Star Preferred Stock are entitled to receive, when and as authorized by the Board of Directors (or a duly authorized committee)
and declared by the Company, out of funds legally available for dividends, preferential cumulative cash dividends at a rate of 10% per
annum of the $10.00 liquidation preference per share, equivalent to $1.00 per share annually. Dividends accumulate from, but excluding,
the original issue date and are payable quarterly in arrears on or before the last day of March, June, September and December of each
year, or, if that day is not a Business Day, on the immediately succeeding Business Day, or on a later date designated by the Board of
Directors with the same force and effect as if paid on that date. “
Business Day
” means a calendar day on which the
Nasdaq Global Select Market is open for trading.
For
a partial dividend period, dividends are computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends are payable
to holders of record at the close of business on the first day of March, June, September and December, whether or not a Business Day,
in which the relevant dividend payment date falls.
Dividends
accumulate whether or not the Company has earnings, whether or not funds are legally available for their payment, whether restrictions
otherwise exist, and whether or not the dividends are authorized or declared. Accumulated but unpaid dividends do not bear interest.
If dividends are not paid in full, or a sum sufficient for payment is not set aside, on the Star Preferred Stock and any Parity Preferred
Stock, dividends declared on those securities must be declared pro rata in accordance with their respective accumulated dividends per
share.
128
Unless
full cumulative dividends on the Star Preferred Stock for all past dividend periods are paid, or declared and funds sufficient for payment
are set aside, the Company may not declare or pay dividends or other distributions on, or purchase or otherwise acquire for consideration,
its common stock or other stock ranking junior to or on a parity with the Star Preferred Stock as to dividends or liquidation. This restriction
does not apply to dividends in common stock or other securities ranking junior to the Star Preferred Stock as to dividends and liquidation.
Payments on the Star Preferred Stock are first credited against the earliest accumulated unpaid dividend.
Liquidation
Preference
Upon
any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Star Preferred Stock are entitled to receive,
before any distribution to holders of common stock or other securities ranking junior to the Star Preferred Stock as to liquidation rights,
$10.00 per share plus accumulated and unpaid dividends to, but excluding, the payment date, without interest. If the assets legally available
for distribution are insufficient to pay the full liquidation preference on the Star Preferred Stock and any Parity Preferred Stock,
available assets are distributed pro rata in accordance with the respective per-share liquidation preferences.
After
holders receive the full liquidation preference and accumulated and unpaid dividends to which they are entitled, they have no right or
claim to the Company’s remaining assets. A consolidation, conversion or Merger involving the Company, a statutory share exchange,
or a sale, lease, transfer or conveyance of all or substantially all of the Company’s property or business does not constitute
a liquidation, dissolution or winding up for this purpose.
Voting
Rights and Protective Provisions
Holders
of Star Preferred Stock have no voting rights except as described below or as otherwise required by law.
If
dividends on any shares of Star Preferred Stock are in arrears for six or more consecutive quarterly dividend periods (a “
Preferred
Dividend Default
”), holders of the Star Preferred Stock and holders of Parity Preferred Stock with equivalent exercisable voting
rights vote together as a single class to elect two additional directors (the “
Preferred Stock Directors
”). The election
occurs at the next annual meeting or at a special meeting requested in writing by holders of record of at least 20% of the Star Preferred
Stock or at least 20% of an affected series of Parity Preferred Stock, except that a request received fewer than 90 days before the next
annual or special stockholder meeting is considered at the earlier of those meetings. The right continues until all accumulated dividends
for prior dividend periods and the dividend for the current dividend period are paid in full or declared and funds sufficient for payment
are set aside.
For
a meeting to elect Preferred Stock Directors, a quorum consists of a majority of the outstanding Star Preferred Stock and affected Parity
Preferred Stock represented in person or by proxy. The Preferred Stock Directors are elected by a plurality of votes cast by the holders
present and voting at a meeting with a quorum. During a Preferred Dividend Default, a Preferred Stock Director may be removed, with or
without cause, only by the vote of a majority of the outstanding Star Preferred Stock and affected Parity Preferred Stock voting together
as a class. A vacancy may be filled by written consent of the remaining Preferred Stock Director or, if no Preferred Stock Director remains
in office, by the vote of a majority of the outstanding Star Preferred Stock and affected Parity Preferred Stock voting together as a
class.
If
the Company does not call a special meeting within 30 days after a valid request for the election of Preferred Stock Directors, holders
of record of at least 20% of the outstanding Star Preferred Stock may designate a holder to call the meeting at the Company’s expense.
Each Preferred Stock Director has one vote on every matter submitted to the Board of Directors.
129
So
long as any Star Preferred Stock remains outstanding, the Company may not, without the affirmative vote or consent of holders of at least
a majority of the then-outstanding Star Preferred Stock, voting separately as a class, amend, alter or repeal any Charter provision,
including the terms of the Star Preferred Stock, whether by Merger, consolidation or otherwise, in a manner that materially and adversely
affects any right, preference, privilege or voting power of the Star Preferred Stock. This class vote is not required for an event in
which the Star Preferred Stock, or substitute securities of a surviving entity, remains outstanding with terms that are materially unchanged,
or for an increase in the authorized number of Star Preferred Stock or other preferred stock, or the creation or issuance of other preferred
stock, that ranks on a parity with or junior to the Star Preferred Stock as to dividends and liquidation.
Other
Provisions
The
Star Preferred Stock is not convertible into or exchangeable for other Company property or securities. It has a perpetual term and is
not subject to a sinking fund. Holders have no preemptive right, solely by virtue of their ownership of Star Preferred Stock, to purchase
or subscribe for additional Company securities. Any Star Preferred Stock repurchased by the Company becomes authorized but unissued preferred
stock.
The
Star Preferred Stock is initially represented by one or more global certificates registered in the name of the securities depository
or its nominee, and no transfer is registered to a person other than the securities depository or its nominee. If the Company is not
subject to Section 13 or Section 15(d) of the Exchange Act while any Star Preferred Stock remains outstanding, the Company must use best
efforts to mail holders the annual and quarterly reports it would otherwise be required to file with the SEC, without exhibits, within
15 days after the applicable filing deadline that would apply to a non-accelerated filer, and must provide copies to prospective holders
upon written request.
Charter
and Bylaws Provisions Applicable to Star Preferred Stock Holders
The
Star bylaws provide that, unless the Company consents in writing to another forum, specified internal corporate claims must be brought
exclusively in the Delaware Court of Chancery (or, if that court lacks jurisdiction, the federal district court for the District of Delaware),
and Securities Act claims must be brought exclusively in the federal district courts of the United States. A person acquiring or holding
Company capital stock is deemed to have notice of and consented to that provision.
Stock
Exchange Listing
The
Star Preferred Stock is listed on the Nasdaq Global Select Market under the trading symbol “STRRP.”
Transfer
Agent and Registrar
Star’s
transfer agent and registrar for the Star Preferred Stock is Computershare, Inc., 150 Royall Street, Suite 101, Canton, MA 02021.
130
COMPARISON
OF THE RIGHTS OF STAR PREFERRED STOCKHOLDERS AND HARTE HANKS STOCKHOLDERS
If
the Merger is completed, Harte Hanks stockholders may receive shares of Star Preferred Stock in the Merger, and they will cease to be
Harte Hanks stockholders.
Harte
Hanks and Star are both organized under the laws of the State of Delaware. The following is a summary of certain material differences
between (i) the current rights of Harte Hanks stockholders under the Harte Hanks certificate of incorporation and bylaws and Delaware
law and (ii) the current rights of Star Preferred Stockholders under Star’s Certificate of Designations, Star’s amended and
restated certificate of incorporation, Star’s bylaws, and Delaware law.
The
following summary is not a complete statement of the rights of stockholders of the two companies or a complete description of the specific
provisions referred to below. The summary is qualified in its entirety by reference to Harte Hanks’ and Star’s governing
documents, which we urge you to read carefully and in their entirety. Copies of Star’s governing documents have been filed with
the SEC. See “Where You Can Find More Information” beginning on page 135.
Star
Preferred Stockholders
Harte
Hanks Common Stockholders
Authorized
Capital Stock
10%
Series A Cumulative Perpetual Preferred Stock is a designated series of Star Preferred Stock. The Certificate of Designations authorizes
8,000,000 10% Series A Cumulative Perpetual Preferred shares. Star’s Charter, as amended, authorizes 20,000,000 common shares
and 10,000,000 preferred shares.
Harte
Hanks’ certificate of incorporation, as amended, authorizes 25,000,000 common shares, par value $1.00 per share, and 1,000,000
preferred shares, par value $1.00 per share.
Rank
Senior
to Star Common Stock and equity securities expressly junior to Star Preferred Stock as to dividends and liquidation; pari passu with
equity expressly designated as parity preferred; junior to equity expressly senior and to all Star indebtedness.
Junior
to any Harte Hanks preferred stock as to dividends and liquidation; common holders receive dividends only after applicable preferred-dividend
and sinking-fund requirements and receive residual assets only after the applicable preferred liquidation preference is paid.
Dividends
Entitled,
when authorized and declared from legally available funds, to cumulative cash dividends at 10% annually of the $10.00 liquidation
preference, a fixed annual amount of $1.00 per share, payable quarterly in arrears. Dividends accumulate irrespective of earnings,
legally available funds, or declaration, but do not bear interest. Until full cumulative dividends are paid or set aside, Star generally
may not pay cash/property dividends or make distributions on, or repurchase, junior or parity equity.
Dividends
may be declared by the board, subject to the charter’s preferred-stock priority and applicable law.
131
Liquidation
/ Dissolution
Receives
$10.00 per share plus accumulated and unpaid dividends (without interest) before any distribution to Star common stock or other stock
junior in liquidation. After that payment, Star Preferred stockholders have no claim to residual assets. A Merger, consolidation,
statutory share exchange, or sale/lease/transfer of all or substantially all assets is expressly not a liquidation event.
Receives
ratably the residual assets available for distribution only after the full preferential amount payable to Harte Hanks preferred stock
has been distributed.
Conversion
Rights
Not
convertible into or exchangeable for any other Star property or securities.
No
conversion or exchange right.
Redemption
Right
None.
None.
Preemptive
Right
None.
None.
Information
Rights
If
Star is not subject to Exchange Act Section 13 or 15(d) reporting while Star Preferred Stock remains outstanding, Star must use best
efforts to deliver the annual and quarterly reports it would otherwise be required to file, within 15 days after the hypothetical
filing deadline.
The
bylaws require a stockholder list to be open for examination for a meeting-related purpose for at least 10 days before a meeting.
Voting
Rights
No
general voting right. If dividends are in arrears for six or more consecutive quarters, they vote separately with applicable parity
preferred holders to elect two additional directors; the class-vote quorum is a majority of outstanding Star Preferred Stock and
applicable parity preferred shares, and the directors are elected by plurality. Holders of at least 20% of Star Preferred Stock (or
an applicable parity series) may request the meeting, and if Star does not call it within 30 days, designated holders of at least
20% of Star Preferred Stock may call it at Star’s expense. The preferred-director right ends when all accumulated dividends
and the current-period dividend are paid or declared and set aside. While Star Preferred Stock is outstanding, a separate vote or
written consent of at least a majority of outstanding Star Preferred Stock shares is required for a Charter amendment, alteration,
or repeal (including through a Merger or consolidation) that materially and adversely affects its rights, preferences, privileges,
or voting powers; specified increases in authorized or parity/junior preferred stock are excluded. Star Preferred stockholders may
remove the two preferred directors only when the dividend-default voting right is in effect and only by the applicable preferred
class vote. The documents do not grant Star Preferred stockholders general special-meeting, written-consent, nomination, or stockholder-business
rights solely by reason of holding Star Preferred Stock.
Generally,
one vote per share on all matters. Common holders elect directors annually by majority of votes cast in an uncontested election and
by plurality in a contested election. They may remove directors by majority vote of shares entitled to vote in director elections.
Charter amendments generally require majority approval of outstanding voting stock, with a 66 2/3% vote for amendments to specified
charter articles; bylaws may be amended by the specified board approval or a 66 2/3% stockholder vote. Stockholder written consent
is prohibited. Common holders cannot call special meetings, which only the board, chairman, or CEO may call. Annual-meeting business
and nominations require advance notice 90–120 days before the prior annual meeting anniversary, subject to the bylaws’
alternative timing rule and detailed disclosure requirements.
132
Board
Size, Classification, Vacancies, and Removal
Star
Preferred Stock does not generally elect or remove Star directors. Its two preferred directors, if elected during a dividend default,
may be removed only by the applicable preferred holders voting as a class. Star’s general board framework is not a Star Preferred
stockholder right except when Star Preferred Stock voting rights are triggered.
The
board of directors of Harte Hanks currently consists of four directors. Board size is set by the board (default seven) and directors
serve one-year terms. Vacancies are filled by a majority of remaining directors, even if less than a quorum. Common stockholders
may remove directors by majority vote of shares entitled to vote in director elections.
Special
Meetings
No
general right to call a Star stockholder meeting is granted solely by holding Star Preferred Stock. During a preferred dividend default,
the 20% mechanism described above applies for the election of preferred directors.
Common
stockholders have no right to call a special meeting. Only the board, chairman, or CEO may call one.
Written
Consent
No
general voting right is granted to Star Preferred stockholders, but the Star Preferred Stock protective vote may be given in writing
or at a meeting.
Stockholder
action by written consent is prohibited; action must be taken at a duly noticed annual or special meeting.
Advance
Notice of Stockholder Business / Nominations
No
Star Preferred Stock voting rights or separate nomination/business-proposal right.
A
record holder must deliver notice for annual-meeting business or nominations 90–120 days before the anniversary of the prior
annual meeting, subject to the bylaws’ alternative timing rule.
Transfer
and Form of Holding
Star
Preferred Stock is initially represented by one or more global certificates registered in the name of the securities depository or
its nominee. The Certificate of Designations provides that no transfer registration is made on Star’s books to any person other
than the depository or nominee.
Shares
may be certificated or uncertificated if the board so resolves. Transfers are made on Harte Hanks’ books by the registered
holder or authorized attorney, and certificated transfers require surrender of the certificate.
Amendment
of Charter and Bylaws
None.
Charter
amendments generally require a majority of outstanding voting stock, but amendments to Articles Fifth, Seventh, Eighth, Tenth, and
Eleventh require 66 2/3%. Bylaw amendments require either the specified board approval or 66 2/3% of voting power; heightened protections
apply where an interested stockholder or affiliated director proposes the change.
Exclusive
Forum
Delaware
Court of Chancery (or, if it lacks jurisdiction, the U.S. District Court for the District of Delaware) is the exclusive forum for
specified internal corporate claims unless Star consents otherwise. Federal district courts are the exclusive forum for Securities
Act claims.
Unless
Harte Hanks consents in writing, the Delaware Court of Chancery is the exclusive forum for specified internal corporate claims, with
Delaware state court and then the U.S. District Court for the District of Delaware as successive alternatives if jurisdiction is
unavailable.
Director
Liability and Indemnification
Star
Preferred Stock does not receive a separate holder-specific indemnification or exculpation right.
Common
stockholders do not receive a holder-specific indemnification or exculpation right. Harte Hanks directors have exculpation rights,
and Harte Hanks directors, officers, employees, and agents have exculpation/ indemnification/ advancement rights to the fullest extent
permitted under the DGCL.
Appraisal
/ Dissenters’ Rights
None.
None.
133
LEGAL
MATTERS
The
validity of Star 10% Series A Cumulative Perpetual Preferred Stock to be issued in connection with the Merger will be passed upon for
Star by Baker & Hostetler LLP, counsel for Star.
EXPERTS
Star
The
consolidated financial statements of Star as of December 31, 2025 and 2024, and for each of the years in the two-year period ended December
31, 2025, have been included herewith in reliance on the report of Wolf & Company, P.C., an independent registered public accounting
firm, upon the authority of said firm as experts in accounting and auditing.
Harte
Hanks
The
consolidated financial statements of Harte Hanks as of December 31, 2025 and 2024, and for each of the years in the two-year period ended
December 31, 2025, have been included herewith in reliance on the report of Wolf & Company, P.C., independent registered public accounting
firm, upon the authority of said firm as experts in accounting and auditing.
134
WHERE
YOU CAN FIND MORE INFORMATION
Star
and Harte Hanks file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an
Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC, including both Star and Harte Hanks, which you can access at www.sec.gov. In addition, you may obtain free copies of the
documents Star files with the SEC, including the registration statement on Form S-4, of which this proxy statement/prospectus forms a
part, by going to Star’ Internet website at https://www.starequity.com/ and you may obtain free copies of the documents Harte Hanks
files with the SEC by going to Harte Hanks’ Internet website at https://www.hartehanks.com/. The Internet website addresses of
Star and Harte Hanks are provided as inactive textual references only. The information provided on the Internet websites of Star and
Harte Hanks, other than copies of the documents listed below that have been filed with the SEC, is not part of this proxy statement/prospectus
and, therefore, is not incorporated herein by reference.
You
can obtain any documents from the SEC through the SEC’s website at the address indicated above or from Harte Hanks or Star, as
applicable, by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers.
Star
Equity Holdings, Inc.
53
Forest Avenue, Suite 101
Old
Greenwich
,
CT 06870
(203)
489-9500
Attention:
Corporate Secretary
Harte
Hanks, Inc.
1
Executive Drive, Suite 303
Chelmsford,
MA 01824
Attention:
Corporate Secretary / General Counsel
(512)
434-1100
This
document does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this document, or
the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer, solicitation
of an offer or proxy solicitation in such jurisdiction. Neither the delivery of this document nor any distribution of securities pursuant
to this document shall, under any circumstances, create any implication that there has been no change in the information set forth or
incorporated into this document by reference or in Star’s and Harte Hanks’ affairs since the date of this document. Star
provided the information contained in this document with respect to Star and Harte Hanks provided the information contained in this document
with respect to Harte Hanks.
135
Annex
A
AGREEMENT
AND PLAN OF MERGER
by
and among
Star
Equity Holdings, Inc.,
Merger
Sub - R, Inc.
and
Harte
Hanks, Inc.
Dated
as of August 14, 2026
136
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS & INTERPRETATIONS
140
1.1
Certain Definitions
140
1.2
Additional Definitions
153
1.3
Certain Interpretations
155
ARTICLE II THE MERGER
156
2.1
The Merger
156
2.2
The Effective Time
157
2.3
The Closing
157
2.4
Effect of the Merger
157
2.5
Certificate of Incorporation and Bylaws
157
2.6
Directors and Officers
157
2.7
Effect on Capital Stock
157
2.8
Election Procedures
.
160
2.9
Company Equity Awards
161
2.10
Exchange of Certificates
162
2.11
No Further Ownership Rights in Company Common Stock
164
2.12
Lost, Stolen or Destroyed Certificates
164
2.13
Withholding Rights
164
2.14
Dividends or Distributions
165
2.15
Necessary Further Actions
165
2.16
Intended Tax Treatment
165
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
165
3.1
Organization; Good Standing
165
3.2
Corporate Power; Enforceability
166
3.3
Company Board Approval; Fairness Opinion; Anti-Takeover
Laws
166
3.4
Requisite Stockholder Approval
166
3.5
Non-Contravention
167
3.6
Requisite Governmental Approvals
167
3.7
Company Capitalization
167
3.8
Subsidiaries
168
3.9
Company SEC Reports
169
3.10
Company Financial Statements; Internal Controls;
Indebtedness
169
3.11
No Undisclosed Liabilities
170
3.12
Absence of Certain Changes
170
3.13
Material Contracts
170
3.14
Real Property
171
3.15
Environmental Matters
172
3.16
Intellectual Property
173
3.17
Tax Matters
175
3.18
Employee Plans
176
3.19
Labor Matters
178
3.20
Permits; Compliance with Laws
178
3.21
Legal Proceedings; Orders
179
3.22
Insurance
179
137
3.23
Related Person Transactions
179
3.24
Brokers
180
3.25
Trade Controls; Anti-Corruption Laws
180
3.26
No Reliance
181
3.27
Information Supplied
181
3.28
Transaction Expenses
181
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
182
4.1
Organization; Good Standing
182
4.2
Power; Enforceability
182
4.3
Non-Contravention
183
4.4
Requisite Governmental Approvals
183
4.5
Parent Capitalization
183
4.6
Subsidiaries
184
4.7
Parent SEC Reports
184
4.8
Parent Financial Statements; Internal Controls;
Indebtedness
184
4.9
No Undisclosed Liabilities
185
4.10
Absence of Certain Changes
185
4.11
Permits; Compliance with Laws
185
4.12
Legal Proceedings; Orders
186
4.13
Ownership of Company Capital Stock
186
4.14
Brokers
186
4.15
Operations of Parent and Merger Sub
186
4.16
No Parent Vote or Approval Required
186
4.17
Stockholder and Management Arrangements
186
4.18
Financing
186
4.19
Solvency
187
4.20
Information Supplied
187
4.21
Exclusivity of Representations and Warranties
187
ARTICLE V INTERIM OPERATIONS OF THE COMPANY
188
5.1
Affirmative Obligations
188
5.2
Forbearance Covenants
189
5.3
No Solicitation
192
ARTICLE VI ADDITIONAL COVENANTS
197
6.1
Required Action and Forbearance; Efforts
197
6.2
Form S-4; Proxy Statement; Other Required SEC Filings
198
6.3
Stockholder Meeting
199
6.4
Anti-Takeover Laws
200
6.5
Access
200
6.6
Section 16(b) Exemption
201
6.7
Directors’ and Officers’ Exculpation,
Indemnification and Insurance
201
6.8
Employee Matters
202
6.9
Obligations of Merger Sub
204
6.10
Notification of Certain Matters
204
6.11
Public Statements and Disclosure
204
6.12
Company Transaction Litigation
204
6.13
Parent Transaction Litigation
205
138
6.14
Stock Exchange Delisting; Deregistration
205
6.15
Additional Agreements
205
6.16
No Control of the Other Party’s Business
205
6.17
No Employment Discussions
205
6.18
Debt Financing Matters
205
6.19
Alternative Debt Financing
208
6.20
Debt Financing Costs
208
6.21
Transaction Expense Update
208
ARTICLE VII CONDITIONS TO THE MERGER
208
7.1
Conditions to Each Party’s Obligations to
Effect the Merger
208
7.2
Conditions to the Obligations of Parent and Merger
Sub
209
7.3
Conditions to the Company’s Obligations to
Effect the Merger
210
7.4
Frustration of Closing Conditions
211
ARTICLE VIII TERMINATION, AMENDMENT AND
WAIVER
211
8.1
Termination
211
8.2
Manner and Notice of Termination; Effect of Termination
213
8.3
Fees and Expenses
213
8.4
Amendment
217
8.5
Extension; Waiver
217
ARTICLE IX GENERAL PROVISIONS
217
9.1
Survival of Representations, Warranties and Covenants
217
9.2
Notices
218
9.3
Assignment
218
9.4
Confidentiality
219
9.5
Entire Agreement
219
9.6
Third Party Beneficiaries
219
9.7
Severability
219
9.8
Remedies
219
9.9
Governing Law
220
9.10
Consent to Jurisdiction
220
9.11
WAIVER OF JURY TRIAL
221
9.12
Company Disclosure Letter References
221
9.13
Counterparts
221
9.14
No Limitation
221
9.15
Performance Guarantee
221
139
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (this “
Agreement
”)
is made and entered into as of August 14, 2026, by and among Star Equity Holdings, Inc., a Delaware corporation (“
Parent
”),
Merger Sub - R, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“
Merger
Sub
”), and
Harte Hanks, Inc., a Delaware corporation (the “
Company
”).
Each of Parent, Merger Sub and the Company are sometimes referred to as a “
Party
.”
All capitalized terms that are used in this Agreement have the respective meanings given to them in
Article
I
.
RECITALS
A.
The Company Board has (i) determined that it is in the best interests of the Company and its stockholders to enter into this Agreement
providing for the merger of Merger Sub with and into the Company, with the Company surviving and Merger Sub ceasing to exist (the “
Merger
”),
and declared this Agreement advisable, in accordance with the General Corporation Law of the State of Delaware (the “
DGCL
”)
upon the terms and subject to the conditions set forth herein; (ii) approved the execution and delivery of this Agreement by the Company,
the performance by the Company of its covenants and other obligations hereunder, and the consummation of the Merger upon the terms and
subject to the conditions set forth herein; and (iii) resolved to recommend that the stockholders of the Company vote in favor of
the adoption of this Agreement and approve the Merger in accordance with the DGCL.
B.
Each of the board of directors of Parent and the board of directors of Merger Sub have (i) declared it advisable to enter into this Agreement;
and (ii) approved the execution and delivery of this Agreement, the performance of their respective covenants and other obligations hereunder,
and the consummation of the Merger upon the terms and subject to the conditions set forth herein.
C.
Immediately after the execution and delivery of this Agreement, certain stockholders of the Company will enter into voting and support
agreements (the “
Voting
and Support Agreements
”)
with the Company and Parent, pursuant to which such stockholders will agree, among other things, to vote their shares of Company Common
Stock in favor of the adoption of this Agreement, on the terms and subject to the conditions set forth therein.
D.
Parent, Merger Sub and the Company desire to (i) make certain representations, warranties, covenants and agreements in connection with
this Agreement and the Merger; and (ii) prescribe certain conditions with respect to the consummation of the Merger.
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements set forth herein,
as well as other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, and intending
to be legally bound hereby, Parent, Merger Sub and the Company agree as follows:
Article
I
DEFINITIONS
& INTERPRETATIONS
1.1
Certain
Definitions
. For
all purposes of and pursuant to this Agreement, the following capitalized terms have the following respective meanings:
(a)
“
ABL
Loan Agreement
”
means that certain Loan Agreement, dated as of December 21, 2021, among the Company, the subsidiary guarantors party thereto and Texas
Capital Bank, as amended by that certain First Amendment to Loan Agreement, dated as of
140
December
29, 2023, and that certain Second Amendment to Loan Agreement, dated as of June 24, 2025 (as further amended, restated, supplemented or
otherwise modified from time to time).
(b)
“
ABL Loan
Agreement Amendment
”
means an amendment to the ABL Loan Agreement, in form and substance satisfactory to Parent, (i) providing for the Debt Financing, (ii)
evidencing Texas Capital Bank’s consent to the consummation of the Closing subject to and in accordance with the terms of this Agreement,
and (iii) providing for the continued financing of the Company’s business from and after the Closing.
(c)
“
Acceptable
Confidentiality Agreement
”
means an agreement with the Company that is either (i) in effect as of the execution and delivery of this Agreement; or (ii) executed,
delivered and effective after the execution and delivery of this Agreement, in either case, that contains customary provisions that require
any counterparty thereto (and any of its Affiliates and representatives named therein) that receives material non-public information of
or with respect to the Company to keep such information confidential; provided, however, that, in each case, the provisions contained
therein are no less restrictive in any material respect to such counterparty (and any of its Affiliates and representatives named therein)
than the terms of the Confidentiality Agreement and do not prohibit the Company from complying with its obligations under this Agreement,
including
Section
5.3
.
(d)
“
Acquisition
Proposal
”
means any bona fide offer or proposal (other than an offer or proposal by Parent or Merger Sub) to engage in an Acquisition Transaction.
(e)
“
Acquisition
Transaction
”
means any transaction or series of related transactions (other than the Merger) involving:
(i)
any
direct or indirect purchase or other acquisition by any Person or “group” (as defined pursuant to Section 13(d) of the Exchange
Act) of Persons, whether from the Company or any other Person(s), of securities representing more than 25% of the total outstanding voting
power of the Company after giving effect to the consummation of such purchase or other acquisition, including pursuant to a tender offer
or exchange offer by any Person or “group” of Persons that, if consummated in accordance with its terms, would result in such
Person or “group” of Persons beneficially owning more than 25% of the total outstanding voting power of the Company after
giving effect to the consummation of such tender or exchange offer;
(ii)
any
direct or indirect purchase (including by way of merger, consolidation, business combination, recapitalization, reorganization, liquidation,
dissolution or other transaction), license or other acquisition by any Person or “group” (as defined pursuant to Section 13(d)
of the Exchange Act) of Persons of assets constituting or accounting for more than 25% of the consolidated assets, revenue or net income
of the Company Group, taken as a whole (measured by the fair market value thereof as of the date of such purchase or acquisition, as determined
in good faith by the Company Board or a committee thereof); or
(iii)
any
merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or other transaction involving
the Company pursuant to which any Person or “group” (as defined pursuant to Section 13(d) of the Exchange Act) of Persons
would hold securities representing more than 25% of the total outstanding voting power of the Company outstanding after giving effect
to the consummation of such transaction.
(f)
“
Affiliate
”
means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control
with such Person. For purposes
141
of
this definition, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled
by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities,
by contract or otherwise.
(g)
“
Antitrust
Law
” means
the Sherman Antitrust Act, the Clayton Antitrust Act, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Federal Trade Commission
Act and all other laws, whether in any domestic or foreign jurisdiction, that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of trade or significant impediments or lessening of competition or
the creation or strengthening of a dominant position through merger or acquisition, in any case that are applicable to the Merger.
(h)
“
Audited
Company Balance Sheet
”
means the consolidated balance sheet (and the notes thereto) of the Company Group as of December 31, 2025 set forth in the Company’s
Annual Report on Form 10-K filed by the Company with the SEC for the fiscal year ended December 31, 2025.
(i)
“
Business
Day
” means
each day that is not a Saturday, Sunday or other day on which the Federal Reserve Bank of New York is closed.
(j)
“
Code
”
means the Internal Revenue Code of 1986, as amended.
(k)
“
Company
Board
” means
the Board of Directors of the Company.
(l)
“
Company
Capital Stock
”
means the Company Common Stock.
(m)
“
Company
Common Stock
”
means the common stock, par value $1.00 per share, of the Company.
(n)
“
Company
Equity Awards
”
means the Company Options, the Company RSUs and the Company PSUs.
(o)
“
Company
Equity Plans
”
means the Company’s 2020 Equity Incentive Plan, the Company’s Amended and Restated 2013 Omnibus Incentive Plan and the Company’s
2023 Inducement Equity Incentive Plan.
(p)
“
Company
Group
” means
the Company and its Subsidiaries.
(q)
“
Company
Intellectual Property
”
means any Intellectual Property that is owned by the Company Group.
(r)
“
Company
Material Adverse Effect
”
means any fact, change, event, violation, inaccuracy, effect, occurrence or circumstance (each, an “
Effect
”)
that, individually or taken together with all other Effects, has had or would reasonably be expected to have a material adverse effect
on the business, financial condition, or results of operations of the Company Group, taken as a whole, or would reasonably be expected
to, individually or in the aggregate, make impossible the ability of the Company to satisfy the conditions precedent to the Merger or
consummate the Merger and the other transactions contemplated by this Agreement prior to the Termination Date;
provided
,
however
,
that none of the following (by itself or when aggregated) will be deemed to be or constitute a Company Material Adverse Effect or will
be taken into account when determining whether a Company Material Adverse Effect has occurred or may, would or could occur (subject to
the limitations set forth below):
(i)
changes
in general economic conditions in the United States or any other country or region in the world, or changes in conditions in the global
economy generally;
142
(ii)
changes
in conditions in the financial markets or capital markets in the United States or any other country or region in the world, including
(A) changes in exchange rates for the currencies of any country or (B) any suspension of trading in securities (whether equity, debt,
derivative or hybrid securities) generally on any securities exchange or over-the-counter market operating in the United States or any
other country or region in the world;
(iii)
changes
in conditions in the industries in which the Company Group conducts business;
(iv)
changes
in regulatory, legislative or political conditions in the United States or any other country or region in the world;
(v)
any
geopolitical conditions, cyberattack, outbreak of hostilities, acts of war, sabotage, terrorism or military actions (including any escalation
or general worsening of any such hostilities, acts of war, sabotage, terrorism or military actions) in the United States or any other
country or region in the world;
(vi)
earthquakes,
hurricanes, tsunamis, tornadoes, floods, mudslides, wildfires or other natural disasters or weather conditions, epidemics, pandemics,
disease outbreaks or other force majeure events or acts of God in the United States or any other country or region in the world;
(vii)
any
Effect resulting from the negotiation, execution, delivery, announcement, pendency, performance, compliance with the terms of or consummation
of this Agreement or the Transactions, including the impact thereof on the relationships, contractual or otherwise, of the Company Group
with employees, suppliers, customers, partners, vendors or any other third Person;
(viii)
any
action taken or refrained from being taken by the Company or its Subsidiaries, Affiliates or Representatives that is expressly required
by the terms of this Agreement, or is consented to by Parent;
(ix)
any
action taken or refrained from being taken, in each case by any member of the Company Group to which Parent has expressly approved, consented
to or requested in writing following the date of this Agreement;
(x)
changes
or proposed changes in GAAP or other accounting standards or in any applicable laws or regulations (or the enforcement or interpretation
of any of the foregoing);
(xi)
changes
in the price or trading volume of the Company Common Stock or changes or prospective changes to the Company’s credit rating (it
being understood that any cause of such change may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may
be taken into consideration when determining whether a Company Material Adverse Effect has occurred to the extent not otherwise falling
within any of the exceptions set forth in clauses (i) through (xiv) other than this clause (xi));
(xii)
any
failure by the Company Group to meet (A) any public estimates or expectations of the Company’s revenue, earnings, cash flows, EBITDA
or other financial performance or results of operations for any period; or (B) any internal budgets, plans, or projections or internal
forecasts of its
143
revenues,
earnings, cash flows, EBITDA or other financial performance or results of operations (it being understood that any cause of any such failure,
and any Effect underlying or contributing to such failure, may be deemed to constitute, in and of itself, a Company Material Adverse Effect
and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred to the extent not otherwise
falling within any of the exceptions set forth in clauses (i) through (xiv) other than this clause (xii));
(xiii)
any
Company Transaction Litigation; and
(xiv)
any
breach, violation or non-performance by Parent or Merger Sub of any of their respective obligations under this Agreement.
provided,
further, that the exceptions set forth in clauses (i), (ii), (iii), (iv), (v), (vi) and (x) shall not apply to the extent that such Effect
has had, or would reasonably be expected to have, a disproportionate adverse effect on the Company Group, taken as a whole, relative to
other companies operating in the industries in which the Company Group operates.
(s)
“
Company
Option
” means
an option to purchase shares of Company Common Stock granted pursuant to any of the Company Equity Plans.
(t)
“
Company
PSU
” means
a performance stock unit award granted pursuant to any of the Company Equity Plans that vests in whole or in part upon the achievement
of one or more performance goals (notwithstanding that the vesting of such award may also be conditioned upon the continued services of
the holder thereof).
(u)
“
Company
Registered Intellectual Property
”
means all of the Registered Intellectual Property owned by, or filed in the name of, the Company Group.
(v)
“
Company
RSU
” means
a restricted stock unit award granted pursuant to any of the Company Equity Plans that vests in whole upon the continued services of the
holder thereof.
(w)
“
Company
Stockholders
”
means the holders of shares of Company Capital Stock.
(x)
“
Company
Transaction Expenses
”
means the fees and expenses of (i) the Company’s financial advisor and any other investment banker, broker, advisor or similar party,
and (ii) any accountant, legal counsel, proxy solicitor, stockholder meeting and proxy voting system manager, tax advisor, outside general
counsel or consultant, or other Person, as well as the costs of all D&O Insurance (including any “tail policy” purchased
pursuant to
Section
6.7(c)
), and all
amounts payable by the Company (or any of its Subsidiaries), whether immediately or in the future, under any “change of control,”
retention, termination, compensation, severance or other similar arrangements by reason of (either alone or in conjunction with any other
event, such as termination or continuation of employment) the consummation of the Transactions or any Transaction document (including
such amounts payable to any employee of any member of the Company (or any of its Subsidiaries) at the election of such employee pursuant
to any such arrangements), in each case incurred or arising in connection with this Agreement or the Transactions; provided, however,
that “Company Transaction Expenses” shall not include any amounts payable in respect of Award Company Shares pursuant to
Section
2.9
or any amount
payable in connection with the Debt Financing or any Alternative Debt Financing pursuant to
Section
6.20
.
(y)
“
Company
Transaction Litigation
”
means any Legal Proceeding commenced or threatened against the Company or any of its Subsidiaries or Affiliates or otherwise relating
to, involving or affecting such Party or any of its Subsidiaries or Affiliates, in each case in
144
connection
with, arising from or otherwise relating to the Transactions, including any Legal Proceeding alleging or asserting any misrepresentation
or omission in the Proxy Statement or any Other Required Filing, other than any Legal Proceedings among the Parties related to this Agreement.
(z)
“
Continuing
Employee
”
means an individual who is an employee of a member of the Company Group immediately prior to the Effective Time and who continues to be
an employee of Parent or one of its Subsidiaries (including the Surviving Corporation) immediately following the Effective Time.
(aa)
“
Contract
”
means any written contract, subcontract, note, bond, mortgage, indenture, lease, license, sublicense or other binding agreement.
(ab)
“
Debt
Financing
”
means a proposed financing of a portion of the Cash Consideration and any cash in lieu of fractional shares of Parent Preferred Stock
payable pursuant to
Section
2.7
, up to a cap
of $15,000,000 (the “
Maximum
Debt Financing Amount
”),
pursuant to a draw by the Company on its $25,000,000 existing secured revolving credit facility under the ABL Loan Agreement.
(ac)
“
Environmental
Law
” means
any law, statute, code, rule, regulation, decree, injunction or order in effect as of the date of this Agreement relating to pollution
or the protection of the environment.
(ad)
“
ERISA
”
means the Employee Retirement Income Security Act of 1974.
(ae)
“
Exchange
Act
” means
the Securities Exchange Act of 1934.
(af)
“
Exempted
Party
” means
any Person, group of Persons or group that includes any Person (so long as such Person, together with all other members of such group,
if any, who were members of such group that included such Person immediately prior to the expiration of the Go-Shop Period, represent
at least 50% of the equity financing of such group at all times following the expiration of the Go-Shop Period), from whom the Company
or any of its Representatives has received, after the execution of this Agreement and prior to the expiration of the Go-Shop Period, an
Acquisition Proposal that the Company Board (or a committee thereof) determines in good faith (such determination to be made no later
than prior to the No-Shop Period Start Date), after consultation with outside counsel and its financial advisors, is a Superior Proposal
or would reasonably
be expected to result in a Superior Proposal;
provided
,
however
,
that such Person or group of Persons shall immediately and irrevocably cease to be an Exempted Party if, at any time after the No-Shop
Period Start Date, the Acquisition Proposal submitted by such Person or group of Persons is withdrawn or terminated or modified in a manner
such that, in the good faith determination of the Company Board (or a committee thereof) after consultation with outside counsel and its
financial advisors, as modified, it no longer constitutes or is reasonably expected to result in a Superior Proposal.
(ag)
“
GAAP
”
means generally accepted accounting principles, consistently applied, in the United States.
(ah)
“
Governmental
Authority
”
means any government, governmental or regulatory entity or body, department, commission, board, agency or instrumentality, and any court,
tribunal, arbitrator (public or private) or judicial body, in each case whether federal, state, county or provincial, and whether local
or foreign.
(ai)
“
Hazardous
Substance
”
means any substance, material or waste that is regulated by a Governmental Authority as, “hazardous,” “toxic”
or “radioactive” or words of similar import, pursuant to any Environmental Law, including petroleum and petroleum products,
polychlorinated biphenyls and asbestos.
145
(aj)
“
HIPAA
”
means the Health Insurance Portability and Accountability Act of 1996, as amended, including the Health Information Technology for Economic
and Clinical Health Act, and all regulations promulgated thereunder.
(ak)
“
Indebtedness
”
means any of the following liabilities or obligations: (i) indebtedness for borrowed money (including any principal, premium, accrued
and unpaid interest, related expenses, prepayment penalties, commitment and other fees, sale or liquidity participation amounts, reimbursements,
indemnities and all other amounts payable in connection therewith); (ii) liabilities evidenced by bonds, debentures, notes or other
similar instruments or debt securities; (iii) liabilities pursuant to or in connection with letters of credit or banker’s acceptances
or similar items (in each case whether or not drawn, contingent or otherwise); (iv) liabilities pursuant to capitalized or finance
leases; (v) net obligations under interest rate and currency swap arrangements and any other arrangements designed to provide protection
against fluctuations in interest or currency rates; (vi) deferred purchase price liabilities related to past acquisitions which would
appear as liabilities on a balance sheet in accordance with GAAP; (vii) arising in connection with earnouts or other contingent payment
obligations, in each case to the extent that such liabilities or obligations would appear as liabilities on a balance sheet in accordance
with GAAP; and (viii) indebtedness of others guaranteed by the Company Group or secured by any lien or security interest on the assets
of the Company Group.
(al)
“
Health
Law
” means
any law, statute, code, rule, regulation, decree, guidance, GFI, injunction or order in effect as of the date of this Agreement, including
but not limited to, the Federal Food, Drug, and Cosmetic Act, state equivalent food, drug, and cosmetic acts, state pharmacy practice
acts, state drug manufacturing acts, the Drug Quality and Security Act, state wholesale laws, and any local equivalents.
(am)
“
Intellectual
Property
”
means the rights associated with the following: (i) all United States and foreign priority, provisional, utility, and design patents
and applications therefor (including all reissues, reexaminations, divisions, continuations, continuations in part, and extensions thereof)
(“
Patents
”);
(ii) all copyrights and rights in original works of authorship (whether registered or unregistered) (“
Copyrights
”);
(iii) trademarks, trademark registrations, trademark applications, service marks, service mark registrations, service mark applications,
trade dress rights (including trade dress, trade dress registrations, trade dress applications), trade names, business names, brand names,
designs, and similar designation of origin and rights therein (“
Marks
”);
(iv) rights in trade secrets, proprietary information, and confidential information, and other intellectual property rights in inventions,
studies, manufacturing processes, know how, ideas, developments, drawings, software and data; (v) internet domain name and domain
name registrations; (vi) any other intellectual property or proprietary rights or similar, corresponding or equivalent rights to any
of the foregoing anywhere in the world; and (vii) registrations and applications for registration of any of the foregoing.
(an)
“
IRS
”
means the United States Internal Revenue Service or any successor thereto.
(ao)
“
Knowledge
”
of the Company, with respect to any matter in question, means the actual knowledge of any one of David Fisher, David Garrison, Doug Graham,
Patrick O’Brien, or Benjamin Chacko, in each case after reasonable inquiry of those employees who would reasonably be expected to have
actual knowledge of the matter in question. With respect to matters involving Intellectual Property, Knowledge does not require the Company,
or any of its directors, officers or employees, to have conducted or have obtained any freedom to operate opinions or any Patent, Marks
or other Intellectual Property clearance searches, and if not conducted or obtained, no knowledge of any third Person Patents, Marks or
other Intellectual Property that would have been revealed by such opinions or searches will be imputed to the Company or any of its directors,
officers or employees.
(ap)
“
Legal
Proceeding
”
means any claim, action, charge, complaint, audit, lawsuit, litigation, investigation (to the Knowledge of the Company, as used in relation
to the Company),
146
or
other similar legal proceeding brought by or pending before any Governmental Authority, arbitrator (public or private), mediator or other
tribunal.
(aq)
“
Material
Contract
”
means any of the following Contracts of the Company Group (other than an Employee Plan):
(i)
any
“material contract” (as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC, other than those agreements and
arrangements described in Item 601(b)(10)(iii) of Regulation S-K) with respect to the Company Group, taken as a whole;
(ii)
any
Contract with any staffing agency, employee leasing company, professional employer organization (PEO) or other labor supplier pursuant
to which individuals provide services to the Company or any of its Subsidiaries;
(iii)
any
Contract with any supplier, vendor, subcontractor or service provider that received aggregate payments from the Company Group in excess
of $1,000,000 during fiscal year 2025 or during year-to-date fiscal year 2026;
(iv)
any
Contract with any customer that has made aggregate payments to the Company Group in excess of $1,000,000 during fiscal year 2025 or during
year-to-date fiscal year 2026 (each, a “
Material
Customer
”);
(v)
any
IP Contracts;
(vi)
any
Contract providing for the research, development, design, enhancement, creation, authorship, invention, discovery, reduction to practice
or other development of any material Intellectual Property for the benefit of the Company or any of its Subsidiaries;
(vii)
any
Contract containing any covenant or other provision (A) limiting the right of the Company Group to engage in any material line of business
or to compete with any Person in any line of business that is material to the Company; (B) prohibiting the Company or any of its Subsidiaries
from engaging in any material business with any Person or levying a material fine, charge or other payment for doing so; or (C) containing
and limiting the right of the Company Group pursuant to any “most favored nation” or “exclusivity” provisions,
in each case other than any such Contracts that (1) may be cancelled without material liability to the Company Group upon notice of 90
days or less, or (2) are not material to the Company Group, taken as a whole;
(viii)
any
Contract (A) relating to the disposition or acquisition of assets by the Company Group with a value greater than $250,000 after the date
of this Agreement other than in the ordinary course of business; (B) pursuant to which the Company Group will acquire any material
ownership interest in any other Person or other business enterprise other than any Subsidiary of the Company; or (C) with respect
to any acquisition or divestiture pursuant to which the Company Group has continuing indemnification, “earn-out” or other
contingent payment obligations;
(ix)
any
mortgages, indentures, guarantees, loans or credit agreements, security agreements or other Contracts relating to the borrowing of money
or extension of credit or other Indebtedness, in each case in which the outstanding obligation, individually, is in excess of $1,000,000
other than (A) accounts receivables and payables in the ordinary course of
147
business;
(B) loans to one or more members of the Company Group by one or more other members of the Company Group; and (C) extensions of credit
to customers in the ordinary course of business;
(x)
any
Lease or sublease as set forth in
Section
3.14(b)
of the
Company Disclosure Letter;
(xi)
any
Contract providing for the payment, increase or vesting of any material benefits or compensation in connection with the Merger (other
than Company Equity Plans);
(xii)
any
Contract providing for indemnification of any officer, director or employee by the Company Group, other than Contracts entered into on
substantially the same form as the Company’s standard forms previously made available to Parent;
(xiii)
any
Contract containing any support, maintenance or service obligation on the part of the Company Group that represents revenue in excess
of $1,000,000 on an annual basis, other than those Contracts that may not be cancelled without liability to the Company Group upon notice
of 90 days or less;
(xiv)
other
than in respect of the ABL Loan Agreement, any Contract that prohibits the payment of dividends or distributions in respect of the capital
stock of the Company Group, prohibits the pledging of the capital stock of the Company Group, prohibits the issuance of guarantees by
the Company Group or grants any rights of first refusal or right of first offer or similar right or that limits or proposes to limit the
ability of the Company Group or Affiliates to sell, transfer, pledge, or otherwise dispose of any assets or businesses in excess of $250,000;
(xv)
any
Contract that contains a put, call or similar right pursuant to which the Company Group could be required to purchase or sell, as applicable,
any equity interests of any Person or assets, in each case with a value in excess of $250,000;
(xvi)
any
settlement, conciliation or similar agreement with any Governmental Authority, Person, or pursuant to which the Company Group has any
continuing obligations, including any remaining payment obligations in excess of $100,000 or any other material obligations following
the date of this Agreement;
(xvii)
any
Contract that involves a joint venture entity, strategic alliance, limited liability company, partnership or other similar agreement or
arrangement relating to the formation, creation, operation, management or control of any of the foregoing (excluding, for avoidance of
doubt, reseller agreements and other commercial agreements that do not involve the formation of an entity with any third Person);
(xviii)
any
Contract (A) between the Company or any of its Subsidiaries, on the one hand, and any director or officer of the Company or any of its
Subsidiaries or any Person beneficially owning five percent (5%) or more of the outstanding shares of Company Common Stock, on the other
hand (other than any Employee Plan), or (B) that would be required to be disclosed pursuant to Item 404 of Regulation S-K;
148
(xix)
any
Contract that obligates the Company or any of its Subsidiaries to make any future capital investment or capital expenditure outside the
ordinary course of business in excess of $250,000; and
(xx)
any
Contract that is reasonably likely to result in payments by the Company Group of more than $1,000,000 in the aggregate over the remaining
term of such Contract.
(ar)
“
NASDAQ
”
means The NASDAQ Global Market and any successor stock exchange or inter dealer quotation system operated by The Nasdaq Stock Market,
LLC or any successor thereto.
(as)
“
Non-Recourse
Company Party
”
means the former, current and future direct and indirect equityholders, controlling persons, directors, officers, employees, Affiliates
(other than Company), members, managers, general partners, limited partners, attorneys, agents, representatives and assignees of Company.
(at)
“
Non-Recourse
Parent Party
”
means the former, current and future direct and indirect equityholders, controlling persons, directors, officers, employees, Affiliates
(other than Parent and Merger Sub), members, managers, general partners, limited partners, attorneys, agents, representatives and assignees
of Parent and Merger Sub.
(au)
“
Parent
Common Stock
”
means the common stock, par value $0.001 per share, of Parent.
(av)
“
Parent
Group
” means
Parent and its Subsidiaries.
(aw)
“
Parent
Material Adverse Effect
”
means any Effect that, individually or taken together with all other Effects, has had or would reasonably be expected to have a material
adverse effect on the business, financial condition, or results of operations of the Parent Group, taken as a whole, or would reasonably
be expected to, individually or in the aggregate, make impossible the ability of the Parent to satisfy the conditions precedent to the
Merger or consummate the Merger and the other transactions contemplated by this Agreement prior to the Termination Date;
provided
,
however
,
that none of the following (by itself or when aggregated) will be deemed to be or constitute a Parent Material Adverse Effect or will
be taken into account when determining whether a Parent Material Adverse Effect has occurred or may, would or could occur (subject to
the limitations set forth below):
(i)
changes
in general economic conditions in the United States or any other country or region in the world, or changes in conditions in the global
economy generally;
(ii)
changes
in conditions in the financial markets or capital markets in the United States or any other country or region in the world, including
(A) changes in exchange rates for the currencies of any country or (B) any suspension of trading in securities (whether equity, debt,
derivative or hybrid securities) generally on any securities exchange or over-the-counter market operating in the United States or any
other country or region in the world;
(iii)
changes
in conditions in the industries in which the Parent Group conducts business;
(iv)
changes
in regulatory, legislative or political conditions in the United States or any other country or region in the world;
149
(v)
any
geopolitical conditions, cyberattack, outbreak of hostilities, acts of war, sabotage, terrorism or military actions (including any escalation
or general worsening of any such hostilities, acts of war, sabotage, terrorism or military actions) in the United States or any other
country or region in the world;
(vi)
earthquakes,
hurricanes, tsunamis, tornadoes, floods, mudslides, wildfires or other natural disasters or weather conditions, epidemics, pandemics,
disease outbreaks or other force majeure events or acts of God in the United States or any other country or region in the world;
(vii)
any
Effect resulting from the negotiation, execution, delivery, announcement, pendency, performance, compliance with the terms of or consummation
of this Agreement or the Transactions, including the impact thereof on the relationships, contractual or otherwise, of the Parent Group
with employees, suppliers, customers, partners, vendors or any other third Person;
(viii)
any
action taken or refrained from being taken by the Parent or its Subsidiaries, Affiliates or Representatives that is expressly required
by the terms of this Agreement, or is consented to by the Company;
(ix)
any
action taken or refrained from being taken, in each case by any member of the Parent Group to which the Company has expressly approved,
consented to or requested in writing following the date of this Agreement;
(x)
changes
or proposed changes in GAAP or other accounting standards or in any applicable laws or regulations (or the enforcement or interpretation
of any of the foregoing);
(xi)
changes
in the price or trading volume of the Parent Common Stock or changes or prospective changes to the Parent’s credit rating (it being
understood that any cause of such change may be deemed to constitute, in and of itself, a Parent Material Adverse Effect and may be taken
into consideration when determining whether a Parent Material Adverse Effect has occurred to the extent not otherwise falling within any
of the exceptions set forth in clauses (i) through (xiii) other than this clause (xi));
(xii)
any
failure by the Parent Group to meet (A) any public estimates or expectations of the Parent’s revenue, earnings, cash flows, EBITDA
or other financial performance or results of operations for any period; or (B) any internal budgets, plans, or projections or internal
forecasts of its revenues, earnings, cash flows, EBITDA or other financial performance or results of operations (it being understood that
any cause of any such failure, and any Effect underlying or contributing to such failure, may be deemed to constitute, in and of itself,
a Parent Material Adverse Effect and may be taken into consideration when determining whether a Parent Material Adverse Effect has occurred
to the extent not otherwise falling within any of the exceptions set forth in clauses (i) through (xiii) other than this clause (xii));
and
(xiii)
any
breach, violation or non-performance by Company of any of its obligations under this Agreement;
150
provided,
further, that the exceptions set forth in clauses (i), (ii), (iii), (iv), (v), (vi) and (x) shall not apply to the extent that such Effect
has had, or would reasonably be expected to have, a disproportionate adverse effect on the Parent Group, taken as a whole, relative to
other companies operating in the industries in which the Parent Group operates.
(ax)
“
Parent
Preferred Stock
”
means the 10% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share, of Parent.
(ay)
“
Parent
Securities
”
means any (i) Parent Capital Stock, (ii) outstanding shares of capital stock of, or other equity or voting interest in, Parent; (iii)
outstanding securities of Parent convertible into or exchangeable or exercisable for shares of capital stock of, or other equity or voting
interest (including voting debt) in, Parent; (iv) outstanding options, warrants or other rights or binding arrangements to acquire
from Parent, or that obligate Parent to issue, any capital stock of, or other equity or voting interest in, or any securities convertible
into or exchangeable for shares of capital stock of, or other equity or voting interest (including voting debt) in, Parent; (v) obligations
of Parent to grant, extend or enter into any subscription, warrant, right, convertible, exchangeable or exercisable security, or other
similar Contract relating to any capital stock of, or other equity or voting interest (including any voting debt) in, Parent; and
(vi) outstanding shares of restricted stock, restricted stock units, stock appreciation rights, performance shares, contingent value rights,
“phantom” stock or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly,
on the value or price of, any capital stock of, or other securities or ownership interests in, Parent.
(az)
“
Parent
Transaction Litigation
”
means any Legal Proceeding commenced or threatened against Parent or any of its Subsidiaries or Affiliates or otherwise relating to, involving
or affecting such Party or any of its Subsidiaries or Affiliates, in each case in connection with, arising from or otherwise relating
to the Transactions, including any Legal Proceeding alleging or asserting any misrepresentation or omission in the Proxy Statement or
any Other Required Filing, other than any Legal Proceedings among the Parties related to this Agreement.
(ba)
“
Permitted
Liens
” means
any of the following: (i) liens for Taxes, assessments and governmental charges or levies either not yet delinquent or that are being
contested in good faith and by appropriate proceedings; (ii) mechanics, carriers’, workmen’s, warehouseman’s, repairmen’s,
materialmen’s or other liens or security interests that are not yet due or that are being contested in good faith and by appropriate
proceedings and for which appropriate reserves have been established to the extent required by GAAP; (iii) leases, subleases and real
estate licenses (other than capital or finance leases and leases underlying sale and leaseback transactions), the terms of which that
do not, individually or in the aggregate, adversely affect in any material respect the current use or value of any real property subject
thereto; (iv) liens imposed by applicable law (other than Tax law); (v) pledges or deposits to secure obligations pursuant to
workers’ compensation laws or similar legislation or to secure public or statutory obligations; (vi) pledges and deposits to
secure the performance of bids, trade contracts, leases, surety and appeal bonds, performance bonds and other obligations of a similar
nature, in each case in the ordinary course of business; (vii) covenants, conditions, restrictions, easements, imperfections of title
and other similar non-monetary matters affecting title to such Person’s owned or leased real property that do not materially impair
the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses;
(viii) any right of way or easement related to public roads and highways that do not materially impair the occupancy or use of such real
property for the purposes for which it is currently used in connection with such Person’s businesses; (ix) zoning, building
and other land use regulations imposed by Governmental Authorities having jurisdiction over such Person’s owned or leased real property
that are not violated by the current use and operation of such real property; (x) liens (or other encumbrances of any type) securing
(a) obligations under the ABL Loan Agreement, (b) other secured Indebtedness of the Company Group that is not contemplated to be paid
off at Closing in accordance with the terms hereof or (c) other liabilities reflected on the balance sheet or in the notes to the consolidated
financial statements of the Company included in the Company SEC Reports filed as of the date of this Agreement; (xi) licenses to or
of Company Intellectual
151
Property;
(xii) any other liens that do not secure a liquidated amount, that have been incurred or suffered in the ordinary course of business,
and that would not, individually or in the aggregate, have a material effect on the Company Group, taken as a whole; or (xiii) statutory,
common law or contractual liens of landlords or liens against the interests of a landlord or owner of any Leased Real Property unless
caused by the Company Group.
(bb)
“
Person
”
means any individual, corporation (including any non-profit corporation), limited liability company, joint stock company, general partnership,
limited partnership, limited liability partnership, joint venture, estate, trust, firm, Governmental Authority or other enterprise, association,
organization or entity.
(bc)
“
Registered
Intellectual Property
”
means all United States, international and foreign (i) issued Patents and Patent applications (including provisional applications);
(ii) registered Marks and applications to register Marks (including intent-to-use applications, or other registrations or applications
related to Marks); and (iii) registered Copyrights and applications for Copyright registration.
(bd)
“
Sarbanes-Oxley
Act
” means
the Sarbanes-Oxley Act of 2002.
(be)
“
SEC
”
means the United States Securities and Exchange Commission or any successor thereto.
(bf)
“
Securities
Act
” means
the Securities Act of 1933.
(bg)
“
Subsidiary
”
of any Person means (i) a corporation more than 50% of the combined voting power of the outstanding voting stock of which is owned, directly
or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more other Subsidiaries
of such Person; (ii) a partnership of which such Person or one or more other Subsidiaries of such Person or such Person and one or
more other Subsidiaries thereof, directly or indirectly, is the general partner and has the power to direct the policies, management and
affairs of such partnership; (iii) a limited liability company of which such Person or one or more other Subsidiaries of such Person
or such Person and one or more other Subsidiaries of such Person, directly or indirectly, is the managing member and has the power to
direct the policies, management and affairs of such company; or (iv) any other Person (other than a corporation, partnership or limited
liability company) in which such Person or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries
of such Person, directly or indirectly, has at least a majority ownership and the power to direct the policies, management and affairs
thereof.
(bh)
“
Superior
Proposal
”
means any bona fide written Acquisition Proposal for an Acquisition Transaction on terms that the Company Board (or a committee thereof)
has determined in good faith (after consultation with its financial advisor and outside legal counsel) is reasonably likely to be consummated
in accordance with its terms, taking into account all legal, regulatory and financing aspects of the proposal (including certainty of
closing) and the identity of the Person making the proposal and other aspects of the Acquisition Proposal that the Company Board (or a
committee thereof) deems relevant, and if consummated, would be more favorable, from a financial point of view, to the Company Stockholders
(in their capacity as such) than the Merger (taking into account any revisions to this Agreement made or proposed in writing by Parent
prior to the time of such determination). For purposes of the reference to an “Acquisition Proposal” in this definition, all
references to “25%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%.”
(bi)
“
Tax
”
means any United States federal, state, local and non-United States taxes, assessments and similar governmental charges and impositions
in the nature of taxes imposed by any Governmental Authority (including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation and value added, ad valorem, transfer, franchise, withholding, payroll, employment, excise and property taxes,
together with all interest, penalties and additions imposed by any Governmental Authority with respect to such amounts).
152
(bj)
“
Transactions
”
means the Merger and the other transactions contemplated by this Agreement, including the Debt Financing (or any Alternative Debt Financing),
to the extent consummated as of the Effective Time, and the ABL Loan Agreement Amendment, to the extent consummated as of the Effective
Time.
(bk)
“
WARN
”
means the Worker Adjustment and Retraining Notification Act of 1988.
1.2
Additional
Definitions
. The
following capitalized terms have the respective meanings given to them in the respective Sections of this Agreement set forth opposite
each of the capitalized terms below:
Term
Section
Reference
Advisor
3.3(b)
Agreement
Preamble
Alternative
Acquisition Agreement
5.3(b)
Alternative
Debt Financing
6.19
Alternative
Debt Financing Agreements
6.18(b)(i)
Announcement
6.11
Award
Company Share
2.7(a)(ii)
Bylaws
3.1
Capitalization
Date
3.7(a)
Cash
Consideration
2.7(a)(ii)(A)
Cash
Electing Company Share
2.7(a)(ii)(A)
Certificate
of Merger
2.2
Certificates
2.10(c)
Charter
2.5(a)
Chosen
Courts
9.10(a)
Closing
2.3
Closing
Date
2.3
Closing
Year
6.8(c)
Collective
Bargaining Agreement
3.19(a)
Company
Preamble
Company
401(k) Plan
6.8(f)
Company
Board Recommendation
3.3(a)
Company
Board Recommendation Change
5.3(d)(i)
Company
Disclosure Letter
Article
III
Company
Liability Limitation
8.3(g)(iii)
Company
Related Parties
8.3(f)(iii)
Company
SEC Reports
3.9
Company
Securities
3.7(c)
Company
Stockholder Meeting
6.3(a)
Company
Termination Fee
8.3(b)(i)
Confidentiality
Agreement
9.4
Consent
3.6
DGCL
Recitals
DTC
2.10(d)
Effective
Time
2.2
153
Term
Section
Reference
Electing
Company Shares
2.7(a)(ii)(B)
Election
Date
2.8(c)
Electronic
Delivery
9.13
Employee
Plans
3.18(a)
Exchange
Fund
2.10(b)
FCPA
3.25(b)
Form
of Election
2.8(a)
Form
S-4
6.2(a)
Go-Shop
Period
5.3(a)
Indemnified
Persons
6.7(a)
Intervening
Event
5.3(e)(i)
IP
Contracts
3.16(f)
Lease
3.14(b)
Leased
Real Property
3.14(b)
Maximum
Cash Amount
2.7(a)(iv)
Merger
Recitals
Merger
Consideration
2.7(a)(ii)(B)
Merger
Sub
Preamble
New
Plan
6.8(d)
No-Shop
Period Start Date
5.3(a)
Non-U.S.
Plan
3.18(f)
Notice
Period
5.3(e)(ii)(3)
Old
Plan
6.8(d)
Other
Required Company Filing
6.2(b)
Other
Required Filing
6.2(h)
Other
Required Parent Filings
6.2(h)
Owned
Company Shares
2.7(a)(iii)
Parent
Preamble
Parent
401(k) Plan
6.8(f)
Parent
Liability Limitation
8.3(f)(i)
Parent
Preferred Stock
2.7(a)(ii)(B)
Parent
Recent SEC Reports
Article
IV
Parent
Related Parties
8.3(f)(i)
Parent
Termination Fee
8.3(c)
Party
Preamble
Payment
Agent
2.10(a)
Permits
3.20(a)
Preferred
Stock Consideration
2.7(a)(ii)(B)
Preferred
Stock Electing Company Share
2.7(a)(ii)(B)
Proxy
Statement
6.2(a)
Recent
SEC Reports
Article
III
Representatives
5.3(a)
Requisite
Stockholder Approval
3.4
Surviving
Corporation
2.1
154
Term
Section
Reference
Tax
Returns
3.17(a)
Termination
Date
8.1(c)
Trade
Control Laws
3.25(a)(i)
Voting
and Support Agreements
Recitals
Uncertificated
Shares
2.10(c)
1.3
Certain
Interpretations
.
(a)
When
a reference is made in this Agreement to an Article or a Section, such reference is to an
Article
or a
Section
of this Agreement unless otherwise indicated. When a reference is made in this Agreement to a Schedule or Exhibit, such reference is to
a Schedule or Exhibit to this Agreement, as applicable, unless otherwise indicated.
(b)
When
used herein, (i) the words “hereof,” “herein” and “herewith” and words of similar import will, unless
otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement; and (ii)
the words “include,” “includes” and “including” will be deemed in each case to be followed by the
words “without limitation.”
(c)
Unless
the context otherwise requires, “neither,” “nor,” “any,” “either” and “or”
are not exclusive.
(d)
The
word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and does
not simply mean “if.”
(e)
When
used in this Agreement, references to “$” or “Dollars” are references to U.S. dollars.
(f)
The
meaning assigned to each capitalized term defined and used in this Agreement is equally applicable to both the singular and the plural
forms of such term, and words denoting any gender include all genders. Where a word or phrase is defined in this Agreement, each of its
other grammatical forms has a corresponding meaning.
(g)
When
reference is made to any party to this Agreement or any other agreement or document, such reference includes such party’s successors
and permitted assigns. References to any Person include the successors and permitted assigns of that Person.
(h)
Unless
the context otherwise requires, all references in this Agreement to the Subsidiaries of a Person will be deemed to include all direct
and indirect Subsidiaries of such Person.
(i)
When
used in this Agreement, references to “ordinary course” or “ordinary course of business” will be construed to
mean “ordinary course of business, consistent with past practices.”
(j)
A
reference to any specific legislation or to any provision of any legislation includes any amendment to, and any modification, re-enactment
or successor thereof, any legislative provision substituted therefor and all rules, regulations and statutory instruments issued thereunder
or pursuant thereto, except that, for purposes of any representations and warranties in this Agreement that are made as of a specific
date, references to any specific legislation will be deemed to refer to such legislation or provision (and all rules, regulations and
statutory instruments issued thereunder or pursuant thereto) as of such date. References to any agreement or Contract are to that agreement
or Contract as amended, modified or supplemented from time to time, unless otherwise indicated.
155
(k)
All
accounting terms used herein will be interpreted, and all accounting determinations hereunder will be made, in accordance with GAAP.
(l)
The
table of contents and headings set forth in this Agreement are for convenience of reference purposes only and will not affect or be deemed
to affect in any way the meaning or interpretation of this Agreement or any term or provision hereof.
(m)
The
measure of a period of one month or year for purposes of this Agreement will be the date of the following month or year corresponding
to the starting date. If no corresponding date exists, then the end date of such period being measured will be the next actual date of
the following month or year (for example, one month following May 18 is June 18 and one month following May 31 is July 1).
(n)
The
Parties agree that they have been represented by legal counsel during the negotiation and execution of this Agreement and therefore waive
the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will
be construed against the Party drafting such agreement or document.
(o)
No
summary of this Agreement or any Exhibit or Schedule delivered herewith prepared by or on behalf of any Party will affect the meaning
or interpretation of this Agreement or such Exhibit or Schedule.
(p)
The
information contained in this Agreement and in the Company Disclosure Letter is disclosed solely for purposes of this Agreement, and no
information contained herein or therein will be deemed to be an admission by any Party to any third Person of any matter whatsoever, including
(i) any violation of law or breach of contract; or (ii) that such information is material or that such information is required to
be referred to or disclosed under this Agreement.
(q)
The
representations and warranties in this Agreement are the product of negotiations among the Parties and are for the sole benefit of the
Parties. Any inaccuracies in such representations and warranties are subject to waiver by the Parties in accordance with
Section
8.5
without notice
or liability to any other Person. In some instances, the representations and warranties in this Agreement may represent an allocation
among the Parties of risks associated with particular matters regardless of the knowledge of any of the Parties. Consequently, Persons
other than the Parties may not rely on the representations and warranties in this Agreement as characterizations of actual facts or circumstances
as of the date of this Agreement or as of any other date.
(r)
Documents
or other information or materials will be deemed to have been “made available” by the Company if such documents, information
or materials (i) have been posted to a virtual data room managed by the Company at https://app.global.datasite.com/en/platform/diligence/6a184cbb7b968dcd3ad4d20e/documents/content/index/6a45dc8150c1bee13757ffa5
at least 24 hours prior to the execution and delivery of this Agreement and Parent has received written notification of the document delivery
within the aforementioned timeframe or (ii) have been sent via email to, and acknowledged by, Parent or its counsel, prior to the execution
and delivery of this Agreement.
Article
II
THE
MERGER
2.1
The
Merger
. Upon the
terms and subject to the conditions set forth in this Agreement and the applicable provisions of the DGCL, at the Effective Time, (a)
Merger Sub will be merged with and into the Company; (b) the separate corporate existence of Merger Sub will thereupon cease;
and (c) the Company will continue as the surviving corporation of the Merger and a wholly owned Subsidiary of Parent. The Company, as
the surviving corporation of the Merger, is sometimes referred to herein as the “
Surviving
Corporation
.”
156
2.2
The
Effective Time
.
Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Parent, Merger Sub and the Company will
cause the Merger to be consummated pursuant to the DGCL by filing a certificate of merger in customary form and substance (the “
Certificate
of Merger
”)
with the Secretary of State of the State of Delaware in accordance with the applicable provisions of the DGCL (the time of such filing
with the Secretary of State of the State of Delaware, or such later time as may be agreed in writing by Parent, Merger Sub and the Company
and specified in the Certificate of Merger, being referred to herein as the “
Effective
Time
”).
2.3
The
Closing
. The consummation
of the Merger (the “
Closing
”)
shall take place by the remote exchange of electronic copies of documents and signatures (including by Electronic Delivery) on (a) a date
to be agreed upon by Parent, Merger Sub and the Company that is no later than the second Business Day after the satisfaction or waiver
(to the extent permitted hereunder) of the last to be satisfied or waived of the conditions set forth in
Article
VII
(other than
those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver (to the extent permitted
hereunder) of such conditions); or (b) such other time, location and date as Parent, Merger Sub and the Company mutually agree in
writing. The date on which the Closing actually occurs is referred to as the “
Closing
Date
.”
2.4
Effect
of the Merger
.
At the Effective Time, the effect of the Merger will be as provided in this Agreement and the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective Time all (a) of the property, rights, privileges, powers
and franchises of the Company and Merger Sub will vest in the Surviving Corporation; and (b) debts, liabilities and duties of the
Company and Merger Sub will become the debts, liabilities and duties of the Surviving Corporation.
2.5
Certificate
of Incorporation and Bylaws
.
(a)
Certificate
of Incorporation
.
At the Effective Time, the Amended and Restated Certificate of Incorporation of the Company, as amended (the “
Charter
”),
will be amended and restated in its entirety to read substantially identically to the certificate of incorporation of Merger Sub as in
effect immediately prior to the Effective Time (except that all references in the certificate of incorporation of Merger Sub (i) to its
name, date of incorporation, registered office and registered agent shall instead refer to the name, date of incorporation, registered
office and registered agent, respectively, of the Company as provided in the Charter immediately prior to the Effective Time and (ii)
naming the incorporator(s), the initial board of directors, or original subscribers for shares of Merger Sub shall be omitted) and such
amended and restated certificate of incorporation will become the certificate of incorporation of the Surviving Corporation until, subject
to the provisions of
Section
6.7(a)
, thereafter
amended in accordance with the applicable provisions of the DGCL and such certificate of incorporation.
(b)
Bylaws
.
The Parties shall take all necessary action such that the bylaws of Merger Sub as in effect immediately prior to the Effective Time will
become the bylaws of the Surviving Corporation until, subject to the provisions of
Section
6.7(a)
, thereafter
amended in accordance with the applicable provisions of the DGCL, the certificate of incorporation of the Surviving Corporation and such
bylaws.
2.6
Directors
and Officers
.
(a)
Directors
.
The Parties shall take all necessary action such that the directors of Merger Sub as of immediately prior to the Effective Time shall
be, from and after the Effective Time, the directors of the Surviving Corporation, each to hold office in accordance with the applicable
provisions of the DGCL and the certificate of incorporation and bylaws of the Surviving Corporation until their respective successors
are duly elected or appointed and qualified.
(b)
Officers
.
The officers of Merger Sub immediately prior to the Effective Time shall be, from and after the Effective Time, the officers of the Surviving
Corporation, each to hold office in accordance with the applicable provisions of the DGCL and the certificate of incorporation and bylaws
of the Surviving Corporation until their respective successors are duly appointed.
2.7
Effect
on Capital Stock
.
157
(a)
Capital
Stock
. Upon the
terms and subject to the conditions set forth in this Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Merger Sub, the Company or the holders of any of the following securities, the following will occur:
(i)
each
share of Merger Sub common stock, par value $0.01 per share, that is outstanding as of immediately prior to the Effective Time will be
converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation, and thereupon each
certificate representing ownership of such shares of common stock of Merger Sub will thereafter represent ownership of shares of common
stock of the Surviving Corporation;
(ii)
each
share of Company Common Stock, and each share of Company Common Stock underlying a Company Equity Award that is entitled to receive consideration
pursuant to
Section
2.9
(an “
Award
Company Share
”),
that is outstanding as of immediately prior to the Effective Time (other than Owned Company Shares) shall, subject to adjustments pursuant
to Sections
2.7(a)(iv)
and
2.7(b)
,
be converted into the right to receive the following consideration, without interest:
(A)
each
share of Company Common Stock and each Award Company Share, with respect to which an election to receive cash has been properly made and
not revoked or lost pursuant to
Section
2.8
(each, a “
Cash
Electing Company Share
”),
shall be converted into the right to receive cash in an amount equal to $5.00 per share, without interest (the “
Cash
Consideration
”);
(B)
each
share of Company Common Stock and each Award Company Share, with respect to which an election to receive preferred stock has been properly
made and not revoked or lost pursuant to
Section
2.8
(each, a “
Preferred
Stock Electing Company Share
”
and, together with the Cash Electing Company Shares, the “
Electing
Company Shares
”),
shall be converted into the right to receive 0.50 shares of validly issued, fully paid and nonassessable Parent Preferred Stock, subject
to adjustment (the “
Preferred
Stock Consideration
,”
and together with the Cash Consideration, and any combination thereof, and any cash in lieu of fractional shares of Parent Preferred Stock
payable pursuant to this
Article
II
, collectively,
the “
Merger
Consideration
”);
and
(C)
each
share of Company Common Stock and each Company Award Share, in each case, other than Cash Electing Company Shares or Preferred Stock Electing
Company Shares for which a stock election has been properly made and not revoked or lost pursuant to
Section
2.8
(each, a “
Non-Electing
Company Share
”)
shall be converted into the right to receive the Cash Consideration, the Preferred Stock Consideration or a combination of both.
(iii)
each
share of Company Common Stock that is (A) held by the Company as treasury stock; (B) owned by Parent or Merger Sub; or (C) owned
by any direct or indirect wholly owned Subsidiary of Parent or Merger Sub as of immediately prior to the Effective Time (collectively,
the “
Owned
158
Company
Shares
”)
will be cancelled and extinguished without any conversion thereof or consideration paid therefor.
(iv)
Proration
.
Notwithstanding anything to the contrary in this Agreement, the aggregate amount of cash payable in respect of shares of Company Common
Stock and Award Company Shares pursuant to
Sections
2.7(a)(ii)
and
2.9
,
together with any cash payable in lieu of fractional shares of Parent Preferred Stock, shall not exceed $19,200,000 (the “
Maximum
Cash Amount
”).
The allocation of the Cash Consideration and the Preferred Stock Consideration among Cash Electing Company Shares and Preferred Stock
Electing Company Shares and Non-Electing Company Shares shall be determined as follows:
(A)
Undersubscription
for Cash
. If the
aggregate amount of cash that would be paid in respect of all Cash Electing Company Shares is less than the Maximum Cash Amount, then:
1.
each
Cash Electing Company Share shall be converted into the right to receive the Cash Consideration;
2.
each
Preferred Stock Electing Company Share shall be converted into the right to receive the Preferred Stock Consideration; and
3.
each
Non-Electing Company Share shall be converted into the right to receive, at Parent’s election, the Cash Consideration, the Preferred
Stock Consideration or a combination of both; provided that the aggregate cash paid pursuant to
Section
2.7(a)(ii)
shall
not exceed the Maximum Cash Amount.
(B)
Oversubscription
for Cash
. If the
aggregate amount of cash that would be paid in respect of all Cash Electing Company Shares exceeds the Maximum Cash Amount, then:
1.
each
Preferred Stock Electing Company Share and each Non-Electing Company Share shall be converted into the right to receive the Preferred
Stock Consideration; and
2.
each
Cash Electing Company Share shall be converted into the right to receive (x) a prorated portion of the Cash Consideration, based on a
fraction, the numerator of which is the Maximum Cash Amount and the denominator of which is the aggregate amount of cash that would be
paid in respect of all Cash Electing Company Shares if all such Cash Electing Company Shares received the Cash Consideration in full,
and (y) the Preferred Stock Consideration in respect of the remaining portion of such Cash Electing Company Share not converted into the
right to receive cash pursuant to clause (x).
159
(C)
No
Fractional Shares
.
No fractional shares of Parent Preferred Stock shall be issued in the Merger. In lieu of any fractional share of Parent Preferred Stock
that otherwise would be issuable pursuant to this
Section
2.7(a)(iv)
, the
holder thereof shall be entitled to receive an amount in cash, without interest, equal to such fractional share multiplied by $10.00.
(v)
Parent
Preferred Stock
.
Prior to the Effective Time, Parent shall authorize and reserve for issuance a number of shares of Parent Preferred Stock sufficient to
pay the Preferred Stock Consideration. The Parent Preferred Stock issued in the Merger shall have the rights, preferences, privileges
and restrictions set forth in the Certificate of Designations, Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock
filed as Exhibit 3.7 to Parent’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
(b)
Adjustment
to the Merger Consideration
.
The Merger Consideration will be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend
(including any dividend or other distribution of securities convertible into Company Common Stock), reorganization, recapitalization,
reclassification, combination, exchange of shares or other similar change with respect to the Company Common Stock occurring on or after
the date of this Agreement and prior to the Effective Time.
2.8
Election
Procedures
.
(a)
Election
Form
. Parent shall
prepare, and the Company shall have a reasonable opportunity to review and comment on, a form of election in form and substance reasonably
acceptable to the Company (the “
Form
of Election
”),
pursuant to which each record holder of shares of Company Common Stock and each holder of Award Company Shares may elect to receive the
Cash Consideration, the Preferred Stock Consideration or a combination of both with respect to such holder’s shares of Company Common
Stock or Award Company Shares, as applicable, subject in each case to the proration procedures set forth in
Section
2.7(a)(iv)
. The
Form of Election shall be filed as an exhibit to, or otherwise included with or incorporated into, the Form S-4, and shall specify that
delivery shall be effected, and risk of loss and title to any Certificates shall pass, only upon proper delivery of the Form of Election
and any Certificates to the Payment Agent.
(b)
Mailing
of Form of Election
.
Parent and the Company shall use reasonable best efforts to cause the Form of Election to be mailed to each Person who is a record holder
of shares of Company Common Stock or of Award Company Shares as of the record date for the Company Stockholder Meeting, either together
with the Proxy Statement or under separate cover, as Parent and the Company may reasonably determine in consultation with the Payment
Agent. Parent and the Company shall use reasonable best efforts to make the Form of Election available to all Persons who become record
holders of shares of Company Common Stock or of Award Company Shares during the period between such record date and the Election Date.
(c)
Election
Date
. Any election
shall have been properly made only if the Payment Agent shall have received at its designated office, by 5:00 p.m., New York City
time, on (i) the date of the Company Stockholder Meeting or (ii) if the Closing Date is more than four Business Days following the Company
Stockholder Meeting, the date that is two Business Days prior to the Closing Date, or, in each case, such other date as Parent and the
Company may mutually agree and publicly announce (the “
Election
Date
”), a
Form of Election properly completed and signed and accompanied by (A) Certificates representing the shares of Company Common Stock to
which such Form of Election relates, duly endorsed in blank or otherwise in form acceptable for transfer on the books of the Company,
or an appropriate guarantee of delivery of such Certificates as set forth in the Form of Election, or (B) in the case of Uncertificated
Shares or
160
Award
Company Shares, any additional documents or instructions required by the procedures set forth in the Form of Election.
(d)
Public
Announcement of Election Date
.
Parent and the Company shall publicly announce the anticipated Election Date at least five Business Days prior to the anticipated Closing
Date. If the Closing Date is delayed to a subsequent date, the Election Date shall be similarly delayed to a subsequent date, and Parent
and the Company shall promptly announce any such delay and, when determined, the rescheduled Election Date.
(e)
Revocation;
Loss of Election
.
Any election may be revoked with respect to all or a portion of the shares of Company Common Stock or Award Company Shares subject thereto
by the holder who submitted the applicable Form of Election by written notice received by the Payment Agent prior to 5:00 p.m., New
York City time, on the Election Date. Any election shall be deemed to have been lost or not properly made if the Payment Agent determines
that the applicable Form of Election was not properly completed, signed or timely received in accordance with this
Section
2.8
. Any shares
of Company Common Stock or Award Company Shares with respect to which an election has been revoked, lost or not properly made shall be
deemed Non-Electing Company Shares. All elections shall automatically be revoked if this Agreement is terminated in accordance with
Article
VIII
.
(f)
Determinations
.
The Payment Agent shall make all determinations as to whether elections have been properly made, revoked or lost and all computations
as to the proration contemplated by
Section
2.7(a)(iv)
, and,
absent manifest error, such determinations and computations shall be conclusive and binding.
2.9
Company
Equity Awards
.
(a)
Company
Options
. As of
the Effective Time, each Company Option that is set forth on
Section
2.9(a)
of the Company
Disclosure Letter and that is outstanding and unexercised immediately prior to the Effective Time shall be cancelled, treated as an Award
Company Share, and converted automatically into the right to receive Cash Consideration, Preferred Stock Consideration, or a combination
of the two (as elected by the holder thereof, in the same manner and subject to the same proration procedures and Maximum Cash Amount
cap set forth in
Section
2.7(a)(iv)
) in
an amount equal to the product of (i) the excess, if any, of the Merger Consideration over the per share exercise price of such Company
Option, multiplied by (ii) the number of shares of Company Common Stock covered by such Company Option. For the avoidance of doubt, any
Company Option that is not set forth on
Section
2.9(a)
of the Company
Disclosure Letter shall be cancelled at the Effective Time without payment or consideration.
(b)
Company
RSUs
. As of the
Effective Time, each Company RSU that is outstanding immediately prior to the Effective Time, as disclosed in
Section
2.9(b)
of the Company
Disclosure Letter, shall be cancelled, treated as an Award Company Share, and converted into a right to receive a payment of Cash Consideration,
Preferred Stock Consideration, or a combination of both (as elected by the holder thereof, in the same manner and subject to the same
proration procedures and Maximum Cash Amount cap set forth in
Section
2.7(a)(iv)
) in
an amount equal to the Merger Consideration for each share of Company Common Stock covered by such Company RSU.
(c)
Company
PSUs
. As of the
Effective Time, each Company PSU shall be cancelled without payment or consideration.
(d)
Parent
shall cause the Surviving Corporation to, at all times from and after the Effective Time, maintain sufficient cash and shares of Parent
Preferred Stock to satisfy its obligations to holders of Company Equity Awards pursuant to this
Section
2.9
.
(e)
As
promptly as practicable following the Effective Time, Parent shall cause the Surviving Corporation to pay through its payroll system (whether
in Cash Consideration, Preferred Stock Consideration, or a combination of both, as elected by the holder thereof, in the same manner and
subject to the same proration procedures and Maximum Cash Amount cap set
161
forth
in
Section
2.7(a)(iv)
) to
each holder of a Company Equity Award, the amount payable to such holder pursuant to this
Section
2.9
in respect
of such Company Equity Award;
provided
that, to the extent that a Company Equity Award constitutes nonqualified deferred compensation subject to Section 409A of the Code, such
amount shall be paid to the holder of such Company Equity Award at the earliest time permitted under the terms of such Company Equity
Award that will not result in a tax or penalty under Section 409A of the Code.
2.10
Exchange
of Certificates
.
(a)
Payment
Agent
. Not less
than three Business Days prior to the Closing, Parent will (i) select a bank or trust company reasonably acceptable to the Company to
act as the payment agent for the Company Stockholders and holders of Award Company Shares to receive the Cash Consideration, the Preferred
Stock Consideration and any cash in lieu of fractional shares of Parent Preferred Stock to which they have become entitled pursuant to
Sections 2.7
and
2.9
(the “
Payment
Agent
”);
and (ii) enter into a payment agent agreement, in customary form and substance reasonably acceptable to the Company, with such Payment
Agent.
(b)
Exchange
Fund
. At or promptly
following the Effective Time on the Closing Date, Parent will deposit, or will cause to be deposited (including, but only to the extent
the ABL Loan Agreement Amendment is effective at such time, with proceeds of borrowings under the ABL Loan Agreement by the Company or
any of its Subsidiaries in the amount of the Maximum Debt Financing Amount), with the Payment Agent, for the benefit of the holders of
Certificates, Uncertificated Shares and Award Company Shares, (i) by wire transfer of immediately available funds, an amount of cash sufficient
to pay the aggregate Cash Consideration and any cash in lieu of fractional shares of Parent Preferred Stock payable to such holders pursuant
to
Section 2.7
,
and (ii) evidence of book-entry shares representing the aggregate number of shares of Parent Preferred Stock issuable to such holders
pursuant to
Sections 2.7
and
2.9
(such cash, shares of Parent Preferred Stock and any proceeds thereon, the “
Exchange
Fund
”). Until
disbursed in accordance with the terms and conditions of this Agreement, the cash portion of the Exchange Fund may be invested by the
Payment Agent, as directed by Parent or the Surviving Corporation, in (i) obligations of or fully guaranteed by the United States or any
agency or instrumentality thereof and backed by the full faith and credit of the United States with a maturity of no more than 30 days;
(ii) commercial paper obligations rated A-1 or P-1 or better by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation,
respectively; or (iii) certificates of deposit, bank repurchase agreements or banker’s acceptances of commercial banks with
capital exceeding $1,000,000,000 (based on the most recent financial statements of such bank that are then publicly available) and, in
any case of the foregoing clauses (i) through (iii), no such instrument shall have a maturity exceeding three months. To the extent that
(A) there are any losses with respect to any investments of the cash portion of the Exchange Fund; (B) the Exchange Fund diminishes
for any reason below the level required for the Payment Agent to promptly pay and deliver the Merger Consideration contemplated by
Sections 2.7
and
2.9
;
or (C) all or any portion of the Exchange Fund is unavailable for Parent (or the Payment Agent on behalf of Parent) to promptly pay and
deliver the Merger Consideration contemplated by
Sections 2.7
and
2.9
for any reason, Parent will, or will cause the Surviving Corporation to, promptly replace or restore the amount of cash in the Exchange
Fund so as to ensure that the Exchange Fund is at all times fully available for distribution and maintained at a level sufficient for
the Payment Agent to make the payments and deliveries contemplated by
Sections 2.7
and
2.9
.
Any income from investment of the cash portion of the Exchange Fund will be payable to Parent or the Surviving Corporation, as Parent
directs.
(c)
Payment
Procedures
. Promptly
following the Effective Time, and in any event not more than five Business Days thereafter, Parent and the Surviving Corporation will
cause the Payment Agent to mail to each holder of record (as of immediately prior to the Effective Time) of (i) a certificate or certificates
that immediately prior to the Effective Time represented outstanding shares of Company Common Stock (other than Owned Company Shares)
(the “
Certificates
”);
and (ii) uncertificated shares of Company Common Stock that represented outstanding shares of Company Common Stock (other than Owned Company
Shares) (the “
Uncertificated
Shares
”)
(A) a letter of transmittal in customary form and reasonably acceptable to the Company (which will specify that delivery will be effected,
and risk of loss and title to the Certificates will pass, only upon delivery of the Certificates to the Payment Agent); and (B)
162
instructions
for use in effecting the surrender of the Certificates and Uncertificated Shares in exchange for the Merger Consideration payable in respect
thereof pursuant to
Section 2.7
.
Upon surrender of Certificates for cancellation to the Payment Agent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such Certificates will be entitled to receive, and the Payment Agent
shall promptly pay and deliver in exchange therefor, the Cash Consideration, the Preferred Stock Consideration, any combination thereof
and any cash in lieu of fractional shares of Parent Preferred Stock, in each case as such holder is entitled to receive pursuant to
Section 2.7
,
and the Certificates so surrendered will forthwith be cancelled. Upon receipt of an “agent’s message” by the Payment
Agent (or such other evidence, if any, of transfer as the Payment Agent may reasonably request) in the case of a book-entry transfer of
Uncertificated Shares, the holders of such Uncertificated Shares will be entitled to receive, and the Payment Agent shall promptly pay
and deliver, in exchange therefor, the Cash Consideration, the Preferred Stock Consideration, any combination thereof and any cash in
lieu of fractional shares of Parent Preferred Stock, in each case as such holder is entitled to receive pursuant to
Section 2.7
,
and the transferred Uncertificated Shares so surrendered will be cancelled. The Payment Agent will accept such Certificates and transferred
Uncertificated Shares upon compliance with such reasonable terms and conditions as the Payment Agent may impose to cause an orderly exchange
thereof in accordance with normal exchange practices. No interest will be paid or accrued for the benefit of holders of the Certificates
and Uncertificated Shares on any cash payable as Merger Consideration pursuant to
Section 2.7
.
Until so surrendered, outstanding Certificates and Uncertificated Shares will be deemed from and after the Effective Time to evidence
only the right to receive the Merger Consideration payable in respect thereof pursuant to
Section 2.7
.
Notwithstanding anything to the contrary in this Agreement, no holder of Uncertificated Shares will be required to provide a Certificate
or an executed letter of transmittal to the Payment Agent in order to receive the Merger Consideration that such holder is entitled to
receive pursuant to
Section
2.7
.
(d)
DTC
Payment
. Prior
to the Effective Time, Parent and the Company will cooperate to establish procedures with the Payment Agent and the Depository Trust Company
(“
DTC
”)
with the objective that, as promptly as practicable following the Effective Time and the final determination of the proration calculations
pursuant to
Section
2.7(a)(iv)
, the
Payment Agent will transmit to DTC or its nominees the Cash Consideration, the Preferred Stock Consideration, any combination thereof
and any cash in lieu of fractional shares of Parent Preferred Stock, in each case as DTC or its nominees are entitled to receive pursuant
to
Section 2.7
in respect of the shares of Company Common Stock, other than Owned Company Shares held of record by DTC or such nominees immediately prior
to the Effective Time.
(e)
Transfers
of Ownership
. If
a transfer of ownership of shares of Company Common Stock is not registered in the stock transfer books or ledger of the Company, or if
the Merger Consideration is to be paid or delivered in a name other than that in which the Certificates or Uncertificated Shares surrendered
or transferred in exchange therefor are registered in the stock transfer books or ledger of the Company, the Merger Consideration may
be paid or delivered to a Person other than the Person in whose name the Certificate or Uncertificated Share so surrendered or transferred
is registered in the stock transfer books or ledger of the Company only if, in the case of shares of Company Common Stock represented
by a Certificate, such Certificate is properly endorsed and otherwise in proper form for surrender and transfer or, in the case of Uncertificated
Shares, a proper transfer instruction is presented, and, in the case of shares of Company Common Stock represented by Certificates or
Uncertificated Shares, the Person requesting such payment has paid to Parent (or any agent designated by Parent) any transfer Taxes required
by reason of the payment or delivery of the Merger Consideration to a Person other than the registered holder of such shares, or established
to the reasonable satisfaction of Parent (or any agent designated by Parent) that such transfer Taxes have been paid or are otherwise
not payable.
(f)
No
Liability
. Notwithstanding
anything to the contrary set forth in this Agreement, none of the Payment Agent, Parent, the Surviving Corporation or any other Party
will be liable to a holder of shares of Company Common Stock for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
163
(g)
Distribution
of Exchange Fund to Parent
.
Any portion of the Exchange Fund that remains undistributed to the holders of the Certificates or Uncertificated Shares on the date that
is one year after the Effective Time will be delivered to Parent upon demand, and any holders of shares of Company Common Stock that were
issued and outstanding immediately prior to the Effective Time who have not theretofore surrendered or transferred their Certificates
(or otherwise complied with
Section
2.12
in the case
of lost, stolen or destroyed Certificates) or Uncertificated Shares representing such shares of Company Common Stock for exchange pursuant
to this
Section
2.10
will thereafter
look for payment or delivery of the Merger Consideration payable in respect of such shares of Company Common Stock solely to Parent (which
shall remain responsible for payment or delivery of the Merger Consideration in respect thereof, subject to abandoned property, escheat
or similar laws), solely as general creditors thereof, for any claim to the Merger Consideration to which such holders may be entitled
pursuant to
Section
2.7
. Any amounts
or shares remaining unclaimed by such holders two years after the Effective Time, or at such earlier time as is immediately prior to the
time at which such amounts would otherwise escheat to, or become property of, any Governmental Authority, will, to the extent permitted
by applicable law, become the property of Parent or the Surviving Corporation, as Parent directs, free and clear of any claims or interest
of any such holders (and their successors, assigns or personal representatives) previously entitled thereto.
2.11
No
Further Ownership Rights in Company Common Stock
.
From and after the Effective Time, (a) all shares of Company Common Stock will no longer be outstanding and will automatically be converted
or cancelled and retired, as applicable in accordance with
Section
2.7
, and cease
to exist; and (b) holders of each Certificate or Uncertificated Share theretofore representing any shares of Company Common Stock
will cease to have any rights with respect thereto, except the right to receive the Merger Consideration payable therefor in accordance
with
Section
2.7
. The Merger
Consideration paid in accordance with the terms of this
Article
II
will be deemed
to have been paid in full satisfaction of all rights pertaining to such shares of Company Common Stock. From and after the Effective Time,
there will be no further registration of transfers on the records of the Surviving Corporation of shares of Company Common Stock that
were issued and outstanding immediately prior to the Effective Time, other than transfers to reflect, in accordance with customary settlement
procedures, trades effected prior to the Effective Time. If, after the Effective Time, Certificates or Uncertificated Shares are presented
to the Surviving Corporation for any reason, they will (subject to compliance with the exchange procedures of
Section
2.10(c)
) be cancelled
and exchanged as provided in this
Article
II
.
2.12
Lost,
Stolen or Destroyed Certificates
.
In the event that any Certificates 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, the Payment Agent will pay and deliver to such Person the Merger Consideration payable
in respect of the shares of Company Common Stock represented by such Certificates pursuant to
Section
2.7
. Parent or
the Payment Agent may, in its discretion and as a condition precedent to the payment or delivery of such Merger Consideration, require
the Person claiming such Certificates to be lost, stolen or destroyed to deliver a bond in customary form in such amount as it may reasonably
determine as indemnity against any claim that may be made against Parent, the Surviving Corporation or the Payment Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
2.13
Withholding
Rights
. Each of
the Payment Agent, Parent, Merger Sub, the Company and the Surviving Corporation will be entitled to deduct and withhold from any amounts
otherwise payable or deliverable pursuant to this Agreement to any holder or former holder of shares of Company Common Stock or Company
Equity Awards such amounts as are required to be deducted or withheld therefrom pursuant to any Tax laws. To the extent that such amounts
are so deducted or withheld and paid over to the appropriate Governmental Authority, such amounts will be treated for all purposes of
this Agreement as having been paid or delivered to the Person to whom such amounts would otherwise have been paid or delivered. To the
extent withholding is required with respect to any Preferred Stock Consideration, Parent, the Surviving Corporation or the Payment Agent,
as applicable, shall be entitled to satisfy such withholding obligation by deducting from any cash otherwise payable to such Person or
withholding a portion of the Parent Preferred Stock otherwise deliverable to such Person. Parent shall notify such Person promptly, and
in any event no later than ten Business Days prior to the Closing Date, in writing if Parent determines that any withholding or deduction
is required under any provision of Tax law with respect to any portion of any such payment or delivery (and such notice shall describe
the basis for such deduction or withholding), and Parent shall reasonably cooperate with such Person to eliminate or reduce any such
164
required
deduction or withholding (including through the provision by such Person of forms or certificates).
2.14
Dividends
or Distributions
.
No dividends or other distributions with respect to capital stock of the Surviving Corporation with a record date on or after the Effective
Time will be paid to the holder of any unsurrendered Certificates or Uncertificated Shares.
2.15
Necessary
Further Actions
.
If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and
to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises
of the Company and Merger Sub, then Parent shall cause the Surviving Corporation and its directors and officers to take all such lawful
and necessary action.
2.16
Intended
Tax Treatment
.
For U.S. federal income tax purposes (and applicable state and local Tax purposes), the Parties (a) agree to treat the Merger as a taxable
transaction and (b) shall, and shall cause their respective Affiliates to, (i) report, act and file all Tax Returns in all respects and
for all Tax purposes consistent with such Tax treatment and (ii) not take any action or position for Tax purposes (whether on any Tax
Return, in any audit, examination or other Legal Proceeding with respect to Taxes or otherwise) that is inconsistent with such Tax treatment,
except as otherwise required by a “determination” as defined in Section 1313(a) of the Code or any corresponding or similar
resolution under applicable state or local law.
Article
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
With
respect to any Section of this
Article
III
, except (a)
as disclosed in the reports, statements and other documents filed by the Company with the SEC or furnished by the Company to the SEC,
in each case pursuant to the Exchange Act on or after January 1, 2024 and prior to the date of this Agreement (other than any disclosures
contained or referenced therein under the captions “Risk Factors,” “Special Note Regarding Forward-Looking Statements,”
“Quantitative and Qualitative Disclosures About Market Risk” and any other disclosures contained or referenced therein of
information, factors or risks that are predictive, cautionary or forward-looking in nature) (the “
Recent
SEC Reports
”)
(it being understood that (i) any matter disclosed in any Recent SEC Report will be deemed disclosed only with respect to the particular
representation or warranty to which such disclosure is specifically applicable and only to the extent the applicability of such disclosure
to such representation or warranty is reasonably apparent on the face of such disclosure, and (ii) this clause (a) shall not apply to
Section
3.1
,
Section
3.2
,
Section
3.3
,
Section
3.4
,
Section
3.5
,
Section
3.6
,
Section
3.7
,
Section
3.12(a)(ii)
,
Section
3.24
and
Section
3.26
); and
(b) as set forth in the disclosure letter delivered by the Company to Parent and Merger Sub on the date of this Agreement (the “
Company
Disclosure Letter
”),
which is hereby made a part of this Agreement; provided, that (x) any disclosure set forth in a particular section or subsection of
the Company Disclosure Letter shall be deemed to qualify only the corresponding representation or warranty in this Agreement, except to
the extent the applicability of such disclosure to another representation or warranty is reasonably apparent on the face of such disclosure,
(y) no disclosure shall constitute a disclosure for any representation or warranty merely by virtue of its inclusion in the Company Disclosure
Letter, and (z) the Company shall not be entitled to update or modify the Company Disclosure Letter after the execution and delivery of
this Agreement, and any update or modification made or purported to have been made after such time shall be disregarded for all purposes
of this Agreement;
provided
further
, that nothing
in this clause (z) shall limit the Company’s obligations under
Section
6.10(a)
(Notification
of Certain Matters) or affect the remedies available to the Parties under this Agreement), the Company hereby represents and warrants
to Parent and Merger Sub as follows:
3.1
Organization;
Good Standing
.
The Company (a) is a corporation duly organized, validly existing and in good standing pursuant to the DGCL; and (b) has the requisite
corporate power and authority to conduct its business as it is presently being conducted and to own, lease or operate its properties and
assets. The Company is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties
owned or leased or the nature of its activities make such qualification necessary (to the extent that the concept of “good standing”
is applicable in the case of any jurisdiction outside the United States), except where the failure to be so qualified or in good standing
165
would
not have a Company Material Adverse Effect. The Company has made available to Parent true, correct and complete copies of the Charter
and the Fifth Amended and Restated Bylaws of the Company, as amended (the “
Bylaws
”),
each as amended to date. The Charter and Bylaws are in full force and effect on the date of this Agreement. The Company is not in violation
of the Charter or the Bylaws.
3.2
Corporate
Power; Enforceability
.
The Company has the requisite corporate power and authority to (a) execute and deliver this Agreement; (b) perform its covenants and
obligations hereunder; and (c) subject to receiving the Requisite Stockholder Approval, consummate the Merger. The execution and delivery
of this Agreement by the Company, the performance by the Company of its covenants and obligations hereunder, and the consummation of the
Merger have been duly authorized by all necessary corporate action on the part of the Company and no additional corporate actions on the
part of the Company are necessary to authorize (i) the execution and delivery of this Agreement by the Company; (ii) the performance
by the Company of its covenants and obligations hereunder; or (iii) subject to the receipt of the Requisite Stockholder Approval,
the consummation of the Merger. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes a legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as such enforceability (A) may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting or relating to creditors’ rights generally; and (B) is subject to general principles
of equity (the “
Enforceability
Limitations
”).
3.3
Company
Board Approval; Fairness Opinion; Anti-Takeover Laws
.
(a)
Company
Board Approval
.
The Company Board (at a meeting or meetings duly called and held) has unanimously (i) determined that it is in the best interests of the
Company and its stockholders to enter into this Agreement and consummate the Merger upon the terms and subject to the conditions set forth
herein; (ii) declared this Agreement advisable; (iii) approved the execution and delivery of this Agreement by the Company, the
performance by the Company of its covenants and other obligations hereunder, and the consummation of the Merger upon the terms and conditions
set forth herein; and (iv) resolved to recommend that the Company Stockholders vote in favor of adoption of this Agreement and approve
the Merger in accordance with the DGCL (collectively, the “
Company
Board Recommendation
”),
which Company Board Recommendation has not been withdrawn, rescinded or modified in any way as of the date of this Agreement.
(b)
Fairness
Opinion
. Prior
to the execution of this Agreement, the Company Board has received the written opinion (or an oral opinion to be confirmed in writing)
of Citizens JMP Securities, LLC (the “
Advisor
”)
to the effect that, as of the date of such opinion, and based upon and subject to the various limitations, matters, qualifications and
assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Owned Company Shares) of shares of Company
Common Stock pursuant to this Agreement is fair from a financial point of view to such holders (it being understood and agreed that such
written opinion is for the benefit of the Company Board and may not be relied upon by Parent or Merger Sub).
(c)
Anti-Takeover
Laws
. The Company
Board has taken all necessary actions so that the restrictions on business combinations set forth in Section 203 of the DGCL and any other
similar applicable “fair price,” “moratorium,” “control share acquisition,” “business combination”
or other similar anti-takeover statute, regulation or provision of the Organizational Documents of the Company (collectively, “
Takeover
Laws
”) will
not be applicable to this Agreement, the Merger or any of the other transactions contemplated hereby. No Takeover Law is applicable to
this Agreement, the Merger or any of the other transactions contemplated hereby. Neither the Company nor any of its Subsidiaries is party
to, nor is any class of Company Capital Stock subject to, any stockholder rights plan, rights agreement, “poison pill” or
similar agreement, arrangement or plan. No action on the part of the holders of any class or series of Company Capital Stock, other than
the Requisite Stockholder Approval, is necessary to render inapplicable any Takeover Law to the Merger or the other transactions contemplated
by this Agreement.
3.4
Requisite
Stockholder Approval
.
The affirmative vote of the holders of a majority of the voting power of the outstanding shares of Company Common Stock entitled to vote
on the Merger (the “
Requisite
Stockholder Approval
”)
is the only vote of the holders of any class or series of Company
166
Capital
Stock that is necessary pursuant to applicable law, the Charter or the Bylaws to adopt this Agreement and consummate the Merger.
3.5
Non-Contravention
.
The execution and delivery of this Agreement by the Company, the performance by the Company of its covenants and obligations hereunder,
and the consummation of the Merger do not (a) violate or conflict with any provision of the Charter or the Bylaws; (b) violate, conflict
with, result in the breach of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) pursuant
to, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration pursuant
to any Material Contract; (c) assuming that all Consents described in
Section
3.6
have been obtained
or made, and any waiting periods thereunder have terminated or expired prior to the Effective Time and, in the case of the consummation
of the Merger, subject to obtaining the Requisite Stockholder Approval, violate or conflict with any law or order applicable to the Company
Group or by which any of their respective properties or assets are bound; or (d) result in the creation of any lien (other than Permitted
Liens) upon any of the properties or assets of the Company Group, except in the case of each of clauses (b), (c) and (d) for such violations,
conflicts, breaches, defaults, terminations, accelerations or liens that would not be material to the Company and its Subsidiaries taken
as a whole.
3.6
Requisite
Governmental Approvals
.
No consent, approval, order or authorization of, filing or registration with, or notification to (any of the foregoing, a “
Consent
”)
any Governmental Authority, including under any Antitrust Law, is required on the part of the Company in connection with (a) the execution
and delivery of this Agreement by the Company; (b) the performance by the Company of its covenants and obligations pursuant to this
Agreement; or (c) the consummation of the Merger, except (i) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware and such filings with Governmental Authorities to satisfy the applicable laws of states in which the Company Group
is qualified to do business; (ii) such filings and approvals as may be required by any federal or state securities laws, including
compliance with any applicable requirements of the Exchange Act; and (iii) such other Consents the failure of which to obtain would
not have a Company Material Adverse Effect.
3.7
Company
Capitalization
.
(a)
Capital
Stock
. The authorized
capital stock of the Company consists of 25,000,000 shares of Company Common Stock. As of 5:00 p.m., Eastern time, on June 30, 2026
(such time and date, the “
Capitalization
Date
”), (A)
7,459,177 shares of Company Common Stock were issued and outstanding; (B) 4,606,111 shares of Company Common Stock were held by the
Company as treasury shares; and (C) no shares of preferred stock of the Company were authorized, issued or outstanding. All outstanding
shares of Company Common Stock are validly issued, fully paid, nonassessable and free of any preemptive rights. From the close of business
on the Capitalization Date to the date of this Agreement, the Company has not issued or granted any Company Securities.
(b)
Company
Equity Awards
.
As of the Capitalization Date, (i) approximately 4,129,321 shares of Company Common Stock were reserved for issuance pursuant to the Company
Equity Plans and (ii) there were outstanding (A) Company Options to acquire an aggregate of 166,602 shares of Company Common Stock, with
a weighted average exercise price of $6.58 per share; (B) Company RSUs representing the right to receive an aggregate of 281,444 shares
of Company Common Stock; and (C) Company PSUs representing the right to receive an aggregate of 50,000 shares of Company Common Stock
(assuming satisfaction of performance conditions at target).
(c)
Company
Securities
. Except
as set forth in this
Section
3.7
, as of the
Capitalization Date there were (i) other than the Company Capital Stock, no outstanding shares of capital stock of, or other equity or
voting interest in, the Company; (ii) no outstanding securities of the Company convertible into or exchangeable or exercisable for
shares of capital stock of, or other equity or voting interest (including voting debt) in, the Company; (iii) no outstanding options,
warrants or other rights or binding arrangements to acquire from the Company, or that obligate the Company to issue, any capital stock
of, or other equity or voting interest in, or any securities convertible into or exchangeable for shares of capital stock of, or other
equity or voting interest (including voting debt) in, the Company; (iv) no obligations of the Company to grant, extend or enter into
any subscription, warrant, right, convertible, exchangeable or exercisable security, or other similar Contract relating to any capital
stock of, or other equity or voting
167
interest
(including any voting debt) in, the Company; (v) no outstanding shares of restricted stock, restricted stock units, stock appreciation
rights, performance shares, contingent value rights, “phantom” stock or similar securities or rights that are derivative of,
or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock of, or other securities or ownership
interests in, the Company (the items in clauses (i), (ii), (iii), (iv) and (v), collectively with the Company Capital Stock, the “
Company
Securities
”);
(vi) no voting trusts, proxies or similar arrangements or understandings to which the Company is a party or by which the Company is bound
with respect to the voting of any shares of capital stock of, or other equity or voting interest in, the Company; (vii) except as
provided in the Charter or the Bylaws, no obligations or binding commitments of any character restricting the transfer of any shares of
capital stock of, or other equity or voting interest in, the Company to which the Company is a party or by which it is bound; and
(viii) no other obligations by the Company to make any payments based on the price or value of any Company Securities. The Company is
not a party to any Contract that obligates it to repurchase, redeem or otherwise acquire any Company Securities. There are no accrued
and unpaid dividends with respect to any outstanding shares of Company Capital Stock. The Company does not have a stockholder rights plan
in effect.
(d)
Other
Rights
. The Company
is not a party to any Contract relating to the voting of, requiring registration of, or granting any preemptive rights, anti-dilutive
rights or rights of first refusal or other similar rights with respect to any Company Securities.
3.8
Subsidiaries
.
(a)
Subsidiaries
.
Section
3.8(a)
of the Company
Disclosure Letter contains a true, correct and complete list of the name, jurisdiction of organization, and schedule of stockholders or
equity holders (other than any member of the Company Group) of each Subsidiary of the Company. Each Subsidiary of the Company (i) is duly
organized, validly existing and in good standing pursuant to the laws of its jurisdiction of organization (to the extent that the concept
of “good standing” is applicable in the case of any jurisdiction outside the United States); (ii) has the requisite corporate
(or similar) power and authority to carry on its respective business as it is presently being conducted and to own, lease or operate its
respective properties and assets; and (iii) is duly qualified to do business and is in good standing in each jurisdiction where the
character of its properties owned or leased or the nature of its activities make such qualification necessary (to the extent that the
concept of “good standing” is applicable in the case of any jurisdiction outside the United States), except where the failure
to be so qualified or in good standing would not have a Company Material Adverse Effect. The Company has made available to Parent true,
correct and complete copies of the certificates of incorporation, bylaws and other similar organizational documents of each “significant
subsidiary” (as defined in Rule 1-02(w) of Regulation S-X promulgated by the SEC) of the Company, each as amended to date. No Subsidiary
of the Company is in violation of its charter, bylaws or other similar organizational documents, except for such violations that would
not have a Company Material Adverse Effect.
(b)
Capital
Stock of Subsidiaries
.
All of the outstanding capital stock of, or other equity or member or voting interest in, each Subsidiary of the Company (i) has been
duly authorized, validly issued and is fully paid and nonassessable (to the extent such concepts are applicable to such Subsidiary);
and (ii) except for director’s qualifying or similar shares, is owned, directly or indirectly, by the Company, free and clear of
all liens (other than Permitted Liens) and any other restriction (including any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other equity or voting interest) that would prevent such Subsidiary from conducting its business as of the Effective
Time in substantially the same manner that such business is conducted on the date of this Agreement.
(c)
Other
Securities of Subsidiaries
.
There are no outstanding (i) securities convertible into or exchangeable or exercisable for shares of capital stock of, or other equity
or voting interest in, any Subsidiary of the Company; (ii) options, warrants or other rights or arrangements obligating the Company
Group to acquire from any Subsidiary of the Company, or that obligate any Subsidiary of the Company to issue, any capital stock of, or
other equity or voting interest in, or any securities convertible into or exchangeable for, shares of capital stock of, or other equity
or voting interest (including any voting debt) in, any Subsidiary of the Company;
168
or
(iii) obligations of any Subsidiary of the Company to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable
security, or other similar Contract relating to any capital stock of, or other equity or voting interest (including any voting debt) in,
such Subsidiary to any Person other than the Company or one of its Subsidiaries.
(d)
Other
Investments
. Other
than equity securities held in the ordinary course of business for cash management purposes, the Company does not own or hold the right
to acquire any equity securities, ownership interests or voting interests (including voting debt) of, or securities exchangeable or exercisable
therefor, or investments in, any other Person.
3.9
Company
SEC Reports
. Since
January 1, 2024, the Company has filed all forms, reports and documents with the SEC that have been required to be filed by it pursuant
to applicable laws prior to the date of this Agreement (the “
Company
SEC Reports
”).
Each Company SEC Report complied, as of its effective date (in the case of Company SEC Reports that are registration statements filed
pursuant to the requirements of the Securities Act) or filing date (in the case of all other applicable Company SEC Reports) (or, if amended
or superseded by a filing prior to the date of this Agreement, as of the date of the last such amendment or superseded filing), in all
material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, each as in effect on
the date that such Company SEC Report was filed. True, correct and complete copies of all Company SEC Reports are publicly available in
the Electronic Data Gathering, Analysis and Retrieval database of the SEC. As of its filing date (or, if amended or superseded by a filing
prior to the date of this Agreement, on the date of such amended or superseded filing), each Company SEC Report did not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. 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 Reports.
3.10
Company
Financial Statements; Internal Controls; Indebtedness
.
(a)
Company
Financial Statements
.
The consolidated financial statements (including any related notes and schedules) of the Company Group filed with the Company SEC Reports
(i) were prepared in accordance with GAAP (except as may be indicated in the notes thereto or as otherwise permitted by Form 10-Q with
respect to any financial statements filed on Form 10-Q); and (ii) fairly present (except as may be indicated in the notes thereto
and subject in the case of unaudited statements to normal, year-end audit adjustments), in all material respects, the consolidated financial
position of the Company Group as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended.
There are no unconsolidated Subsidiaries of the Company or any off-balance sheet arrangements of the type required to be disclosed pursuant
to Item 303(a)(4) of Regulation S-K promulgated by the SEC that have not been so disclosed in the Company SEC Reports.
(b)
Disclosure
Controls and Procedures
.
The Company has established and maintains “disclosure controls and procedures” (as defined pursuant to Rule 13a-15(e) and
Rule 15d-15(e) promulgated under the Exchange Act). The Company’s disclosure controls and procedures are reasonably designed to
ensure that all (i) material information required to be disclosed by the Company in the reports and other documents that it files or furnishes
pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms
of the SEC; and (ii) such material information is accumulated and communicated to the Company’s management as appropriate to
allow timely decisions regarding required disclosure and to make the certifications required pursuant to Sections 302 and 906 of the Sarbanes-Oxley
Act.
(c)
Internal
Controls
. The Company
has established and maintains a system of “internal control over financial reporting” (as defined pursuant to Rule 13a-15(f)
and Rule 15d-15(f) promulgated under the Exchange Act) sufficient to provide reasonable assurance (i) that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP, including policies and procedures that require the maintenance
of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company Group;
(ii) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts
and expenditures
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of
the Company and its Subsidiaries are being made only in accordance with appropriate authorizations of the Company’s management and
the Company Board (or a committee thereof); and (iii) regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the assets of the Company Group. The Company’s management has completed an assessment of the effectiveness of the
Company’s internal control over financial reporting in compliance with the requirements of Section 404(a) of the Sarbanes-Oxley
Act for the fiscal year ended December 31, 2025, and such assessment concluded that such system was effective. Since January 1, 2024,
the principal executive officer and principal financial officer of the Company have made all certifications required by the Sarbanes-Oxley
Act. Neither the Company nor its principal executive officer or principal financial officer has received notice from any Governmental
Authority challenging or questioning the accuracy, completeness, form or manner of filing of such certifications. Neither the Company
nor, to the Knowledge of the Company, the Company’s independent registered public accounting firm has identified or been made aware
of (A) any “significant deficiency” or “material weakness” (each as defined in Rule 13a-15(f) of the Exchange
Act) in the system of internal control over financial reporting utilized by the Company Group that has not been subsequently remediated;
or (B) any fraud that involves the Company’s management or other employees who have a role in the preparation of financial statements
or the internal control over financial reporting utilized by the Company Group.
(d)
Indebtedness
.
Section
3.10(d)
of the
Company Disclosure Letter contains a true, correct and complete list of all Indebtedness of the Company Group as of the date of this Agreement,
other than Indebtedness reflected in the Audited Company Balance Sheet or otherwise included in the Company SEC Reports filed between
January 1, 2026 and the date of this Agreement.
3.11
No
Undisclosed Liabilities
.
Neither the Company nor any of its Subsidiaries has any liabilities of a nature required to be reflected or reserved against on a balance
sheet (or the notes thereto) prepared in accordance with GAAP, other than liabilities (a) reflected or otherwise reserved against in the
Audited Company Balance Sheet or in the consolidated financial statements of the Company Group (including the notes thereto) included
in the Company SEC Reports filed prior to the date of this Agreement; (b) arising pursuant to or incurred as expressly permitted or
expressly contemplated by this Agreement or incurred in connection with the Transactions; (c) incurred in the ordinary course of business
since June 30, 2026; or (d) that do not exceed $250,000 individually or $500,000 in the aggregate.
3.12
Absence
of Certain Changes
.
(a)
No
Company Material Adverse Effect
.
Except as otherwise contemplated, required or permitted by this Agreement, since December 31, 2025 through the date of this Agreement,
(i) the business of the Company Group has been conducted, in all material respects, in the ordinary course of business (except with respect
to this Agreement and discussions, negotiations and transactions related hereto) and (ii) there has not occurred a Company Material Adverse
Effect.
(b)
Forbearance
.
Since March 31, 2026 through the date of this Agreement, the Company has not taken any action that would be prohibited by
Section
5.2
, if taken or
proposed to be taken after the date of this Agreement.
3.13
Material
Contracts
.
(a)
List
of Material Contracts
.
Section
3.13(a)
of the
Company Disclosure Letter contains a true, correct and complete list of all Material Contracts to or by which the Company Group is a party
or is bound as of the date hereof (other than any Material Contracts contemplated by clause (i) of the definition of Material Contract
and any Material Contracts listed in
Section
3.14(b)
,
Section
3.14(c)
or
Section
3.18(a)
of the
Company Disclosure Letter), and a true, correct and complete copy of each Material Contract has been made available to Parent prior to
the date of this Agreement.
(b)
Validity
.
Each Material Contract is, subject to the Enforceability Limitations, valid and binding on the Company or each such Subsidiary of the
Company party thereto, enforceable in accordance with its terms, and is in full force and effect, and none of the Company,
170
any
of its Subsidiaries party thereto or, to the Knowledge of the Company, any other party thereto is or is alleged to be in breach of or
default pursuant to any such Material Contract, except in each case for such failures to be in full force and effect that would not have
a Company Material Adverse Effect. No event has occurred that, with notice or lapse of time or both, would constitute a breach or default
pursuant to any Material Contract by the Company Group, or, to the Knowledge of the Company, any other party thereto, except in each case
for such breaches and defaults that would not have a Company Material Adverse Effect.
(c)
Notices
from Material Customers
.
Since the date of the Audited Company Balance Sheet to the date of this Agreement, the Company has not received any written or, to the
Knowledge of the Company, oral notice, and to the Knowledge of the Company, (i) no party to a Material Contract or Material Customer intends,
to terminate, not renew, materially reduce volumes under, materially reduce purchases under, or renegotiate the terms of any Material
Contract or its relationship with the Company Group, and (ii) the Company has not received any material notice from a Material Customer
that the Company has failed to meet the defined performance criteria agreed to by Company and such customer.
3.14
Real
Property
.
(a)
Owned
Real Property
.
The Company Group does not own any real property.
(b)
Leased
Real Property
.
Section
3.14(b)
of the
Company Disclosure Letter contains a true, correct and complete list, as of the date of this Agreement, of all existing leases, subleases,
licenses or other written agreements and all material modifications, amendments and supplements thereto, pursuant to which the Company
Group uses or occupies, or has the right to use or occupy, now or in the future, any real property (such property, the “
Leased
Real Property
,”
and each such lease, sublease, license or other agreement, together with all amendments, modifications, and supplements thereto, a “
Lease
”)
where the terms of such Lease, as of the date of this Agreement, provide for annual lease payments in excess of $500,000. The Company
has made available to Parent true, correct and complete (in all material respects) copies of all Leases set forth in
Section
3.14(b)
of the
Company Disclosure Letter. With respect to each such Lease and except as would not have a Company Material Adverse Effect, (i) each Lease
is legal, valid and binding, subject to the Enforceability Limitations, and in full force and effect; (ii) neither the Company nor
any of its Subsidiaries is in receipt of any written notice of default pursuant to such Lease, no rent is past due and, to the Knowledge
of the Company, no fact, circumstance or condition exists that is or would reasonably be expected to become a default by any party under
such Lease or permit the termination, modification or acceleration of rent under such Lease, and no security deposit or portion thereof
deposited with respect to such Lease has been applied in respect of a breach or default under such Lease which has not been redeposited
in full; (iii) neither the Company nor any Subsidiary has collaterally assigned or granted any other security interest in such Lease
or any interest therein (except for assignments or grants in favor of the counterparty to such Lease or pursuant to the ABL Loan Agreement);
and (iv) there are no liens (other than Permitted Liens) on the estate or interest created by such Lease. The Company or one of its Subsidiaries
has valid leasehold estates in the Leased Real Property binding and enforceable upon the Company or its Subsidiaries, as applicable, free
and clear of all liens other than Permitted Liens. Except as set forth in
Section
3.14(b)
of the
Company Disclosure Letter, there are no Legal Proceedings pending or, to the Knowledge of the Company, threatened against any Leased Real
Property that could reasonably be expected to materially affect the continued use of such property. There are no pending or, to the Knowledge
of the Company, threatened Legal Proceedings to (i) condemn, take or demolish any Leased Real Property or any portion thereof, (ii) declare
any Leased Real Property or any portion thereof a nuisance, (iii) exercise the power of eminent domain or any similar governmental power
with respect to any Leased Real Property or any portion thereof, or (iv) effect any sale or disposition in lieu of condemnation. There
are no pending or, to the Knowledge of the Company, threatened material special assessments affecting any Leased Real Property. Except
as would not reasonably be expected to have a Company Material Adverse Effect or is otherwise disclosed on
Section
3.14(b)
of the
Company Disclosure Letter, (i) there are no leasing costs, leasing commissions, or finder fees or the like which are due or payable, which
have not been paid, with respect to the Leases (including with respect to
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current
or future renewals and expansions thereof), and (ii) there are no exclusive or continuing brokerage agreements as to any of the space
leased under the Leases.
(c)
Subleases
.
As of the date of this Agreement, there are no existing subleases, licenses or similar agreements in which the Company or any of its Subsidiaries
has granted to any Person, other than the Company Group, any right to use or occupy, now or in the future, the Leased Real Property set
forth in
Section
3.14(b)
of the
Company Disclosure Letter.
(d)
Operational
Condition
. Except
as would not reasonably be expected to be material to the Company Group, taken as a whole, all buildings, structures, improvements, fixtures,
building systems, equipment and all components thereof included in the Leased Real Property (collectively, the “
Improvements
”)
are in good condition and repair and are adequate and sufficient for the operation of the business of the Company Group as currently conducted.
There are no structural deficiencies or, to the Knowledge of the Company, latent defects affecting any of the Improvements that would
reasonably be expected to be material to the Company Group, taken as a whole. To the Knowledge of the Company, there are no material capital
expenditures with respect to the Improvements that are required to be made during the twelve (12) months following the date of this Agreement.
To the Knowledge of the Company, there are no facts or conditions affecting any of the Improvements which would, individually or in the
aggregate, interfere in any material respect with the use or occupancy of the Improvements or any portion thereof in the ordinary course
of business. The Leased Real Property constitute all real property used in, and necessary for, the conduct of the business of the Company
Group as currently conducted. All material buildings, fixtures, tangible personal property and leasehold improvements primarily used in
the business of the Company Group are located on the Leased Real Property, other than tangible personal property in the possession of
employees in connection with their employment (including remote work equipment) and tangible personal property in transit or at customer
or vendor locations in the ordinary course of business.
(e)
Personal
Property
. Except
as would not reasonably be expected to have a Company Material Adverse Effect, the Company and each of its Subsidiaries has good title
to, or a valid and binding leasehold interest in, all material tangible assets, personal property, machinery and equipment owned or leased
by it (the “
Tangible
Assets
”),
free and clear of all liens, other than Permitted Liens. Except as would not reasonably be expected to have a Company Material Adverse
Effect, to the Knowledge of the Company, all of such Tangible Assets are in good operating condition (ordinary wear and tear excepted),
and have been and are being used in material compliance with applicable law and are capable of being used for the purposes for which such
assets are now used by the Company or its Subsidiaries.
(f)
Sufficiency
of Assets
. Except
as would not reasonably be expected to have a Company Material Adverse Effect, the Tangible Assets are sufficient for the Company and
each of its Subsidiaries to continue to operate the business following the Closing in the same manner as it is conducted as of the date
of this Agreement.
3.15
Environmental
Matters
. Since
January 1, 2023, and except as set forth in Schedule 3.15 of the Company Disclosure Letter or as would not reasonably be expected to have
a Company Material Adverse Effect, none of the Company Group (a) has received any notice alleging that the Company or any of its Subsidiaries
has violated, or has any liability under, any applicable Environmental Law; (b) has Knowledge of Hazardous Substances present at,
affecting, or having emanated or continuing to emanate from any of the Leased Real Property in amounts or circumstances that would reasonably
be expected to require the Company or any of its Subsidiaries to undertake any investigation or corrective or remedial action under any
Lease or any applicable Environmental Law or any third-party agreement, or to give rise to any claim against or interfere with the operations
of the Company or any of its Subsidiaries, (c) is a party to or is the subject of any pending or, to the Knowledge of the Company or its
Subsidiaries, threatened Legal Proceeding or third-party claim under Environmental Laws, (d) has treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled, released or exposed any Person to any Hazardous Substance, or owned or operated
any property or facility contaminated by any Hazardous Substance, in each case as would reasonably be expected to give rise to continuing
liability post-closing under any Environmental Law, third-party agreement, or any lease, sublease, license or other
172
occupancy
agreement for the operation thereof, or (e) has failed to comply with applicable Environmental Laws, including possessing and complying
with any permits required for the Company or its Subsidiaries to conduct then current operations. The Company makes no representation
or warranty to the Parent or Merger Sub relating to Environmental Laws or the effect thereof on the business of the Company or its Subsidiaries
(including the existence or absence of any liabilities related thereto) other than pursuant to this
Section
3.15
, which is
intended to contain the sole and exclusive representations and warranties of the Company relating to such matters.
3.16
Intellectual
Property
.
(a)
Registered
Intellectual Property; Proceedings
.
Section
3.16(a)
of the
Company Disclosure Letter sets forth a true, correct and complete list as of the date of this Agreement of all (i) Company Registered
Intellectual Property and specifies, where applicable, the jurisdictions in which each such item of Company Registered Intellectual Property
has been issued or registered and corresponding bibliographic details; and (ii) Legal Proceedings currently pending before any Governmental
Authority (other than actions related to the ordinary course prosecution of Company Registered Intellectual Property before the United
States Patent and Trademark Office or the equivalent authority anywhere in the world) related to any material Company Registered Intellectual
Property.
(b)
Full
Force and Effect
.
To the Knowledge of the Company, (i) all material Company Registered Intellectual Property is subsisting, valid, enforceable, and in full
force and effect, (ii) all required maintenance, renewal and filing fees with respect thereto have been timely paid and (iii) all necessary
documents and certificates with respect thereto have been timely filed.
(c)
Conduct
of the Business
.
The Company Group owns or has rights to use all material Intellectual Property necessary and sufficient to enable the Company Group to
conduct the business of the Company and its Subsidiaries in the manner in which such business is currently being conducted.
(d)
No
Order
. To the Knowledge
of the Company, no material Company Intellectual Property is subject to any outstanding Legal Proceeding or order with respect to the
Company Group restricting in any material manner the use, transfer or licensing by the Company Group of any such material Company Intellectual
Property.
(e)
Absence
of Liens
. The Company
or one of its Subsidiaries owns and has good and valid legal and equitable title to each item of material Company Intellectual Property
free and clear of any liens (other than Permitted Liens).
(f)
IP
Contracts
.
Section
3.16(f)
of the
Company Disclosure Letter sets forth a true, correct and complete list of all Contracts to which the Company Group is a party (i) with
respect to material Company Intellectual Property licensing or transferring any right therein to any third Person other than any non-disclosure
agreements entered into in the ordinary course of business; and (ii) pursuant to which a third Person has licensed or transferred
any Intellectual Property to the Company Group, other than any (A) non-disclosure agreements or other Contracts entered into in the ordinary
course of business and (B) non-exclusive licenses of commercially available software used solely for the Company Group’s internal
use (all such Contracts, the “
IP
Contracts
”).
(g)
Changes
.
Except as would not have a Company Material Adverse Effect, the consummation of the Merger will not under any IP Contract result in:
(i) the termination of any material license of Intellectual Property to the Company by a third Person; or (ii) the granting by the
Company of any license or rights to any Company Intellectual Property.
(h)
No
Government or Institutional Funding
.
The Company is not under any obligation, present or contingent, to license or grant any material Company Intellectual Property to any
Governmental Authority, educational institution, or research center because it has received funding to develop such Company Intellectual
Property.
173
(i)
No
Infringement
. To
the Knowledge of the Company, the operation of the business of the Company Group (including the manufacture and sale of the Company Group’s
products) as of the date of this Agreement and as conducted since January 1, 2023 does not infringe, misappropriate, dilute, or otherwise
violate, and has not infringed, misappropriated, diluted, or otherwise violated, the Intellectual Property of any third Person in a manner
that has or could reasonably be expected to result in a material liability to the Company Group, taken as a whole.
(j)
No
Notice of Infringement
.
Since January 1, 2023, the Company Group has not received written notice from any third Person, or been involved in any Legal Proceeding,
alleging that the operation of the business of the Company Group or that any of the Company Group’s products infringes, misappropriates,
or otherwise violates the Intellectual Property of any third Person in a manner that has or could reasonably be expected to result in
a Company Material Adverse Effect.
(k)
No
Third Person Infringement
.
Since January 1, 2024, the Company Group has not provided any third Person with written notice claiming that such third Person is infringing,
misappropriating, or otherwise violating any material Company Intellectual Property, and, except as would not have a Company Material
Adverse Effect, to the Knowledge of the Company, no such activity is occurring that has resulted in a material liability or loss to the
Company Group, taken as a whole.
(l)
Proprietary
Information
. The
Company Group has taken reasonable steps to protect the Company Group’s rights in its confidential information and trade secrets
that it wishes to protect, or any trade secrets or confidential information of third Persons provided to the Company Group. Without limiting
the foregoing, the Company Group has and uses commercially reasonable efforts to enforce a policy requiring each officer and employee
engaged in the development of any material Intellectual Property for the Company Group to execute a proprietary information and confidentiality
agreement obliging non-disclosure of Company Group confidential information and trade secrets.
(m)
Employee
and Contractor Assignment
.
To the Knowledge of the Company, all current and former employees, consultants, contractors, service providers and other Persons who contributed
to the conception, development, authorship, creation, modification or improvement of any material Company Intellectual Property have executed
valid and enforceable written agreements including assignment to the Company or one of its Subsidiaries all rights of such Persons in
such Intellectual Property.
(n)
Artificial
Intelligence Use.
To
the Knowledge of the Company, the Company Group possesses rights that the Company Group believes in good faith are sufficient for the
Company Group’s use in the ordinary course of the components, inputs, and outputs of artificial intelligence tools used in the ordinary
course or provided or offered to any customer of the Company Group, including training data, except as would not be reasonably expected
to be material to the Company Group. To the Knowledge of Company, (a) none of the Company, its Subsidiaries, or employees, consultants,
or contractors of the Company Group, have used artificial intelligence tools to develop material Company Intellectual Property, and (b)
none of the Company Group have provided any confidential information or trade secrets of the Company Group to any artificial intelligence
platform in a manner that has resulted in a written claim against the Company Group.
(o)
Proprietary
Software.
Section
3.16(o)
of the
Company Disclosure Letter sets forth a true, correct and complete list of all software used in the ordinary course developed or customized
by or for the Company or its Subsidiaries.
(p)
Data
Security and Privacy
.
Except as would not have a Company Material Adverse Effect, the Company Group and its collection, access, storage, use, and/or disclosure
(“
Processing
”)
of information that constitutes “personal information” or “personal data” as defined by applicable law (“
Personal
Information
”)
are in compliance with: (i) applicable law
174
pertaining
to privacy, data protection and security, consumer protection, advertising, marketing, communications, recording, wiretapping, biometrics,
and telemarketing; (ii) the Company Group’s privacy policies and public statements; (iii) industry standards (including
the Payment Card Industry Data Security Standard (PCI-DSS); and (iv) Contracts pertaining to the Processing of Personal Information
and security requirements ((i) through (iv) collectively, “
Privacy
Law
”). The
Company Group (A) maintains commercially reasonable policies and procedures designed to protect systems and information processed by or
on behalf of the Company Group from and against unlawful, accidental, or unauthorized Processing, destruction, loss, modification, and/or
unavailability (“
Security
Incidents
”);
and (B) is in compliance with such policies, procedures, and Privacy Law, except as would not have a Company Material Adverse Effect.
Except as would not have a Company Material Adverse Effect, to the Knowledge of the Company, since January 1, 2023, there have been no
Security Incidents. Except as would not have a Company Material Adverse Effect, to the Knowledge of the Company, since January 1, 2023,
the Company Group has not notified, and has not been required to notify, any Governmental Authority or Person of any Security Incidents.
To the Knowledge of the Company, there are no pending complaints, investigations, claims, damages, or lawsuits related to Privacy Law
or Security Incidents, except as would not have a Company Material Adverse Effect.
3.17
Tax
Matters
.
(a)
Tax
Returns and Taxes Paid
.
The Company Group has (i) timely filed (taking into account valid extensions) all material United States federal, state, local and non-United
States tax returns, information statements and reports (including amendments thereto) required to be filed with any Governmental Authority
with respect to Taxes (“
Tax
Returns
”)
required to be filed by the Company Group; and (ii) paid, or has adequately reserved in the Audited Company Balance Sheet in accordance
with GAAP for the payment of, all material Taxes that are required to be paid by the Company Group through the date of the Audited Company
Balance Sheet. Except as obtained in the ordinary course, none of the Company Group has executed any waiver, except in connection with
any ongoing Tax examination, of any statute of limitations on, or extended the period for the assessment or collection of, any material
Tax, in each case that has not since expired. There are no liens for Taxes upon any of the material assets or properties of the Company
Group, other than Permitted Liens. The Company Group has not received any written notice from any Governmental Authority of any proposed,
asserted or assessed deficiency for material Taxes that remains unresolved.
(b)
Taxes
Withheld
. The Company
Group has timely paid or withheld with respect to their employees and other third Persons (and paid over any amounts withheld to the appropriate
Tax authority) all material United States federal, state, and local income taxes, Federal Insurance Contribution Act, Federal Unemployment
Tax Act and other similar Taxes required to be paid or withheld.
(c)
No
Audits
. No audits
or other examinations with respect to any material amounts of Taxes of the Company Group are presently in progress or, to the Knowledge
of the Company, have, since January 1, 2023, been asserted or proposed in writing. No written claim has been made by a Governmental Authority
in the past three years in a jurisdiction where the Company Group does not file Tax Returns that the Company Group is or may be subject
to tax in that jurisdiction.
(d)
Affiliated
Groups
. The Company
Group (i) is not and has never been a member of an affiliated group of corporations filing a consolidated United States federal income
Tax Return (other than a group the common parent of which is the Company), or (ii) has any material liability for Taxes of any Person
(other than the Company Group) as a transferee or successor, by contract (other than a contract the primary purpose of which is unrelated
to Taxes or that is solely among the Company Group), operation of law, or otherwise.
(e)
Spin-offs
.
The Company Group has not constituted either a “distributing corporation” or a “controlled corporation” in a distribution
of stock intended to qualify for tax-free treatment pursuant to Section 355 of the Code within the past two years.
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(f)
No
Listed Transaction
.
The Company Group has not engaged in a “listed transaction” as set forth in Treasury Regulation § 1.6011-4(b)(2).
(g)
Tax
Agreements
. The
Company Group is not a party to nor bound by, nor currently has any obligations or material liability pursuant to, any material Tax sharing,
allocation, indemnification or similar agreement or obligation, other than any such agreement or obligation the primary purpose of which
is unrelated to Taxes or that is solely among the Company Group.
(h)
Transfer
Pricing
. The Company
Group is in compliance with applicable United States and foreign transfer pricing laws and regulations, including conducting intercompany
transactions at arm’s length and the execution and maintenance of contemporaneous documentation substantiating the transfer pricing
practices and methodology of the Company Group, except where the failure to be, or to have been, in compliance with such laws and regulations
would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(i)
Other
Income Inclusions or Exclusions
.
The Company Group will not be required to include any material item of income in, or exclude any material item of deduction from, taxable
income for any taxable period (or portion thereof) beginning after the Closing Date as a result of any (i) change in method of accounting
made on or prior to the Closing Date 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 law) executed on or prior to the Closing Date;
(iii) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding
or similar provision of law) with respect to a transaction or event occurring on or prior to the Closing Date; (iv) installment sale
or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received or paid outside the ordinary
course of business on or prior to the Closing Date.
3.18
Employee
Plans
.
(a)
Employee
Plans
.
Section
3.18(a)
of the
Company Disclosure Letter sets forth a list, as of the date of this Agreement, of all (i) “employee benefit plans” (as defined
in Section 3(3) of ERISA), whether or not subject to ERISA, and (ii) other employment, bonus, severance, termination, pension, stock option,
stock purchase or other material equity-based, benefit, incentive compensation, profit sharing, savings, retirement, qualified or non-qualified
pension plan, disability, insurance, vacation, deferred compensation, severance, termination, retention, change of control and other similar
material fringe, welfare or other employee benefit plans, programs, agreements, policies or binding arrangements maintained or contributed
to by the Company Group for the benefit of any current employee or director of the Company Group (collectively, the “
Employee
Plans
”).
With respect to each Employee Plan, to the extent applicable, the Company has made available to Parent copies of (A) the plan document
and all amendments thereto; (B) the current summary plan description; (C) the most recent determination or opinion letter from
the IRS; (D) all non-routine correspondence with any Governmental Authority regarding such plan in the past three years; (E) a
written summary of the material terms of any Employee Plan that is not set forth in a written document; (F) the three most recently
filed annual reports (Form 5500 series or other similar reports) and all schedules and financial statements attached thereto; (G)
all applicable coverage and nondiscrimination tests for the three most recently completed plan years; (H) a copy of each trust agreement
or other funding arrangement, custodial agreement, insurance policy or contract, administration agreement or similar agreement, and each
investment management or investment advisory agreement, and (I) all Forms 1094-C and 1095-C filed with respect to any Employee Plan since
2020.
(b)
Title
IV Plans
. Except
as otherwise set forth in
Section
3.18(b)
of the
Company Disclosure Letter, neither the Company nor any other trade or business (whether or not incorporated) that would be treated as
a single employer with the Company pursuant to Section
176
414
of the Code has, in the past six years, maintained, sponsored, contributed to, or has any liability under (i) any plan subject to Title
IV of ERISA or Section 412 of the Code; (ii) any “multiemployer plan” within the meaning of Section 3(37) of ERISA;
(iii) any “multiple employer plan” within the meaning of Section 4063 or 4064 of ERISA; or (iv) any “multiple employer
welfare arrangement” within the meaning of Section 3(40) of ERISA.
(c)
Employee
Plan Compliance and Legal Proceedings
.
Except as otherwise set forth in
Section
3.18(c)
of the
Company Disclosure Letter or as would not have a Company Material Adverse Effect, (i) each Employee Plan has been operated in accordance
with its terms and applicable law, including ERISA, Pension Benefit Guaranty Corp rules, and the Code; (ii) all required contributions
to the Employee Plans have been properly and timely made; (iii) no Employee Plan has any unfunded liabilities that have not been properly
accrued; and (iv) there are no Legal Proceedings pending or, to the Knowledge of the Company, threatened on behalf of or against any
Employee Plan, other than routine claims for benefits. Each Employee Plan intended to be qualified under Section 401(a) of the Code has
received a favorable determination or opinion letter from the IRS or is entitled to rely on a prototype or volume submitter opinion letter.
To the Knowledge of the Company, no event has occurred that would reasonably be expected to cause the loss of such qualification. Each
Employee Plan that is a “non-qualified deferred compensation plan” (within the meaning of Section 409A(d)(1) of the Code)
has been operated and administered in compliance with Section 409A of the Code in all material respects. No payment made or to be made
under any “non-qualified deferred compensation plan” has been subject to taxation pursuant to, or any Taxes, interest, or
penalties imposed by, Sections 409A or 457A of the Code.
(d)
Transaction
Payments
. Except
as otherwise set forth in
Section
3.18(d)
of the
Company Disclosure Letter, neither the execution and delivery of this Agreement nor the consummation of the Merger will, either alone
or in conjunction with any other event, (i) result in, or accelerate the time of payment or vesting of, any payment or benefit becoming
due under any Employee Plan; (ii) materially increase any compensation or benefits payable under any Employee Plan; (iii) trigger
any obligation to fund any Employee Plan; (iv) limit or restrict the right of Parent to merge, amend or terminate any Employee Plan
after the Effective Time; or (v) give rise to any “excess parachute payment” within the meaning of Section 280G of the
Code.
(e)
Group
Health Plan Matters
.
No Employee Plan provides material post-termination or post-retirement health, life insurance, or other material welfare benefits, except
as required under Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code (or similar state law) for which the individual
pays the full cost of coverage. Except as would not have a Company Material Adverse Effect, (i) each Employee Plan that is a “group
health plan” as defined in Section 5000(b)(1) of the Code complies in all respects with the applicable provisions of the Patient
Protection and Affordable Care Act of 2010, the Health Care and Education Reconciliation Act of 2010, and all regulations issued thereunder,
(ii) neither the Company nor any other trade or business (whether or not incorporated) that would be treated as a single employer with
the Company pursuant to Section 414 of the Code has incurred, and no event has occurred and no condition or circumstance exists that would
reasonably be expected to subject the Company or any such affiliate thereof to, any penalty or excise Tax under Sections 4980D or 4980H
of the Code, and (iii) the Company has complied with the applicable reporting requirements under Sections 6055 and 6056 of the Code.
(f)
Non-U.S.
Plans
. Without
limiting the generality of the foregoing, with respect to each Employee Plan that is maintained for current or former employees or other
service providers who reside or work primarily outside of the United States (each, a “
Non-U.S.
Plan
”):
(i) each Non-U.S. Plan required to be registered has been registered and has been maintained in good standing in all material respects
with any applicable Governmental Authority; (ii) no Non-U.S. Plan is a defined benefit plan (as defined in ERISA, whether or not subject
to ERISA); and (iii) no material unfunded or underfunded liabilities exist with respect to any Non-U.S. Plan. The Company Group has
timely made all payments required to have been made by them in all material respects with respect to any plan or arrangement sponsored
or maintained by a Governmental Authority.
177
3.19
Labor
Matters
.
(a)
Union
Activities
. The
Company Group is not a party to or bound by any collective bargaining agreement or other Contract with any labor union (each, a “
Collective
Bargaining Agreement
”),
and no Collective Bargaining Agreement is being negotiated by the Company Group. Except as would not have a Company Material Adverse Effect,
as of the date hereof, there is no strike, lockout, slowdown, work stoppage or other labor dispute against or affecting the Company Group
pending, or to the Knowledge of the Company, threatened.
(b)
Employment
Law Compliance
.
Except as would not have a Company Material Adverse Effect, the Company Group is, and for the past three years has been, in compliance
with applicable laws with respect to employment, including employment practices, wage and hour, immigration, discrimination, retaliation,
labor relations, worker classification, and employee health and safety. In the past three years, the Company Group has not implemented
any “plant closing” or “mass layoff” (each, as defined in WARN).
3.20
Permits;
Compliance with Laws
.
(a)
(i)
The Company Group holds, to the extent legally required, all material permits, licenses, variances, clearances, consents, commissions,
franchises, exemptions, orders and approvals from Governmental Authorities (“
Permits
”)
that are required for the operation of the business of the Company Group as currently conducted; (ii) the Company Group complies in
all material respects with the terms of all such Permits; and (iii) as of the date of this Agreement, no suspension or cancellation
of any such Permit is pending or, to the Knowledge of the Company, threatened.
(b)
The
Company Group is, and has been since January 1, 2023, in compliance in all material respects with all laws and orders that are applicable
to the Company Group or to the conduct of the business or operations of the Company Group.
(c)
Without
limiting the generality of
Section
3.20(b)
, the Company
Group is, and has been since January 1, 2019, in compliance in all material respects with all applicable Health Laws, including HIPAA.
In furtherance of the foregoing:
(i)
the
Company has designated privacy and security officials responsible for the development and implementation of its privacy and security compliance
program;
(ii)
when
required by HIPAA, the Company Group has entered into and complies in all material respects with all required business associate agreements;
(iii)
the
Company Group has provided training required under HIPAA to applicable members of its workforce;
(iv)
the
Company Group has adopted and maintained privacy and security policies and procedures designed to comply with HIPAA;
(v)
the
Company Group has conducted periodic security risk assessments and security risk analyses as required under applicable Health Laws and
has addressed and remediated all material deficiencies identified through such assessments;
(vi)
except
as set forth in the Company Disclosure Letter, the Company Group has not received any written notice from any Governmental Authority alleging
any violation of HIPAA or other applicable Health Laws; and
178
(vii)
the
Company Group has not experienced any Breach of Protected Health Information (as such terms are defined under HIPAA) that required notification
under 45 C.F.R. § 164.410.
(d)
No
representation is made under this
Section
3.20
with respect
to environmental, intellectual property, Tax, employee benefits, labor, trade controls and anti-corruption matters, which matters are
addressed exclusively in
Sections
3.15
,
3.16
,
3.17
,
3.18
,
3.19
and
3.25
.
3.21
Legal
Proceedings; Orders
.
(a)
No
Legal Proceedings
.
As of the date hereof, there are no Legal Proceedings pending or, to the Knowledge of the Company, threatened against the Company Group,
except as listed on
Section
3.21
of the Company
Disclosure Letter and for those that would not, individually or in the aggregate, reasonably be expected to be material to the Company
Group.
(b)
No
Orders
. As of the
date hereof, the Company Group is not subject to any order of any kind or nature issued by any Governmental Authority that would reasonably
be expected to prevent or delay the consummation of the Merger or the ability of the Company to fully perform its covenants and obligations
pursuant to this Agreement.
3.22
Insurance
.
Section
3.22
of the Company
Disclosure Letter sets forth a true, correct and complete list, as of the date of this Agreement, of all material insurance policies maintained
by or for the benefit of the Company Group (the “
Company
Insurance Policies
”).
The Company Group maintains insurance coverage with reputable insurers in such amounts and covering such risks as the Company reasonably
believes, based on past experience, is customarily carried by Persons conducting business similar to that of the Company Group. Except
as would not have a Company Material Adverse Effect, as of the date of this Agreement:
(i)
each
Company Insurance Policy is valid and binding and in full force and effect;
(ii)
all
premiums due and payable under the Company Insurance Policies have been paid when due and no premium is past due;
(iii)
the
Company Group is in compliance in all material respects with the terms and conditions of the Company Insurance Policies; and
(iv)
neither
the Company nor any of its Subsidiaries is in breach or default under any Company Insurance Policy and, to the Knowledge of the Company,
no event has occurred that, with notice or lapse of time or both, would constitute such a breach or default or permit termination, cancellation,
rescission or modification of coverage thereunder;
(v)
neither
the Company nor any of its Subsidiaries has received any written notice of cancellation, termination, non-renewal, invalidation or material
premium increase with respect to any Company Insurance Policy;
(vi)
all
pending claims in excess of $100,000 have been properly reported to the applicable insurer in accordance with the terms of the applicable
Company Insurance Policy and no insurer has denied coverage with respect to any such claim; and
(vii)
since
January 1, 2023, neither the Company nor any of its Subsidiaries has received any written notice regarding any non-renewal, termination,
invalidation or cancellation of any Company Insurance Policy.
3.23
Related
Person Transactions
.
Except for indemnification, compensation or other employment arrangements in the ordinary course of business, there are no Contracts or
transactions between the Company Group, on the one hand, and any Affiliate (including any director or officer) thereof, but not including
any Subsidiary of the Company, on the other hand, that would be required to be
179
disclosed
pursuant to Item 404 of Regulation S-K promulgated by the SEC in the Company’s Form 10-K or proxy statement pertaining to an annual
meeting of stockholders that has not been so disclosed.
3.24
Brokers
.
Except for the Advisor, Citizens Capital Markets & Advisory and Oaklins DeSilva +Phillips, there is no financial advisor, investment
banker, broker, finder, agent or other Person that is entitled to any financial advisor’s, investment banking, brokerage, finder’s
or other fee or commission in connection with the Merger based upon arrangements made by or on behalf of the Company Group.
3.25
Trade
Controls; Anti-Corruption Laws
.
(a)
Trade
Controls
.
(i)
Since
January 1, 2023, the Company Group has conducted its transactions in material accordance with all applicable export and re-export control
laws, trade and economic sanctions laws, and all other applicable export control and sanctions laws in other countries in which the Company
Group conducts business (collectively, “
Trade
Control Laws
”).
(ii)
To
the Knowledge of the Company, as of the date of this Agreement, there are no pending or threatened Legal Proceedings against the Company
Group alleging a violation of any sanctions and export control laws or anti-corruption laws that are applicable to the Company Group.
(iii)
No
licenses or approvals pursuant to the Trade Control Laws are necessary for the transfer of any export licenses or other export approvals
to Parent or the Surviving Corporation in connection with the consummation of the Merger, except for any such licenses or approvals the
failure of which to obtain would not have a Company Material Adverse Effect.
(iv)
Since
January 1, 2023, (i) neither the Company nor any of its Subsidiaries has been a Sanctioned Person; (ii) neither the Company nor any
of its Subsidiaries has been organized, resident or located in a Sanctioned Country; (iii) neither the Company nor any of its Subsidiaries
has knowingly conducted any business with any Sanctioned Person or in any Sanctioned Country in violation of applicable trade control
laws; and (iv) the Company Group has been in compliance in all material respects with all applicable sanctions, export control, import
control and anti-boycott laws.
(v)
For
purposes of this Section, “
Sanctioned
Country
”
means any country or territory that is, or whose government is, the subject or target of comprehensive Sanctions administered or enforced
by a Sanctions Authority. “
Sanctioned
Person
” means
any Person that is: (a) the subject or target of Sanctions, including by reason of being listed on any sanctions- or restricted-party
list maintained by a Sanctions Authority; (b) organized, resident or located in a Sanctioned Country; or (c) owned or controlled,
directly or indirectly, 50% or more, individually or in the aggregate, by one or more Persons described in clause (a) or clause (b). “
Sanctions
”
means economic or financial sanctions, trade embargoes, asset-freeze measures and related restricted-party measures administered, enacted
or enforced by a Sanctions Authority. “
Sanctions
Authority
”
means the United States government, including the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department
of State and the U.S. Department of Commerce; the United Nations Security Council; the European Union; His Majesty’s
Treasury of the United Kingdom; and any other applicable Governmental Authority that administers or enforces Sanctions.
180
(b)
Anti-Corruption
laws
. Except as
would not be material to the Company Group, taken as a whole, since January 1, 2023, none of the Company Group, or to the Knowledge of
the Company, any officer, director, agent, employee or other Person acting on its behalf, has, directly or indirectly, (i) violated any
anti-corruption laws; (ii) directly or indirectly made, offered, authorized, promised, solicited or received any unlawful bribe, kickback,
payoff, influence payment or other unlawful payment in violation of the FCPA or any anti-corruption laws; (iii) taken or failed to
take any action that would cause the Company or any of its Subsidiaries to be in violation of any provision of the Foreign Corrupt Practices
Act of 1977 (the “
FCPA
”)
or other applicable anti-corruption laws in other countries in which the Company Group conducts business; or (iv) used any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity.
3.26
No
Reliance
. The Company,
on behalf of itself and its Subsidiaries, acknowledges and agrees that, except for the representations and warranties expressly set forth
in
Article
IV
, it is not acting
(including, as applicable, by entering into this Agreement or consummating the Merger) in reliance on:
(a)    any
representation or warranty, express or implied;
(b)    any
estimate, projection, prediction, data, financial information, memorandum, presentation or other materials or information provided or
addressed to the Company or any of its Affiliates, in connection with presentations by or discussions with Parent’s management whether
prior to or after the date of this Agreement or in any other forum or setting; or
(c)    the
accuracy or completeness of any other representation, warranty, estimate, projection, forecast, prediction, data, financial information,
forward-looking statement, memorandum, presentation or other materials or information.
3.27
Information
Supplied
. None
of the information supplied or to be supplied by or on behalf of the Company specifically for inclusion or incorporation by reference
in the Form S-4 (including the Proxy Statement contained therein) will, at the time the Form S-4 is declared effective under the Securities
Act, and none of such information supplied by or on behalf of the Company specifically for inclusion or incorporation by reference in
the Proxy Statement contained in the Form S-4 will, at the date such Proxy Statement is first mailed to the Company’s stockholders
or at the time of the Company Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by
or on behalf of Parent or Merger Sub for inclusion or incorporation by reference in the Form S-4 or Proxy Statement.
3.28
Transaction
Expenses
. Section
3.28 of the Company Disclosure Letter sets forth the Company’s good faith estimate, as of the date of this Agreement, of the aggregate
Company Transaction Expenses expected to be incurred in connection with the Transactions (the “
Transaction
Expense Estimate
”).
The Transaction Expense Estimate has been prepared in good faith based on information available to the Company as of the date of this
Agreement and reflects the Company’s reasonable expectations as of such date. The Company makes no representation or warranty that
actual Company Transaction Expenses will not exceed the Transaction Expense Estimate, and the Transaction Expense Estimate shall not constitute
a cap, ceiling or limitation on the Company Transaction Expenses that may be incurred by the Company in connection with the Transactions.
181
Article
IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
With
respect to any Section of this
Article
IV
, except (a)
as disclosed in the reports, statements and other documents filed by Parent with the SEC or furnished by Parent to the SEC, in each case
pursuant to the Exchange Act on or after January 1, 2024, and prior to the date of this Agreement (other than any disclosures contained
or referenced therein under the captions “Risk Factors,” “Forward- Looking Statements,” “Quantitative and
Qualitative Disclosures About Market Risk” and any other disclosures contained or referenced therein of information, factors or
risks that are predictive, cautionary or forward-looking in nature) (the “
Parent
Recent SEC Reports
”)
(it being understood that (i) any matter disclosed in any Parent Recent SEC Report will be deemed disclosed only with respect to the particular
representation or warranty to which such disclosure is specifically applicable and only to the extent the applicability of such disclosure
to such representation or warranty is reasonably apparent on the face of such disclosure, and (ii) this clause (a) shall not apply to
Section
4.1
,
Section
4.2
,
Section
4.3
,
Section
4.4
,
Section
4.5
, Section 4.10(b),
Section
4.14
and
Section
4.21(b)
), Parent
and Merger Sub hereby represent and warrant to the Company as follows:
4.1
Organization;
Good Standing
.
(a)
Parent
.
Parent (a) is a corporation duly organized, validly existing and in good standing pursuant to the DGCL; and (b) has the requisite
corporate power and authority to conduct its business as it is presently being conducted and to own, lease or operate its properties and
assets. Parent is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification necessary (to the extent that the concept of “good standing”
is applicable in the case of any jurisdiction outside the United States), except where the failure to be so qualified or in good standing
would not have a material adverse effect. Parent has made available to the Company true, correct and complete copies of its certificate
of incorporation, bylaws and other similar organizational documents, each as amended to date, and Parent is not in violation of such organizational
documents.
(b)
Merger
Sub
. Merger Sub
(a) is a corporation duly organized, validly existing and in good standing pursuant to the DGCL; and (b) has the requisite corporate
power and authority to conduct its business as it is presently being conducted and to own, lease or operate its properties and assets.
Merger Sub is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties owned or
leased or the nature of its activities make such qualification necessary (to the extent that the concept of “good standing”
is applicable in the case of any jurisdiction outside the United States), except where the failure to be so qualified or in good standing
would not have a material adverse effect. Merger Sub has made available to the Company true, correct and complete copies of its certificate
of incorporation, bylaws and other similar organizational documents, each as amended to date, and Merger Sub is not in violation of such
organizational documents.
4.2
Power;
Enforceability
.
Each of Parent and Merger Sub has the requisite power and authority to (a) execute and deliver this Agreement; (b) perform its covenants
and obligations hereunder; and (c) consummate the Transactions. The execution and delivery of this Agreement by each of Parent and
Merger Sub, the performance by each of Parent and Merger Sub of its respective covenants and obligations hereunder and the consummation
of the Transactions have been duly authorized by all necessary action on the part of each of Parent and Merger Sub and no additional actions
on the part of Parent or Merger Sub are necessary to authorize (i) the execution and delivery of this Agreement by each of Parent and
Merger Sub; (ii) the performance by each of Parent and Merger Sub of its respective covenants and obligations hereunder; or (iii)
assuming the truth of the following sentence, the consummation of the Merger (other than the filing with the Secretary of State of the
State of Delaware of the Certificate of Merger as required by the DGCL). Effective immediately following the execution and delivery of
this Agreement, Parent, in its capacity as the sole stockholder of Merger Sub, will execute and deliver to Merger Sub (with a copy also
sent to the Company) a written consent adopting this Agreement and approving the Merger in accordance with the DGCL. This Agreement has
been duly executed and
182
delivered
by each of Parent and Merger Sub and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with its terms
except as such enforceability (A) may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting or relating to creditors’ rights generally; and (B) is subject to general principles of equity.
4.3
Non-Contravention
.
The execution and delivery of this Agreement by each of Parent and Merger Sub, the performance by each of Parent and Merger Sub of their
respective covenants and obligations hereunder, and the consummation of the Transactions do not (a) violate or conflict with any provision
of the certificate of incorporation, bylaws or other similar organizational documents of Parent or Merger Sub; (b) violate, conflict
with, result in the breach of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) pursuant
to, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration pursuant
to any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument
or obligation to which Parent or Merger Sub is a party or by which Parent, Merger Sub or any of their properties or assets may be bound;
(c) assuming that all Consents described in
Section
4.4
have been obtained
or made, and any waiting periods thereunder have terminated or expired prior to the Effective Time, violate or conflict with any law or
order applicable to Parent or Merger Sub or by which any of their properties or assets are bound; or (d) result in the creation of
any lien (other than Permitted Liens) upon any of the properties or assets of Parent or Merger Sub, except in the case of each of clauses
(b), (c) and (d) for such violations, conflicts, breaches, defaults, terminations, accelerations or liens that would not have a Parent
Material Adverse Effect.
4.4
Requisite
Governmental Approvals
.
No Consent of any Governmental Authority, including under any Antitrust Law, is required on the part of Parent, Merger Sub or any of their
Affiliates (a) in connection with the execution and delivery of this Agreement by each of Parent and Merger Sub; (b) the performance
by each of Parent and Merger Sub of their respective covenants and obligations pursuant to this Agreement; or (c) the consummation
of the Transactions, except (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and such
filings with Governmental Authorities to satisfy the applicable laws of states in which the Company Group is qualified to do business;
(ii) such filings and approvals as may be required by any federal or state securities laws, including compliance with any applicable requirements
of the Exchange Act; (iii) the rules of NASDAQ, and (iv) such other Consents the failure of which to obtain would not have a Parent
Material Adverse Effect.
4.5
Parent
Capitalization
.
(a)
Capital
Stock
. The authorized
capital stock of Parent consists of 20,000,000 shares of Parent Common Stock and 10,000,000 shares of Parent Preferred Stock (collectively,
the “
Parent
Capital Stock
”).
As of the Capitalization Date, (i) 5,400,386 shares of Parent Common Stock were issued and outstanding; (ii) 3,686,711 shares of Parent
Common Stock were outstanding; (ii) 1,713,675 shares of Parent Common Stock were held by Parent as treasury shares; and (iii)
2,775,741 shares of Parent Preferred Stock were issued and 2,454,886 shares of Parent Preferred Stock were outstanding. All outstanding
shares of Parent Common Stock and Parent Preferred Stock have been validly issued, fully paid, nonassessable and free of any preemptive
rights. From the close of business on the Capitalization Date to the date of this Agreement, other than the issuance and/or vesting
of restricted stock units or restricted stock, Parent has not issued or granted any Parent Securities.
(b)
Parent
Preferred Stock
.
The Parent Preferred Stock to be issued as Preferred Stock Consideration has been duly authorized and, when issued and delivered in accordance
with the terms of this Agreement and the Certificate of Designations, will be validly issued, fully paid and nonassessable, free and clear
of all liens, other than restrictions on transfer arising under applicable securities laws or the organizational documents of Parent.
(c)
Authorization
and Reservation
.
Parent has, or prior to the Effective Time will have, authorized and reserved for issuance a sufficient number of shares of Parent Preferred
Stock to pay the Preferred Stock Consideration in accordance with
Article
II
. The issuance
of the Parent Preferred Stock as Preferred Stock Consideration has been duly authorized by all necessary corporate action on the part
of Parent.
183
(d)
Other
Rights
. Parent
is not a party to any Contract relating to the voting of, requiring registration of, or granting any preemptive rights, anti-dilutive
rights or rights of first refusal or other similar rights with respect to any Parent Securities.
4.6
Subsidiaries
.
(a)
Capital
Stock of Subsidiaries
.
All of the outstanding capital stock of, or other equity or member or voting interest in, each Subsidiary of Parent (i) has been duly
authorized, validly issued and is fully paid and nonassessable (to the extent such concepts are applicable to such Subsidiary); and
(ii) except for director’s qualifying or similar shares, is owned, directly or indirectly, by Parent, free and clear of all liens
(other than Permitted Liens) and any other restriction (including any restriction on the right to vote, sell or otherwise dispose of such
capital stock or other equity or voting interest) that would prevent such Subsidiary from conducting its business as of the Effective
Time in substantially the same manner that such business is conducted on the date of this Agreement.
(b)
Other
Securities of Subsidiaries
.
There are no outstanding (i) securities convertible into or exchangeable or exercisable for shares of capital stock of, or other equity
or voting interest in, any Subsidiary of Parent; (ii) options, warrants or other rights or arrangements obligating Parent or its Affiliates
to acquire from any Subsidiary of Parent, or that obligate any Subsidiary of Parent to issue, any capital stock of, or other equity or
voting interest in, or any securities convertible into or exchangeable for, shares of capital stock of, or other equity or voting interest
(including any voting debt) in, any Subsidiary of Parent; or (iii) obligations of any Subsidiary of Parent to grant, extend or enter
into any subscription, warrant, right, convertible or exchangeable security, or other similar Contract relating to any capital stock of,
or other equity or voting interest (including any voting debt) in, such Subsidiary to any Person other than Parent or one of its Subsidiaries.
(c)
Other
Investments
. Other
than equity securities held in the ordinary course of business for cash management purposes, Parent does not own or hold the right to
acquire any equity securities, ownership interests or voting interests (including voting debt) of, or securities exchangeable or exercisable
therefor, or investments in, any other Person.
4.7
Parent
SEC Reports
. Since
January 1, 2024, Parent has filed all forms, reports and documents with the SEC that have been required to be filed by it pursuant to
applicable laws prior to the date of this Agreement (the “
Parent
SEC Reports
”).
Each Parent SEC Report complied, as of its effective date (in the case of Parent SEC Reports that are registration statements filed pursuant
to the requirements of the Securities Act) or filing date (in the case of all other applicable Parent SEC Reports) (or, if amended or
superseded by a filing prior to the date of this Agreement, as of the date of the last such amendment or superseded filing), in all material
respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, each as in effect on the date
that such Parent SEC Report was filed. True, correct and complete copies of all Parent SEC Reports are publicly available in the Electronic
Data Gathering, Analysis and Retrieval database of the SEC. As of its filing date (or, if amended or superseded by a filing prior to the
date of this Agreement, on the date of such amended or superseded filing), each Parent SEC Report did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. 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 Parent SEC Reports.
4.8
Parent
Financial Statements; Internal Controls; Indebtedness
.
(a)
Parent
Financial Statements
.
The consolidated financial statements (including any related notes and schedules) of the Parent Group filed with the Parent SEC Reports
(i) were prepared in accordance with GAAP (except as may be indicated in the notes thereto or as otherwise permitted by Form 10-Q with
respect to any financial statements filed on Form 10-Q); and (ii) fairly present (except as may be indicated in the notes thereto
and subject in the case of unaudited statements to normal, year-end audit adjustments), in all material respects, the consolidated financial
position of the Parent Group as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended.
There are no unconsolidated Subsidiaries of the Parent or any off-balance sheet arrangements of the type required to be
184
disclosed
pursuant to Item 303(a)(4) of Regulation S-K promulgated by the SEC that have not been so disclosed in the Parent SEC Reports.
(b)
Disclosure
Controls and Procedures
.
Parent has established and maintains “disclosure controls and procedures” (as defined pursuant to Rule 13a-15(e) and Rule
15d-15(e) promulgated under the Exchange Act). Parent’s disclosure controls and procedures are reasonably designed to ensure that
all (i) material information required to be disclosed by the Parent in the reports and other documents that it files or furnishes pursuant
to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC;
and (ii) such material information is accumulated and communicated to the Parent’s management as appropriate to allow timely decisions
regarding required disclosure and to make the certifications required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act.
(c)
Internal
Controls
. Parent
has established and maintains a system of “internal control over financial reporting” (as defined pursuant to Rule 13a-15(f)
and Rule 15d-15(f) promulgated under the Exchange Act) sufficient to provide reasonable assurance (i) that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP, including policies and procedures that require the maintenance
of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Parent Group;
(ii) that transactions are made only in accordance with appropriate authorizations of the Parent’s management and the Parent board
of directors (or a committee thereof); and (iii) regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the assets of the Parent Group. Parent’s management has completed an assessment of the effectiveness of the Parent’s internal
control over financial reporting in compliance with the requirements of Section 404(a) of the Sarbanes-Oxley Act for the fiscal year ended
December 31, 2025, and such assessment concluded that such system was effective. Since January 1, 2024, the principal executive officer
and principal financial officer of the Parent have made all certifications required by the Sarbanes-Oxley Act. Neither the Parent nor
its principal executive officer or principal financial officer has received notice from any Governmental Authority challenging or questioning
the accuracy, completeness, form or manner of filing of such certifications. Neither the Parent nor, to the Knowledge of the Parent, the
Parent’s independent registered public accounting firm has identified or been made aware of (A) any significant deficiency or material
weakness in the system of internal control over financial reporting utilized by the Parent Group that has not been subsequently remediated;
or (B) any fraud that involves the Parent’s management or other employees who have a role in the preparation of financial statements
or the internal control over financial reporting utilized by the Parent Group.
4.9
No
Undisclosed Liabilities
.
Neither the Parent nor any of its Subsidiaries has any liabilities of a nature required to be reflected or reserved against on a balance
sheet (or the notes thereto) prepared in accordance with GAAP, other than liabilities (a) reflected or otherwise reserved against in the
audited balance sheet of Parent dated as of December 31, 2025 contained in the Parent SEC Documents filed prior to the date hereof or
in the consolidated financial statements of the Parent Group (including the notes thereto) included in the Parent SEC Reports filed prior
to the date of this Agreement; (b) arising pursuant to or incurred as expressly permitted or expressly contemplated by this Agreement
or incurred in connection with the Transactions; (c) incurred in the ordinary course of business since March 31, 2026; or (d)
that would not have a Parent Material Adverse Effect.
4.10
Absence
of Certain Changes
.
Except as otherwise contemplated, required or permitted by this Agreement, since December 31, 2025 through the date of this Agreement,
(a) the business of the Parent Group has been conducted, in all material respects, in the ordinary course of business (except with respect
to this Agreement and discussions, negotiations and transactions related hereto) and (b) there has not occurred a Parent Material Adverse
Effect.
4.11
Permits;
Compliance with Laws
.
(a)
Except
as would not have a Parent Material Adverse Effect, (i) the Parent Group holds, to the extent legally required, all permits, licenses,
variances, clearances, consents, commissions, franchises, exemptions, orders and approvals from Governmental Authorities (“
Parent
Permits
”)
that are required for the operation of the business of the Parent Group as currently conducted; (ii) the Parent Group complies with
the terms of all such Parent Permits; and
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(iii)
as of the date of this Agreement, no suspension or cancellation of any such Parent Permit is pending or, to the Knowledge of the Parent,
threatened.
(b)
The
Parent Group is, and since January 1, 2024 has been, in compliance in all material respects with all laws and orders that are applicable
to the Parent Group or to the conduct of the business or operations of the Parent Group, except for noncompliance that has not had and
would not have a Parent Material Adverse Effect.
4.12
Legal
Proceedings; Orders
.
(a)
No
Legal Proceedings
.
As of the date hereof, there are no Legal Proceedings pending or, to the Knowledge of the Parent, threatened against the Parent Group,
except for those that are not, individually or in the aggregate, reasonably likely to have a Parent Material Adverse Effect.
(b)
No
Orders
. As of the
date hereof, the Parent Group is not subject to any material order of any kind or nature issued by any Governmental Authority that would
reasonably be expected to prevent or materially delay the consummation of the Transactions or the ability of the Parent to fully perform
its covenants and obligations pursuant to this Agreement.
4.13
Ownership
of Company Capital Stock
.
None of Parent, Merger Sub or any of their respective directors, officers, general partners, managers or, to the knowledge of Parent,
any employees of Parent or Merger Sub (a) has owned any shares of Company Capital Stock during the two years prior to the date of this
Agreement; or (b) is or has been at any time during the past three years an “interested stockholder” (as defined in Section
203 of the DGCL) of the Company.
4.14
Brokers
.
There is no financial advisor, investment banker, broker, finder, agent or other Person who is entitled to any financial advisor’s,
investment banking, brokerage, finder’s or other fee or commission in connection with the Transactions based upon arrangements made
by or on behalf of Parent, Merger Sub or any of their Affiliates.
4.15
Operations
of Parent and Merger Sub
.
Merger Sub has been formed solely for the purpose of engaging in the Transactions, and, prior to the Effective Time, Merger Sub will not
have engaged in any other business activities and will have incurred no liabilities or obligations other than as contemplated by any agreements
or arrangements entered into in connection with this Agreement. Parent owns beneficially and of record all of the outstanding capital
stock of, and other equity and voting interest in, Merger Sub free and clear of all liens.
4.16
No
Parent Vote or Approval Required
.
No vote or consent of the members or holders of any capital stock of, or other equity or voting interest in, Parent is necessary to adopt
this Agreement and consummate the Merger. The vote or consent of Parent, as the sole stockholder of Merger Sub, is the only vote or consent
of the holders of any capital stock of, or other equity interest in, Merger Sub necessary to adopt this Agreement and consummate the Merger.
4.17
Stockholder
and Management Arrangements
.
As of the date of this Agreement, neither Parent nor Merger Sub nor any of their respective Affiliates is a party to any Contract, or
has authorized, made or entered into or committed or agreed to enter into any formal or informal arrangements or other understandings
(whether or not binding) with any stockholder, director, officer, employee or other Affiliate of the Company Group (a) relating to (i)
this Agreement or the Transactions; or (ii) the Surviving Corporation or any of its Subsidiaries, businesses or operations (including
as to continuing employment) from and after the Effective Time; or (b) pursuant to which any (i) such holder of Company Common Stock
would be entitled to receive consideration of a different amount or nature than the Merger Consideration in respect of such holder’s
shares of Company Common Stock; (ii) such holder of Company Common Stock has agreed to approve this Agreement or vote against any
Superior Proposal except for the Voting and Support Agreements; or (iii) such stockholder, director, officer, employee or other Affiliate
of the Company has agreed to provide, directly or indirectly, equity investment to Parent, Merger Sub or the Company to finance any portion
of the Merger.
4.18
Financing
.
(a)
Sufficiency
of Financing.
Parent
and Merger Sub have, and at the Closing will have (assuming that (i) the Debt Financing has been provided and the proceeds thereof made
available to Parent prior to (or at) the Closing, or (ii) Alternative Debt Financing has been secured by Parent), sufficient cash on hand
and/or other immediately available funds to (a) pay all
186
amounts
required to be paid by Parent or Merger Sub pursuant to Article II, (b) repay, prepay, discharge or otherwise satisfy all Indebtedness
of the Company and its Subsidiaries required to be repaid, prepaid, discharged or satisfied at the Closing, (c) pay all fees and expenses
required to be paid by Parent or Merger Sub in connection with the Transactions, and (d) consummate the Transactions.
(b)
No
Exclusive Arrangements
.
As of the date of this Agreement, none of Parent, Merger Sub or any of their respective Affiliates has entered into any Contract, arrangement
or understanding (i) awarding any agent, broker, investment banker or financial advisor any financial advisory role on an exclusive basis
in connection with the Transactions; or (ii) expressly prohibiting any bank, investment bank or other potential provider of debt financing
from providing or seeking to provide debt financing or financial advisory services to any Person in connection with a transaction relating
to the Company Group in connection with the Transactions.
4.19
Solvency
.
Neither Parent nor Merger Sub is entering into this Agreement with the actual intent to hinder, delay or defraud either present or future
creditors of the Company or any of its Subsidiaries. As of the Effective Time and immediately after giving effect to the Transactions
(including the payment of all amounts payable pursuant to
Article
II
in connection
with or as a result of the Merger and all related fees and expenses of Parent, Merger Sub, the Company and their respective Subsidiaries
in connection therewith), (a) the amount of the “fair saleable value” of the assets of each of Parent and the Surviving Corporation
and its Subsidiaries will exceed (i) the value of all liabilities of Parent or the Surviving Corporation and such Subsidiaries, as applicable,
including contingent and other liabilities; and (ii) the amount that will be required to pay the probable liabilities of each of Parent
or the Surviving Corporation and its Subsidiaries, as applicable, on their existing debts (including contingent liabilities) as such debts
become absolute and matured; (b) each of Parent or the Surviving Corporation and its Subsidiaries, as applicable, will not have an
unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged; and (c)
each of Parent or the Surviving Corporation and its Subsidiaries, as applicable, will be able to pay its liabilities, including contingent
and other liabilities, as they mature. For purposes of the foregoing, “not have an unreasonably small amount of capital for the
operation of the businesses in which it is engaged or proposed to be engaged” and “able to pay its liabilities, including
contingent and other liabilities, as they mature” means that such Person will be able to generate enough cash from operations, asset
dispositions or refinancing, or a combination thereof, to meet its obligations as they become due.
4.20
Information
Supplied
. None
of the information supplied or to be supplied by or on behalf of Parent or Merger Sub specifically for inclusion or incorporation by reference
in the Form S-4 (including the Proxy Statement contained therein) will, at the time the Form S-4 is declared effective under the Securities
Act, and none of such information supplied by or on behalf of Parent or Merger Sub specifically for inclusion or incorporation by reference
in the Proxy Statement contained in the Form S-4 will, at the date such Proxy Statement is first mailed to the Company’s stockholders
or at the time of the Company Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, neither Parent nor Merger Sub makes any representation or warranty with respect to any information
supplied by or on behalf of the Company for inclusion or incorporation by reference in the Form S-4 or proxy statement/prospectus.
4.21
Exclusivity
of Representations and Warranties
.
(a)
No
Other Representations and Warranties
.
Each of Parent and Merger Sub, on behalf of itself and its Subsidiaries, acknowledges and agrees that, except for the representations
and warranties expressly set forth in
Article
III
:
(i)
the
Company Group has not made any representation or warranty relating to the Company Group or its businesses, operations or otherwise in
connection with this Agreement or the Transactions;
(ii)
no
Person has been authorized by the Company Group or any of its Affiliates or Representatives to make any representation or warranty relating
to the Company Group or its businesses or operations or otherwise in connection with this Agreement or the Transactions, and if
187
made,
such representation or warranty must not be relied upon by Parent, Merger Sub or any of their respective Affiliates or Representatives
as having been authorized by the Company Group or any of its Affiliates or Representatives (or any other Person); and
(iii)
the
representations and warranties made by the Company in this Agreement are in lieu of and are exclusive of all other representations and
warranties, including any express or implied or as to merchantability or fitness for a particular purpose, and the Company hereby disclaims
any other or implied representations or warranties, notwithstanding the delivery or disclosure to Parent, Merger Sub or any of their respective
Affiliates or Representatives of any documentation or other information (including any financial information, supplemental data or financial
projections or other forward-looking statements).
(b)
No
Reliance
. Each
of Parent and Merger Sub, on behalf of itself and its Subsidiaries, acknowledges and agrees that, except for the representations and warranties
expressly set forth in
Article
III
, it is not
acting (including, as applicable, by entering into this Agreement or consummating any of the Transactions) in reliance on:
(i)
any
representation or warranty, express or implied;
(ii)
any
estimate, projection, forecast, prediction, forward-looking statement, financial information, memorandum, presentation or other materials
or information provided or addressed to Parent, Merger Sub or any of their respective Affiliates or Representatives, including any materials
or information made available in the electronic data room hosted by or on behalf of the Company in connection with the Transactions, in
connection with presentations by or discussions with the Company’s management or in any other forum or setting; or
(iii)
the
accuracy or completeness of any other representation, warranty, estimate, projection, forecast, prediction, forward-looking statement,
financial information, memorandum, presentation or other materials or information.
(c)
Investigation
.
Each of Parent and Merger Sub acknowledges that it has had the opportunity to conduct an independent investigation regarding the Company.
Nothing in this subsection (c) is intended to modify or limit in any respect any of the representations or warranties of the Company in
Article
III
.
Article
V
INTERIM
OPERATIONS OF THE COMPANY
5.1
Affirmative
Obligations
. Except
(a) as expressly contemplated or expressly permitted by this Agreement; (b) as set forth in
Section
5.1
or
Section
5.2
of the Company
Disclosure Letter; (c) as required by applicable law or any binding order issued by a Governmental Authority of competent jurisdiction;
or (d) as approved by Parent in writing (which approval will not be unreasonably withheld, conditioned or delayed), at all times during
the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur of the termination of
this Agreement pursuant to
Article
VIII
and the Effective
Time, the Company will, and will cause each of its Subsidiaries to (i) maintain its existence in good standing under the laws of its incorporation
or formation; (ii) subject to the restrictions and exceptions set forth in
Section
5.2
or elsewhere
in this Agreement, conduct its business and operations in the ordinary course of business; and (iii) (A) preserve intact its assets,
properties, Contracts or other legally binding understandings, licenses and business organizations; (B) keep available the services
of its current officers and key employees; and (C) preserve the current relationships with material customers, suppliers, distributors,
lessors, licensors, licensees, creditors, contractors and other Persons with which the Company Group has business relations.
188
5.2
Forbearance
Covenants
. Except
(i) as expressly contemplated or permitted by this Agreement; (ii) as set forth in
Section
5.2
of the Company
Disclosure Letter; (iii) as required by applicable law or any binding order issued by a Governmental Authority of competent jurisdiction;
or (iv) as approved by Parent (which approval will not be unreasonably withheld, conditioned or delayed), at all times during the period
commencing with the execution and delivery of this Agreement and continuing until the earlier to occur of the termination of this Agreement
pursuant to
Article
VIII
and the Effective
Time, the Company will not, and will not permit any of its Subsidiaries, to:
(a)
amend
the Charter, the Bylaws or any other similar organizational document;
(b)
propose
or adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;
(c)
except
for (A) grants of Company Equity Awards permitted pursuant to
Section
5.2(i)
below or
(B) issuances of Company Securities on exercise or settlement of Company Equity Awards pursuant to the terms and conditions of Company
Equity Awards, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any Company Securities;
(d)
directly
or indirectly acquire, repurchase or redeem any securities, except for (A) repurchases of Company Securities pursuant to the terms and
conditions of Company Equity Awards, or (B) transactions between the Company and any of its direct or indirect Subsidiaries;
(e)
(A)
adjust, split, combine or reclassify any shares of capital stock, or issue or authorize or propose the issuance of any other Company Securities
in respect of, in lieu of or in substitution for, shares of its capital stock or other equity or voting interest; (B) declare, set
aside or pay any dividend or other distribution (whether in cash, shares or property or any combination thereof) in respect of any shares
of capital stock or other equity or voting interest, or make any other actual, constructive or deemed distribution in respect of the shares
of capital stock or other equity or voting interest, except for cash dividends made by any direct or indirect wholly owned Subsidiary
of the Company to the Company or one of its other wholly owned Subsidiaries; (C) pledge or encumber any shares of its capital stock
or other equity or voting interest; or (D) modify the terms of any shares of its capital stock or other equity or voting interest;
(f)
(A)
incur, assume or suffer any Indebtedness for borrowed money (including any long-term or short-term debt) or issue any debt securities,
except (1) for trade payables incurred in the ordinary course of business by the Company Group; (2) for loans or advances to direct
or indirect wholly owned Subsidiaries of the Company; (3) letters of credit, bank guarantees, security or performance bonds or similar
credit support instruments, overdraft facilities or cash management programs, in each case issued, made or entered into in the ordinary
course of business by the Company Group; (4) Indebtedness incurred under the ABL Loan Agreement (as the same may be amended by ABL
Loan Agreement Amendment) or other existing arrangements (including in respect of letters of credit) in respect of the Debt Financing
or in the ordinary course of business to support ordinary course working capital needs of the Company Group or capital expenditures to
the extent permitted by
Section
5.2(m)
;
provided
that in no event shall any such Indebtedness or arrangement, together with all amounts outstanding under the ABL Loan Agreement, exceed
the aggregate amount specified on
Section
5.2(f)
of the Company
Disclosure Letter; and (5) other Indebtedness in an aggregate principal amount not to exceed $750,000; (B) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person,
except with respect to obligations of direct or indirect wholly owned Subsidiaries of the Company and except for any indemnification and
advancement obligations under the Charter, Bylaws, comparable organizational document of any Subsidiary of the Company or indemnification
agreements with the Company Group;
(g)
make
any loans, advances or capital contributions to, or investments in, any other Person, except for (A) extensions of credit to customers
in the ordinary course of business; (B) advances to directors, officers and other employees for travel and other business-related
expenses,
189
in
each case in the ordinary course of business and in compliance in all material respects with the Company’s policies related thereto;
(C) advancement obligations under the Charter, Bylaws, comparable organizational document of any Subsidiary of the Company or indemnification
agreements with the Company Group; and (D) loans, advances or capital contributions to, or investments in, direct or indirect wholly
owned Subsidiaries of the Company;
(h)
acquire,
lease, license (other than non-exclusive licenses in the ordinary course of business), sell, abandon (except in the ordinary course of
business), transfer, assign, guarantee, exchange, mortgage, pledge or otherwise encumber any assets, tangible or intangible, or create
any lien thereupon, in each case in excess of $250,000 individually, or $500,000 in the aggregate in the case of acquisitions and $250,000
in the aggregate in the case of dispositions, other than: (A) the sale, lease or licensing of equipment, products or services of the
Company Group in the ordinary course of business; (B) the acquisition of inventory (including, for avoidance of doubt, any raw materials,
ingredients, components, packaging materials, labels and all other materials and supplies), in the ordinary course of business; (C)
any capital expenditures permitted (or consented to by Parent) under
Section
5.2(m)
; (D)
in connection with financing transactions permitted (or consented to by Parent) under
Section
5.2(f)
; (E)
dispositions of obsolete or worthless personal property in the ordinary course of business which have no fair market value in the good
faith determination of the Company; or (F) Permitted Liens;
(i)
except
as required by the terms of an Employee Plan: (A) enter into, adopt, amend, terminate or materially increase the coverage or benefits
available under any Employee Plan or any compensation or benefit plan, program, arrangement or agreement that would constitute an Employee
Plan if in effect on the date of this Agreement (other than changes made in the ordinary course of business in connection with annual
renewals of group welfare benefits); (B) increase the compensation or other benefits payable or provided to any current or former
director, officer, employee or independent contractor of the Company Group, pay any special bonus or other non-ordinary-course compensation
or benefit, or grant any new pension, severance, retention, transaction, change in control or similar benefit; (C) enter into, amend
or waive any employment, consulting, independent contractor, severance, retention, transaction bonus, change in control or similar compensatory
agreement with any current or former employee, officer, director or independent contractor, other than (x) at-will offer letters entered
into with newly hired employees in the ordinary course of business consistent with this Agreement or (y) consulting agreements that are
terminable without liability upon not more than thirty (30) days’ notice; (D) accelerate, or commit to accelerate, the funding,
vesting or payment of any compensation, benefits or Company Equity Awards; (E) grant any Company Equity Awards or any other equity-based
compensation; (F) hire or engage any employee or independent contractor with annual compensation in excess of $150,000 except that,
in the event the Company proposes to hire any such individual to replace an employee whose employment has terminated following the date
of this Agreement, the Company shall consult with Parent in advance regarding such hiring; (G) promote, terminate without cause, furlough
or temporarily lay off any employee whose annual compensation exceeds $150,000 or any officer of the Company Group; provided that,
if any such employee or officer ceases to be employed by the Company Group following the date of this Agreement, the Company shall consult
with Parent regarding any proposed replacement for such employee or officer prior to hiring or engaging such replacement; or (H) enter
into any agreement to employ or engage contingent workers outside of the ordinary course of business;
(j)
settle,
release, waive or compromise any pending or threatened Legal Proceeding or other claim, except for the settlement of any Legal Proceedings
or other claim that is (A) reflected or reserved against in the most recent consolidated balance sheet of the Company Group included in
the Company SEC Reports filed prior to the date hereof; (B) for solely monetary payments of no more than $100,000 individually and
$250,000 in the aggregate; (C) settled in compliance with
Section
5.2(l)
or
Section
6.12
; (D) in
favor of the Company Group in the ordinary course of business; or (E) for solely monetary payments for any Legal Proceeding that is
covered by insurance (exclusive of any amounts payable in respect of any insurance deductible);
190
(k)
except
as required by applicable law, any Governmental Authority (including the Financial Accounting Standards Board or any similar organization),
GAAP (or any interpretation thereof), or any rule or policy of the SEC, make any material change in any accounting principles, practices,
policies or procedures of the Company Group or any of its methods of reporting income, deductions or other material items for financial
accounting purposes;
(l)
(A)
make, other than in the ordinary course of business, or change any material Tax election; (B) settle or compromise any material Tax
claim or assessment; (C) file any material amended Tax Return; or (D) enter into a closing agreement with any Governmental Authority
regarding any material Tax, in each case, that would reasonably be expected to materially increase the Taxes payable by the Company Group;
(m)
incur
or commit to incur any capital expenditure(s), other than (A) consistent with the capital expenditure budget set forth in
Section
5.2(m)
of the Company
Disclosure Letter, (B) in connection with the repair or replacement of facilities, properties or assets destroyed or damaged after the
date hereof due to casualty or accident that are covered by insurance (exclusive of any amounts payable in respect of any insurance deductible)
or (C) otherwise in an aggregate amount for all such capital expenditures made pursuant to this clause (C) not to exceed $250,000 in the
aggregate during the period from the date hereof through the Closing;
(n)
enter
into, modify, amend, waive any material right under, consent to any assignment of, or terminate any (A) Contract (other than a Material
Contract) that, if so entered into, modified, amended or terminated, would reasonably be expected to have a Company Material Adverse Effect;
(B) Material Contract; or (C) Contract that, if entered into prior to the date of this Agreement, would have constituted a Material
Contract;
(o)
engage
in any transaction with, or enter into any agreement, arrangement or understanding with, any Affiliate of the Company or other Person
covered by Item 404 of Regulation S-K promulgated by the SEC that would be required to be disclosed pursuant to Item 404;
(p)
announce
or implement any employee layoffs, facility closings, reductions in force, furloughs, temporary layoffs, salary or wage reductions, work
schedule changes or similar actions that would reasonably be expected to trigger any notice, consultation, bargaining, consent or other
requirements pursuant to the WARN Act or any similar applicable law in any jurisdiction, including the European Collective Redundancies
Directive (Directive 98/59/EC), any national laws promulgated pursuant thereto, Article 298 of the Labor Code of the Philippines,
the Trade Union and Labour Relations (Consolidation) Act 1992 of the United Kingdom, or any law governing collective dismissals, workplace
closures, temporary layoffs or similar employment actions in Spain or any other applicable jurisdiction;
(q)
waive,
release, amend or otherwise modify in any material respect any noncompetition, nonsolicitation, nondisclosure, confidentiality, invention
assignment or other restrictive covenant obligation owed to the Company Group by any current or former employee, independent contractor,
consultant, officer or director;
(r)
adopt,
amend, modify or waive in any material respect any policy, program, procedure or practice relating to privacy obligations or any administrative,
technical or physical safeguards relating to data privacy, cybersecurity, information security, data protection or the collection, storage,
processing, use, transfer or disclosure of personal information;
(s)
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;
(t)
acquire
(by merger, consolidation or acquisition of stock or assets) any other Person or any material equity interest therein or enter into any
joint venture, legal partnership (excluding, for avoidance of doubt, strategic relationships, alliances, reseller agreements and
191
similar
commercial relationships), limited liability company or similar arrangement with any third Person;
(u)
enter
into any Collective Bargaining Agreement;
(v)
adopt
or implement any stockholder rights plan or similar arrangement, in each case, applicable to the Merger or any other transaction consummated
pursuant to Parent’s rights under
Section
5.3(e)(i)(2)
or
Section
5.3(e)(ii)(3)
;
or
(w)
enter
into, authorize any of, or agree or commit to enter into a Contract to take any of the actions prohibited by this
Section
5.2
.
5.3
No
Solicitation
.
(a)
Go-Shop
Period
. Notwithstanding
anything to the contrary set forth in this Agreement, during the period (the “
Go-Shop
Period
”)
beginning on the date of this Agreement and continuing until 11:59 p.m., Eastern time on the date that is thirty (30) days after the
date of this Agreement (the “
No-Shop
Period Start Date
”),
the Company and its Affiliates, directors, officers, employees, investment bankers, attorneys, accountants and other advisors or representatives
(collectively, “
Representatives
”)
shall have the right to: (i) solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage,
facilitate or assist, any proposal or inquiry that constitutes, or is reasonably expected to lead to, an Acquisition Proposal; (ii)
subject to the entry into, and in accordance with, an Acceptable Confidentiality Agreement, furnish to any Person any non-public information
relating to the Company Group or afford to any Person access to the business, properties, assets, books, records or other non-public information,
or to any personnel, of the Company Group, in any such case with the intent to induce the making, submission or announcement of, or to
knowingly encourage, facilitate or assist, any proposal or inquiry that constitutes, or is reasonably expected to lead to, an Acquisition
Proposal or any inquiries or the making of any proposal that would reasonably be expected to lead to an Acquisition Proposal,
provided,
however,
that the
Company will promptly (and in any event within 48 hours) provide to Parent, or provide Parent access to, any such non-public information
concerning the Company Group that is provided to any such Person or its Representatives that was not previously provided to Parent or
its Representatives; and (iii) participate or engage in discussions or negotiations with any Person with respect to an Acquisition
Proposal. On the No-Shop Period Start Date, the Company shall notify Parent in writing of (A) the identity of each Exempted Party, (B)
the number and identity of any parties with which the Company entered into an Acceptable Confidentiality Agreement and (C) the number
and identity of any parties that submitted an Acquisition Proposal after the date of this Agreement and prior to the No-Shop Period Start
Date, each of which notices shall include the documents and information contemplated by
Section
5.3(f)(ii)
,
Section
5.3(f)(iii)
and
Section
5.3(f)(iv)
to the
extent not previously provided to Parent.
(b)
No
Solicitation or Negotiation
.
Except as expressly permitted by this
Section
5.3
and except
in respect of an Exempted Party (but only for so long as such Person or group of Persons is an Exempted Party), from and after the No-Shop
Period Start Date until the earlier to occur of the termination of this Agreement pursuant to
Article
VIII
and the Effective
Time, the Company will and will cause each of its Subsidiaries and its and their officers and directors to, and will instruct and use
its commercially reasonable efforts to cause its other Representatives to, (i) cease any solicitations, discussions or negotiations with
any Person that would be prohibited by this
Section
5.3(b)
, request
the prompt return or destruction of all non-public information concerning the Company Group theretofore furnished to any such Person with
whom a confidentiality agreement was entered into within the six month period immediately preceding the No-Shop Period Start Date and
terminate all access granted to any such Person and its Representatives to any physical or electronic data room; and (ii) until the
earlier to occur of the termination of this Agreement pursuant to
Article
VIII
and the Effective
Time, not, directly or indirectly, (A) solicit, initiate, propose or knowingly induce the making, submission or announcement of, or knowingly
encourage, facilitate or assist the making, submission or announcement of any proposal, inquiry or offer that constitutes, or is reasonably
expected to lead to, an Acquisition Proposal; (B) furnish to any Person (other than to Parent, Merger Sub or any
192
designees
of Parent or Merger Sub) or its Representatives (in their capacity as such) any non-public information relating to the Company Group or
any Acquisition Proposal or afford to any Person or its Representatives (in their capacity as such) access to the business, properties,
assets, books, records or other non-public information, or to any personnel, of the Company Group (other than Parent, Merger Sub or any
designees of Parent or Merger Sub), in any such case with the intent to induce the making, submission or announcement of an Acquisition
Proposal; (C) participate or engage in discussions or negotiations with any Person with respect to an Acquisition Proposal (other
than informing such Persons of the provisions contained in this
Section
5.3
); or (D)
enter into any letter of intent, memorandum of understanding, merger agreement, acquisition agreement or other Contract relating to an
Acquisition Transaction, other than an Acceptable Confidentiality Agreement (any such letter of intent, memorandum of understanding, merger
agreement, acquisition agreement or other Contract relating to an Acquisition Transaction, an “
Alternative
Acquisition Agreement
”).
From the date of this Agreement until the earlier to occur of the termination of this Agreement pursuant to
Article
VIII
and the Effective
Time, the Company will not be required to enforce, and will be permitted to waive or release, any provision of any standstill or confidentiality
agreement solely to the extent that such provision has the effect of prohibiting or purports to prohibit making a confidential Acquisition
Proposal to the Company Board (or any committee thereof). For avoidance of doubt, notwithstanding the expiration of the Go-Shop Period,
the Company and its Representatives may continue to engage in the activities described in this
Section
5.3(b)
with respect
to Persons who are Exempted Parties (but only if and for so long as such Person or group is an Exempted Party) and their Representatives,
only if and for so long as the Company Board (or a committee thereof) has determined in good faith, after consultation with its financial
advisor and outside legal counsel, that the failure to continue such discussions or negotiations would be inconsistent with the directors’
fiduciary duties under applicable law. In such event, the Company shall promptly (and in any event within 48 hours) provide to Parent
any non-public information concerning the Company Group that is provided to any such Exempted Party or its or their Representatives that
was not previously provided to Parent, and the Company shall promptly, and in any event within 48 hours, provide Parent with copies of
all written proposals, indications of interest, term sheets, draft agreements, financing commitments and other material written materials
provided by or on behalf of any such Exempted Party or any inquiry, proposal or offer from such Exempted Party that would reasonably be
expected to lead to an Acquisition Proposal. The Company shall keep Parent reasonably informed, on a current basis and in any event within
48 hours, of any material developments, discussions or negotiations regarding any Acquisition Proposal with such Exempted Party, including
any change to the financial or other material terms thereof. The provisions of
Section
5.3(e)
shall apply
to an Acquisition Proposal of any Exempted Party.
(c)
Conduct
Following No-Shop Period Start Date
.
Notwithstanding anything set forth in this Agreement to the contrary, if, at any time following the No-Shop Period Start Date but prior
to obtaining the Requisite Stockholder Approval, the Company or any of its Representatives receives an Acquisition Proposal that did not
result from any material breach of this
Section
5.3
, (i) the Company
and its Representatives may contact the Person or group of Persons making the Acquisition Proposal solely to clarify the terms and conditions
thereof or to request that any Acquisition Proposal made orally be made in writing; and (ii) if the Company Board (or a committee
thereof) has determined in good faith (after consultation with its independent financial advisor and outside legal counsel) that such
Acquisition Proposal either constitutes a Superior Proposal or would reasonably be expected to result in a Superior Proposal, then the
Company and the Company Board (or a committee thereof) may, directly or indirectly through one or more of their Representatives (including
the Advisor), (A) participate or engage in discussions or negotiations with the Person or group of Persons making the Acquisition Proposal
and its or their Representatives regarding such Acquisition Proposal and (B) enter into an Acceptable Confidentiality Agreement with the
Person or group of Persons making such Acquisition Proposal and furnish, or provide access to, pursuant to such Acceptable Confidentiality
Agreement any non-public information relating to the Company Group or its businesses, properties, assets, books, records or other non-public
information, or provide access to any personnel of the Company Group;
provided
,
however
,
that the Company will promptly (and in any event within 48 hours) provide to Parent any non-public information concerning the Company
Group that is provided to any such Person or group of Persons or its or their
193
Representatives
that was not previously provided to Parent. Following the No-Shop Period Start Date, the Company shall promptly, and in any event within
48 hours, provide Parent with copies of all written proposals, indications of interest, term sheets, draft agreements, financing commitments
and other material written materials provided by or on behalf of any Person making an Acquisition Proposal or any inquiry, proposal or
offer that would reasonably be expected to lead to an Acquisition Proposal. Following the No-Shop Period Start Date, the Company shall
keep Parent reasonably informed, on a current basis and in any event within 48 hours of any material developments, discussions or negotiations
regarding any Acquisition Proposal, including any change to the financial or other material terms thereof.
(d)
No
Change in Company Board Recommendation or Entry into an Alternative Acquisition Agreement
.
Except as provided by
Section
5.3(e)
, at no time
after the date of this Agreement may the Company Board (or a committee thereof):
(i)
(A)
withhold, withdraw, amend, qualify or modify, or publicly propose to withhold, withdraw, amend, qualify or modify, the Company Board Recommendation
in a manner adverse to Parent in any material respect; (B) adopt, approve, endorse, recommend or otherwise declare advisable an Acquisition
Proposal; (C) fail to publicly reaffirm the Company Board Recommendation within ten Business Days after Parent so requests in writing,
which request is transmitted after any public disclosure of an Acquisition Proposal (
provided
that the Company will have no obligation to make such reaffirmation on more than two separate occasions); (D) take or fail to take
any formal action or make or fail to make any recommendation or public statement in connection with a tender or exchange offer, other
than a recommendation against such offer or a “stop, look and listen” communication by the Company Board (or a committee thereof)
to the Company Stockholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act (or any substantially similar communication)
(it being understood that the Company Board (or a committee thereof) may refrain from taking a position with respect to an Acquisition
Proposal until the close of business on the tenth Business Day after the commencement of a tender or exchange offer in connection with
such Acquisition Proposal without such action being considered a violation of this
Section
5.3
); or (E)
fail to include the Company Board Recommendation in the Proxy Statement (any action described in clauses (A) through (E), a “
Company
Board Recommendation Change
”);
provided
,
however
,
that, for the avoidance of doubt, none of (1) the determination by the Company Board (or a committee thereof) that an Acquisition Proposal
constitutes a Superior Proposal; or (2) the delivery by the Company to Parent of any notice contemplated by
Section
5.3(e)
will constitute
a Company Board Recommendation Change; or
(ii)
cause
or permit the Company Group to enter into an Alternative Acquisition Agreement.
(e)
Company
Board Recommendation Change; Entry into Alternative Acquisition Agreement
.
Notwithstanding anything to the contrary set forth in this Agreement, at any time prior to obtaining the Requisite Stockholder Approval:
(i)
the
Company Board (or a committee thereof) may effect a Company Board Recommendation Change in response to any material event, development,
discovery, change or circumstance with respect to the Company that (A) was not known to, or reasonably expected by, the Company Board
as of the date of this Agreement; and (B) does not relate to (x) any Acquisition Proposal; or (y) the mere fact, in and of itself,
that the Company meets or exceeds any internal or published projections, forecasts, estimates or predictions of revenue, earnings or other
financial
194
or
operating metrics for any period ending on or after the date of this Agreement, or changes after the date of this Agreement in the market
price or trading volume of the Company Common Stock or the credit rating of the Company (an “
Intervening
Event
”) (it
being understood that the foregoing clause (y) will not prevent or otherwise affect a determination that any event, development, discovery,
change or circumstance underlying such fact or changes referred to in clause (y) has resulted in or contributed to an Intervening Event),
if the Company Board (or a committee thereof) determines in good faith (after consultation with its outside legal counsel) that the failure
to do so would be inconsistent with the directors’ fiduciary duties pursuant to applicable law and if and only if:
(1)
the
Company has provided prior written notice to Parent at least three Business Days in advance to the effect that the Company Board (or a
committee thereof) has (A) so determined; and (B) intends to effect a Company Board Recommendation Change pursuant to this
Section
5.3(e)(i)
, which
notice will specify the applicable Intervening Event in reasonable detail; and
(2)
prior
to effecting such Company Board Recommendation Change, the Company and its Representatives, during such three Business Day period, must
have negotiated with Parent and its Representatives in good faith (to the extent that Parent desires to so negotiate) to make such adjustments
to the terms and conditions of this Agreement so that the Company Board (or a committee thereof) would no longer determine that the failure
to make a Company Board Recommendation Change in response to such Intervening Event would be inconsistent with the directors’ fiduciary
duties pursuant to applicable law; or
(ii)
if
the Company has received a bona fide Acquisition Proposal, whether during the Go-Shop Period or after the No-Shop Period Start Date, that
the Company Board (or a committee thereof) has concluded in good faith (after consultation with its financial advisor and outside legal
counsel) constitutes a Superior Proposal, then the Company Board may (A) effect a Company Board Recommendation Change with respect to
such Acquisition Proposal; or (B) authorize the Company to terminate this Agreement to enter into an Alternative Acquisition Agreement
with respect to such Acquisition Proposal, in each case if and only if:
(1)
the
Company Board (or a committee thereof) determines in good faith (after consultation with its financial advisor and outside legal counsel)
that the failure to do so would be inconsistent with its fiduciary obligations pursuant to applicable law;
(2)
the
Company has complied in all material respects with its obligations pursuant to this
Section
5.3
with respect
to such Acquisition Proposal;
(3)
(i)
the Company has provided prior written notice to Parent at least three Business Days in advance (the “
Notice
Period
”),
which notice shall state (A) that the Company has received a bona fide Acquisition Proposal that has not been withdrawn and that the Company
Board (or a committee thereof) has concluded in good faith (after consultation with its financial advisor and outside legal counsel) constitutes
a Superior Proposal; (B) to the extent not previously provided to Parent pursuant to
Section
195
5.3(f)
,
the material terms of such Acquisition Proposal, the identity of the Person or group of Persons making such Acquisition Proposal and copies
of all material documents relating to such Acquisition Proposal; and (C) that the Company Board (or a committee thereof) intends to
effect a Company Board Recommendation Change or to terminate this Agreement pursuant to this
Section
5.3
absent revisions
to the terms and conditions of this Agreement, which notice will specify the basis for such Company Board Recommendation Change or termination;
and (ii) prior to effecting such Company Board Recommendation Change or termination, the Company and its Representatives, during the Notice
Period, must have negotiated with Parent and its Representatives in good faith (to the extent that Parent desires to so negotiate) to
make such adjustments to the terms and conditions of this Agreement so that such Acquisition Proposal would cease to constitute a Superior
Proposal;
provided
,
however
,
that, in the event of any revisions to the financial terms or any other material term or condition of such Acquisition Proposal, the Company
will be required to deliver a new written notice to Parent and to comply with the requirements of this
Section
5.3(e)(ii)(3)
with
respect to such new written notice (except that the Notice Period in respect of such new written notice shall be two Business Days);
and
(4)
in
the event of any termination of this Agreement in order to cause or permit the Company to enter into an Alternative Acquisition Agreement
with respect to such Acquisition Proposal, the Company will have validly terminated this Agreement in accordance with
Section
8.1(h)
, including
paying (or causing to be paid) the Company Termination Fee in accordance with
Section
8.3(b)(iii)
.
(f)
Notice
.
From the No-Shop Period Start Date until the earlier to occur of the termination of this Agreement pursuant to
Article
VIII
and the Effective
Time, the Company will promptly (and, in any event, within 48 hours thereafter) notify Parent in writing of (i) the receipt by the Company
or, to the Knowledge of the Company, its Representatives of any Acquisition Proposal; (ii) the identity of the Person or group of
Persons making such Acquisition Proposal; (iii) a copy of any such Acquisition Proposal made in writing and any other written terms
and proposals provided (including financing commitments) to the Company or its Representatives; and (iv) a written summary of material
terms and conditions of any such Acquisition Proposal not made in writing. Thereafter, the Company must keep Parent reasonably informed,
on a reasonably prompt basis, of the status of any such Acquisition Proposals (including as required by clauses (i) through (iv) above
and any amendments thereto) and the status of any such discussions or negotiations.
(g)
Certain
Disclosures
. Nothing
in this Agreement will prohibit the Company or the Company Board (or a committee thereof) from (i) taking and disclosing to the Company
Stockholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or complying with Rule 14d-9 promulgated under
the Exchange Act, including a “stop, look and listen” communication by the Company Board (or a committee thereof) to the Company
Stockholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act (or any substantially similar communication); (ii) complying
with Item 1012(a) of Regulation M-A promulgated under the Exchange Act; (iii) informing any Person of the existence of the provisions
contained in this
Section
5.3
; or (iv)
making any disclosure to the Company Stockholders (including regarding the business, financial condition or results of operations of the
Company Group) that the Company Board (or a committee thereof) has determined to make in good faith in order to comply with applicable
law, regulation or stock exchange rule or listing agreement, it being understood that any such statement or disclosure made by the Company
Board (or a committee thereof) pursuant
196
to
this
Section
5.3(g)
must be
subject to the terms and conditions of this Agreement and will not limit or otherwise affect the obligations of the Company or the Company
Board (or any committee thereof) and the rights of Parent under this
Section
5.3
, it being understood
that nothing in the foregoing will be deemed to permit the Company or the Company Board (or a committee thereof) to effect a Company Board
Recommendation Change other than in accordance with
Section
5.3(e)
. In addition,
it is understood and agreed that, for purposes of this Agreement, a factually accurate public statement by the Company or the Company
Board (or a committee thereof) that describes the Company’s receipt of an Acquisition Proposal, the identity of the Person making
such Acquisition Proposal, the material terms of such Acquisition Proposal and the operation of this Agreement with respect thereto will
not be deemed to be (A) a withholding, withdrawal, amendment, or modification, or proposal by the Company Board (or a committee thereof)
to withhold, withdraw, amend or modify, the Company Board Recommendation; (B) an adoption, approval or recommendation with respect
to such Acquisition Proposal; or (C) a Company Board Recommendation Change.
(h)
Breach
by Representatives
.
The Company agrees that any breach of this
Section
5.3
by any of its
Representatives, to the extent acting at the Company’s direction that, if taken by the Company, would be a breach of this
Section
5.3
, will be deemed
to be a breach of this
Section
5.3
by the Company.
Article
VI
ADDITIONAL
COVENANTS
6.1
Required
Action and Forbearance; Efforts
.
(a)
Reasonable
Efforts
. Upon the
terms and subject to the conditions set forth in this Agreement, Parent and Merger Sub, on the one hand, and the Company, on the other
hand, will, and will cause their respective Affiliates to, use their respective commercially reasonable efforts to (A) take (or cause
to be taken) all actions; (B) do (or cause to be done) all things; and (C) assist and cooperate with the other Parties in doing
(or causing to be done) all things, in each case as are necessary, proper or advisable pursuant to applicable law or otherwise to consummate
and make effective, in the most expeditious manner practicable, the Transactions, including by:
(i)
causing
the conditions to the Merger set forth in
Article
VII
to be satisfied;
(ii)
(1)
obtaining all consents, waivers, approvals, orders and authorizations from Governmental Authorities; and (2) making all registrations,
declarations and filings with Governmental Authorities, in each case that are necessary or advisable to consummate the Transactions;
and
(iii)
obtaining
all consents, waivers and approvals and delivering all notifications pursuant to any Material Contracts in connection with this Agreement
and the consummation of the Transactions so as to maintain and preserve the benefits to the Surviving Corporation of such Material Contracts
as of and following the consummation of the Transactions; and
(iv)
executing
and delivering any Contracts and other instruments that are reasonably necessary to consummate the Transactions.
(b)
No
Failure to Take Necessary Action
.
In addition to the foregoing, subject to the terms and conditions of this Agreement, neither Parent nor Merger Sub, on the one hand, nor
the Company, on the other hand, will take any action, or fail to take any action, that is intended to or has (or would reasonably be expected
to have) the effect of (i) preventing, impairing, delaying or otherwise adversely affecting the consummation of the Transactions;
or (ii) the ability of such Party to fully perform its obligations pursuant to this Agreement. For the avoidance of doubt, no action by
the Company taken in compliance with
Section
5.3
or
Section
6.18
will be considered
a violation of this
Section
6.1
.
197
(c)
No
Consent Fee
. Notwithstanding
anything to the contrary set forth in this
Section
6.1
or elsewhere
in this Agreement, the Company Group will not be required to agree to the payment of a consent fee, “profit sharing” payment
or other consideration (including increased or accelerated payments), or the provision of additional security (including a guaranty),
in connection with the Transactions, including in connection with obtaining any consent pursuant to any Material Contract.
6.2
Form
S-4; Proxy Statement; Other Required SEC Filings
.
(a)
Preparation
and Filing of Form S-4 and Proxy Statement
.
Promptly following the date of this Agreement, Parent and the Company shall cooperate in preparing, and Parent shall file with the SEC,
a registration statement on Form S-4 in connection with the issuance of the Parent Preferred Stock in the Merger (as amended or supplemented
from time to time, the “
Form
S-4
”). The
Form S-4 shall include a Proxy Statement to be sent to the stockholders of the Company in connection with the Company Stockholder Meeting
(as amended or supplemented from time to time, the “
Proxy
Statement
”).
Each of Parent and the Company shall use its reasonable best efforts to cause the Form S-4 and the Proxy Statement to comply as to form
in all material respects with the applicable requirements of the Securities Act, the Exchange Act, the rules and regulations of the SEC
thereunder and the rules of NASDAQ. Subject to
Section
6.3
, the Company
shall include the Company Board Recommendation in the Proxy Statement.
(b)
Cooperation;
Review and Comment
.
Parent and the Company shall cooperate with each other in connection with the preparation and filing of the Form S-4, the Proxy Statement
and any Other Required Filing. Without limiting the foregoing, each of Parent and the Company shall furnish to the other Party all information
concerning itself, its Affiliates, directors, officers and stockholders and such other matters as may be reasonably requested by the other
Party in connection with the preparation, filing and distribution of the Form S-4, the Proxy Statement and any Other Required Filing.
Parent shall provide the Company and its counsel a reasonable opportunity to review and comment on the Form S-4 and the Proxy Statement,
including any amendments or supplements thereto, prior to filing with the SEC, and Parent shall give due consideration to all reasonable
additions, deletions or changes suggested by the Company or its counsel. The Company shall provide Parent and its counsel a reasonable
opportunity to review and comment on any Other Required Company Filing, including any amendments or supplements thereto, prior to filing
with the SEC, and the Company shall give due consideration to all reasonable additions, deletions or changes suggested by Parent or its
counsel. Parent shall provide the Company and its counsel a reasonable opportunity to review and comment on any Other Required Parent
Filing, including any amendments or supplements thereto, prior to filing with the SEC, and Parent shall give due consideration to all
reasonable additions, deletions or changes suggested by the Company or its counsel.
(c)
SEC
Review; Effectiveness
.
Parent and the Company shall use their respective reasonable best efforts to have the Form S-4 declared effective under the Securities
Act as promptly as reasonably practicable after filing and to keep the Form S-4 effective for so long as is necessary to consummate the
Merger and the other Transactions. Parent and the Company shall promptly notify each other of the receipt of any oral or written comments
from the SEC or its staff with respect to the Form S-4, the Proxy Statement or any Other Required Filing, any request by the SEC or its
staff for amendments or supplements thereto or for additional information, and any notice from the SEC or its staff relating to the effectiveness
of the Form S-4 or the issuance of any stop order or suspension of the qualification of the Parent Preferred Stock for offering or sale
in any jurisdiction. Parent and the Company shall cooperate in preparing responses to any comments or requests from the SEC or its staff
and shall use reasonable best efforts to resolve all SEC comments with respect to the Form S-4 and the Proxy Statement as promptly as
reasonably practicable. Parent shall advise the Company promptly after the Form S-4 has been declared effective.
(d)
Accuracy
of Disclosure
.
Parent, Merger Sub and the Company shall cause the information supplied by such Party for inclusion or incorporation by reference in the
Form S-4, the Proxy Statement or any Other Required Filing not to, at the time the Form S-4 is declared effective, at the time the Proxy
Statement is first mailed to Company Stockholders, at the time of
198
the
Company Stockholder Meeting and at the Effective Time, 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 light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, no Party makes any covenant with respect to information supplied by or on behalf
of another Party for inclusion or incorporation by reference in the Form S-4, the Proxy Statement or any Other Required Filing.
(e)
Amendments
and Supplements
.
If, at any time prior to the Effective Time, any information relating to Parent, Merger Sub, the Company or any of their respective Affiliates,
directors or officers should be discovered by Parent or the Company that should be set forth in an amendment or supplement to the Form
S-4, the Proxy Statement or any Other Required Filing so that such document would not 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 light of the
circumstances under which they were made, not misleading, the Party that discovers such information shall promptly notify the other Party,
and Parent and the Company shall cooperate in preparing and filing with the SEC, to the extent required by applicable law, an appropriate
amendment or supplement describing such information and, to the extent required by applicable law, disseminating such amendment or supplement
to Company Stockholders.
(f)
Communications
with the SEC
. Neither
Parent nor the Company shall, and each shall cause its respective Affiliates not to, communicate in writing with the SEC or its staff
with respect to the Form S-4, the Proxy Statement or any Other Required Filing without first providing the other Party and its counsel
a reasonable opportunity to review and comment on such written communication, and each Party shall give due consideration to all reasonable
additions, deletions or changes suggested by the other Party or its counsel.
(g)
Dissemination
of Proxy Statement
.
Subject to applicable law, Parent and the Company shall use their respective reasonable best efforts to cause the Proxy Statement to be
mailed to Company Stockholders as promptly as reasonably practicable after the Form S-4 is declared effective under the Securities Act
and the SEC has confirmed that it has no further comments on the Proxy Statement or has otherwise completed its review thereof.
(h)
Other
Required Filings
.
If Parent, Merger Sub, the Company or any of their respective Affiliates determines that it is required to file any document, other than
the Form S-4 or the Proxy Statement, with the SEC in connection with the Transactions pursuant to applicable law, the filing Party shall
promptly prepare and file such document with the SEC (each such filing by Parent, Merger Sub or any of their respective Affiliates, an
“
Other Required
Parent Filing
,”
and each such filing by the Company or any of its Affiliates, an “
Other
Required Company Filing
,”
and collectively, the “
Other
Required Filings
”).
Each Party shall use its reasonable best efforts to cause any Other Required Filing made by it or its Affiliates to comply as to form
in all material respects with the applicable requirements of the Exchange Act, the Securities Act, the rules and regulations of the SEC
thereunder and the rules of NASDAQ.
6.3
Stockholder
Meeting
.
(a)
Company
Stockholder Meeting
.
Subject to the provisions of this Agreement, the Company shall take all action necessary in accordance with the DGCL, the Exchange Act,
the Charter, the Bylaws and the rules of NASDAQ to establish a record date for, duly call, give notice of, convene and hold a meeting
of its stockholders (the “
Company
Stockholder Meeting
”)
as promptly as reasonably practicable following the mailing of the Proxy Statement to the Company Stockholders for the purpose of obtaining
the Requisite Stockholder Approval. The Company shall not change the record date for the Company Stockholder Meeting without the prior
written consent of Parent, such consent not to be unreasonably withheld, conditioned or delayed. Subject to
Section
5.3
and unless
there has been a Company Board Recommendation Change, the Company shall use its reasonable best efforts to solicit from the Company Stockholders
proxies in favor of the adoption of this Agreement and the approval of the Merger and to obtain the Requisite Stockholder Approval.
199
(b)
Adjournment
of Company Stockholder Meeting
.
Notwithstanding anything to the contrary in this Agreement, the Company may postpone or adjourn the Company Stockholder Meeting, provided
that the Company Stockholder Meeting may not be postponed or adjourned more than two times or for more than 30 days in the aggregate without
Parent’s prior written consent (such consent not to be unreasonably withheld, conditioned or delayed), if (i) there are holders
of an insufficient number of shares of Company Common Stock present or represented by proxy at the Company Stockholder Meeting to constitute
a quorum; (ii) the Company has not received proxies representing a sufficient number of shares of Company Common Stock to obtain the
Requisite Stockholder Approval; (iii) the Company is required to postpone or adjourn the Company Stockholder Meeting by applicable
law, order or a request from the SEC or its staff; (iv) the Company has notified Parent pursuant to
Section
5.3(e)
that the
Company Board or a committee thereof intends to effect a Company Board Recommendation Change or to terminate this Agreement pursuant to
Section
5.3(e)(ii)
, and
the applicable notice period thereunder will not have expired prior to the then-scheduled date and time of the Company Stockholder Meeting;
or (v) the Company Board or a committee thereof has determined in good faith, after consultation with outside legal counsel, that such
postponement or adjournment is required by applicable law in order to give Company Stockholders sufficient time to evaluate any information
or disclosure that the Company has sent to Company Stockholders or otherwise made available to Company Stockholders by issuing a press
release, filing materials with the SEC or otherwise.
(c)
Submission
to Stockholders
.
Unless this Agreement is validly terminated in accordance with
Section
8.1
, the Company
shall submit this Agreement and the Merger to the Company Stockholders at the Company Stockholder Meeting for the purpose of obtaining
the Requisite Stockholder Approval, even if the Company Board or a committee thereof has effected a Company Board Recommendation Change.
6.4
Anti-Takeover
Laws
. The Company
and the Company Board (and any committee empowered to take such action, if applicable) will (a) take all actions within their power to
ensure that no “anti-takeover” statute or similar statute or regulation (or, in the case of Section 203 of the DGCL, the restrictions
on “business combinations” contained therein) is or becomes applicable to the Merger; and (b) if any “anti-takeover”
statute or similar statute or regulation (or, in the case of Section 203 of the DGCL, the restrictions on “business combinations”
contained therein) becomes applicable to the Merger, take all action within their power to ensure that the Merger may be consummated as
promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation
on the Merger.
6.5
Access
.
At all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur
of the termination of this Agreement pursuant to
Article
VIII
and the Effective
Time, the Company will afford Parent and its Representatives reasonable access (under Company supervision) during normal business hours,
upon reasonable advance notice, to the properties, books and records and personnel of the Company, except that the Company may restrict
or otherwise prohibit access to any documents or information to the extent that (a) any applicable law or regulation requires the Company
to restrict or otherwise prohibit access to such documents or information; (b) access to such documents or information would give
rise to a material risk of waiving any attorney-client privilege, work product doctrine or other privilege applicable to such documents
or information; (c) access to a Contract to which the Company Group is a party or otherwise bound would violate or cause a default
pursuant to, or give a third Person the right to terminate or accelerate the rights pursuant to, such Contract; (d) access would result
in the disclosure of any trade secrets of third Persons; or (e) such documents or information relate to the negotiation and execution
of this Agreement, reasonably pertinent to any adverse Legal Proceeding between the Company and its Affiliates, on the one hand, and Parent
and its Affiliates, on the other hand; or relate to, subject to
Section
5.3
, an Acquisition
Proposal. Nothing in this
Section
6.5
will be construed
to require the Company Group or any of its Representatives to prepare any reports, analyses, appraisals, opinions or other information.
Any investigation conducted pursuant to the access contemplated by this
Section
6.5
will be conducted
in a manner that does not unreasonably interfere with the conduct of the business of the Company Group or create a risk of damage or destruction
to any property or assets of the Company Group. Any access to the properties of the Company Group will be subject to the Company’s
reasonable security measures and insurance requirements and will not include the right to perform invasive testing or sampling of environmental
media. The terms and conditions of the Confidentiality Agreement will apply to any
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information
obtained by Parent or any of its Representatives in connection with any investigation conducted pursuant to the access contemplated by
this
Section
6.5
. All requests
for access pursuant to this
Section
6.5
must be directed
to the General Counsel of the Company, or another person designated in writing by the Company.
6.6
Section
16(b) Exemption
.
The Company will take all actions reasonably necessary to cause any dispositions of equity securities of the Company (including derivative
securities) in connection with the Merger by each director or executive officer of the Company to be exempt pursuant to Rule 16b-3 promulgated
under the Exchange Act.
6.7
Directors’
and Officers’ Exculpation, Indemnification and Insurance
.
(a)
Indemnified
Persons
. The Surviving
Corporation and its Subsidiaries will (and Parent will cause the Surviving Corporation and its Subsidiaries to) honor and fulfill, in
all respects, the obligations of the Company Group pursuant to any indemnification agreements (including any indemnification provisions
included in any employment agreement) between a member of the Company Group and any of their respective current or former directors or
officers (and any person who becomes a director or officer of the Company Group prior to the Effective Time) (collectively, the “
Indemnified
Persons
”)
or employees for any acts or omissions by such Indemnified Persons or employees occurring prior to the Effective Time. In addition, during
the period commencing at the Effective Time and ending on the sixth anniversary of the Effective Time, the Surviving Corporation and its
Subsidiaries will (and Parent will cause the Surviving Corporation and its Subsidiaries to) cause the certificates of incorporation, bylaws
and other similar organizational documents of the Surviving Corporation and its Subsidiaries to contain provisions with respect to indemnification,
exculpation and the advancement of expenses that are at least as favorable as the indemnification, exculpation and advancement of expenses
provisions set forth in the Charter, the Bylaws and the other similar organizational documents of the Subsidiaries of the Company, as
applicable, as of the date of this Agreement. During such six-year period, such provisions may not be repealed, amended or otherwise modified
in any manner except as required by applicable law.
(b)
Indemnification
Obligation.
Without
limiting the generality of the provisions of Section 6.7(a), during the period commencing at the Effective Time and ending on the sixth
anniversary of the Effective Time, the Surviving Corporation will (and Parent will cause the Surviving Corporation to) indemnify and hold
harmless, to the fullest extent provided for pursuant to any indemnification agreements with, and the certificates of incorporation, bylaws
and other similar organizational documents of, the Company Group in effect on the date of this Agreement, each Indemnified Person from
and against any costs, fees and expenses (including attorneys’ fees and investigation expenses), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement or compromise in connection with any Legal Proceeding, whether civil, criminal, administrative
or investigative, to the extent that such Legal Proceeding arises, directly or indirectly, out of or pertains, directly or indirectly,
to any action or omission, or alleged action or omission, in such Indemnified Person’s capacity as a director, officer, employee
or agent of the Company Group or other Affiliates to the extent that such action or omission, or alleged action or omission, occurred
prior to or at the Effective Time, including in connection with this Agreement or the Transactions, except that if, at any time prior
to the sixth anniversary of the Effective Time, any Indemnified Person delivers to Parent a written notice asserting a claim for indemnification
pursuant to this
Section
6.7(b)
, then the
claim asserted in such notice will survive the sixth anniversary of the Effective Time until such claim is fully and finally resolved.
(c)
D
&O
Insurance
. During
the period commencing at the Effective Time and ending on the sixth (6th) anniversary of the Effective Time, the Surviving Corporation
will (and Parent will cause the Surviving Corporation to) maintain in effect the Company’s current directors’ and officers’
liability insurance (“
D&O
Insurance
”)
in respect of acts or omissions occurring at or prior to the Effective Time on terms (including with respect to coverage, conditions,
retentions, limits and amounts) that are equivalent to those of the D&O Insurance. In satisfying its obligations pursuant to this
Section
6.7(c)
, the Surviving
Corporation will not be obligated to pay annual premiums in excess of 300% of the amount paid by the Company for coverage for its last
full fiscal year (such 300% amount, the “
Maximum
Annual Premium
”).
If the annual premiums of such insurance coverage exceed the Maximum Annual Premium, then the
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Surviving
Corporation will be obligated to obtain a policy with the greatest coverage available for a cost not exceeding the Maximum Annual Premium
from an insurance carrier with the same or better credit rating as the Company’s current directors’ and officers’ liability
insurance carrier. Prior to the Effective Time, the Company may (or if Parent requests, shall) purchase a prepaid “tail” policy
with respect to the D&O Insurance from an insurance carrier with the same or better credit rating as the Company’s current directors’
and officers’ liability insurance carrier so long as the annual cost for such “tail” policy does not exceed the Maximum
Annual Premium. If the Company purchases such a “tail” policy prior to the Effective Time, (i) the Surviving Corporation will
(and Parent will cause the Surviving Corporation to) maintain such “tail” policy in full force and effect and continue to
honor its obligations thereunder for so long as such “tail” policy is in full force and effect and (ii) the obligations in
the first sentence hereof shall cease to apply.
(d)
Successors
and Assigns
. If
Parent, the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into any other Person
and is not the continuing or surviving corporation or entity in such consolidation or merger; (ii) transfers all or substantially
all of its properties and assets to any Person; or (iii) dissolves, then proper provisions will be made so that the successors and
assigns of Parent, the Surviving Corporation or any of their respective successors or assigns will assume all of the obligations of Parent
and the Surviving Corporation set forth in this
Section
6.7
.
(e)
No
Impairment
. The
obligations set forth in this
Section
6.7
may not be
terminated, amended or otherwise modified in any manner that adversely affects any Indemnified Person (or any other person who is a beneficiary
pursuant to the D&O Insurance or the “tail” policy referred to in
Section
6.7(c)
(and their
heirs and representatives)) without the prior written consent of such affected Indemnified Person or other person. Each of the Indemnified
Persons or other persons who are beneficiaries pursuant to the D&O Insurance or the “tail” policy referred to in
Section
6.7(c)
(and their
heirs and representatives) are intended to be third party beneficiaries of this
Section
6.7
, with full
rights of enforcement as if a Party. The rights of the Indemnified Persons (and other persons who are beneficiaries pursuant to the D&O
Insurance or the “tail” policy referred to in
Section
6.7(c)
(and their
heirs and representatives)) pursuant to this
Section
6.7
will be in
addition to, and not in substitution for, any other rights that such persons may have pursuant to (i) the Charter and Bylaws; (ii)
the similar organizational documents of the Subsidiaries of the Company; or (iii) applicable law (whether at law or in equity).
(f)
Joint
and Several Obligations
.
The obligations of the Surviving Corporation, Parent and their respective Subsidiaries pursuant to this
Section
6.7
will be joint
and several.
(g)
Other
Claims
. Nothing
in this Agreement is intended to, or will be construed to, release, waive or impair any rights to directors’ and officers’
insurance claims pursuant to any applicable insurance policy, indemnification agreement, certificate of incorporation, bylaws or similar
organizational document that is or has been in existence with respect to the Company Group for any of its directors, officers or other
employees.
6.8
Employee
Matters
.
(a)
Severance
Benefits
. Following
the Effective Time, the Surviving Corporation and its Subsidiaries will (and Parent will cause the Surviving Corporation and its Subsidiaries
to) provide each Continuing Employee severance benefits in accordance with the Company’s employees’ written employment agreements
as in effect at the Effective Time, and set forth in
Section
3.13(a)
of the
Company Disclosure Letter.
(b)
Change
in Control
. For
purposes of any Employee Plan containing a definition of “change in control,” “change of control” or a similar
term, the Closing shall be deemed to constitute a “change in control,” “change of control” or such similar term.
The Surviving Corporation and its Subsidiaries will (and Parent will cause the Surviving Corporation and its Subsidiaries to) honor each
Employee Plan in accordance with its terms as in effect immediately prior to the Effective Time, subject to any amendment or termination
thereof that may be permitted by such Employee Plan.
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(c)
Annual
Bonuses
. With respect
to annual cash bonuses for the fiscal year in which the Effective Time occurs (the “
Closing
Year
”), as
soon as practicable following the end of the Closing Year, but in no event later than May 1 of the fiscal year immediately following the
Closing Year, Parent shall consider, in its sole discretion, or shall cause the Surviving Corporation to, pay after Parent’s determination
each Continuing Employee an annual cash bonus for the Closing Year in an amount determined by the Parent.
(d)
New
Plans
. If a new
employee benefit plan is made available to any Continuing Employee at or after the Effective Time (each a “
New
Plan
”), the
Surviving Corporation and its Subsidiaries will (and Parent will cause the Surviving Corporation and its Subsidiaries to) cause to be
granted to such Continuing Employee credit for all service with the Company Group prior to the Effective Time for purposes of eligibility
to participate, vesting and entitlement to benefits where length of service is relevant (including for purposes of vacation accrual and
severance pay entitlement), except that such service need not be credited to the extent that it would result in duplication of coverage
or benefits. In addition, where applicable, and without limiting the generality of the foregoing, the Surviving Corporation and its Subsidiaries
will (and Parent will cause the Surviving Corporation and its Subsidiaries to) ensure that at the Effective Time: (i) each Continuing
Employee shall be immediately eligible to participate, without any waiting time, in each New Plan to the extent that such waiting time
was satisfied under a comparable Employee Plan in which such Continuing Employee participated immediately before the Effective Time (each
such plan, an “
Old
Plan
”), (ii)
all pre-existing condition exclusions or limitations and actively-at-work requirements of each New Plan that is a health plan are waived
or satisfied for such Continuing Employee and his or her covered dependents to the extent waived or satisfied under the comparable Old
Plan, and (iii) all eligible expenses incurred by each Continuing Employee and his or her covered dependents during the portion of the
plan year of the Old Plan ending on the date such Continuing Employee’s participation in the corresponding New Plan begins are taken
into account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable
to such Continuing Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance
with such New Plan.
(e)
No
Third Party Beneficiary Rights
.
Notwithstanding anything to the contrary set forth in this Agreement, this
Section
6.8
will not be
deemed to (i) guarantee employment for any period of time for, or preclude the ability of Parent, the Surviving Corporation or any of
their respective Subsidiaries from terminating the employment of any Continuing Employee for any reason; (ii) require Parent, the
Surviving Corporation or any of their respective Subsidiaries to continue any Employee Plan or prevent the amendment, modification or
termination thereof after the Effective Time; (iii) create any third party beneficiary rights in any Person; or (iv) establish,
amend or modify any benefit plan, program, agreement or arrangement.
(f)
401(k)
Plan
. If requested
by Parent at least 10 Business Days prior to the Closing Date, the Company shall take all actions reasonably necessary to terminate, effective
as of not later than the day immediately preceding the Closing Date, any Employee Plan that includes a cash or deferred arrangement intended
to qualify under Section 401(k) of the Code (the “
Company
401(k) Plan
”),
including adopting resolutions of the Company Board and taking such other actions as are reasonably necessary to effect such termination.
Prior to taking any such actions, the Company shall provide Parent with drafts of all resolutions, notices, amendments and other documents
relating thereto. If the Company 401(k) Plan is terminated pursuant to the preceding sentence, Parent shall take all actions reasonably
necessary to (i) permit each Continuing Employee to participate in plan maintained by Parent or its Affiliate that includes a cash or
deferred arrangement intended to qualify under Section 401(k) of the Code (the “
Parent
401(k) Plan
”)
on or as soon as reasonably practicable after the Closing Date and (ii) cause the Parent 401(k) Plan to accept eligible rollover distributions
(as defined in Section 402(c)(4) of the Code) from each Continuing Employee with respect to such Continuing Employee’s account balances
(including loans) under the Company 401(k) Plan, if elected by such Continuing Employee. If applicable, the Company and Parent shall cooperate
in good faith with respect to the timing and implementation of the actions relating to the Company 401(k) Plan and the Parent 401(k) Plan
set forth in this
Section
6.8(f)
.
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6.9
Obligations
of Merger Sub
.
Parent will take all action necessary to cause Merger Sub and the Surviving Corporation to perform their respective obligations pursuant
to this Agreement and to consummate the Merger upon the terms and subject to the conditions set forth in this Agreement. Parent and Merger
Sub will be jointly and severally liable for the failure by either of them to perform and discharge any of their respective covenants,
agreements and obligations pursuant to this Agreement.
6.10
Notification
of Certain Matters
.
(a)
Notification
by the Company
.
At all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur
of the termination of this Agreement pursuant to
Article
VIII
and the Effective
Time, the Company will give prompt notice to Parent upon becoming aware that any representation or warranty made by it in this Agreement
has become untrue or inaccurate in any material respect, or of any failure by the Company to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by it pursuant to this Agreement, in each case if and only to the
extent that such untruth, inaccuracy, or failure would reasonably be expected to cause any of the conditions to the obligations of Parent
and Merger Sub to consummate the Merger set forth in
Section
7.2(a)
or
Section
7.2(b)
to fail
to be satisfied at the Closing, except that no such notification will affect or be deemed to modify any representation or warranty of
the Company set forth in this Agreement or the conditions to the obligations of Parent and Merger Sub to consummate the Merger or the
remedies available to the Parties under this Agreement. The terms and conditions of the Confidentiality Agreement apply to any information
provided to Parent pursuant to this
Section
6.10(a)
.
(b)
Notification
by Parent
. At all
times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur of the
termination of this Agreement pursuant to
Article
VIII
and the Effective
Time, Parent will give prompt notice to the Company upon becoming aware that any representation or warranty made by Parent or Merger Sub
in this Agreement has become untrue or inaccurate in any material respect, or of any failure by Parent or Merger Sub to comply with or
satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it pursuant to this Agreement,
in each case if and only to the extent that such untruth, inaccuracy or failure would reasonably be expected to cause any of the conditions
to the obligations of the Company to consummate the Merger set forth in
Section
7.3(a)
or
Section
7.3(b)
to fail
to be satisfied at the Closing, except that no such notification will affect or be deemed to modify any representation or warranty of
Parent or Merger Sub set forth in this Agreement or the conditions to the obligations of the Company to consummate the Merger or the remedies
available to the Parties under this Agreement. The terms and conditions of the Confidentiality Agreement apply to any information provided
to the Company pursuant to this
Section
6.10(b)
.
6.11
Public
Statements and Disclosure
.
The initial press release concerning this Agreement and the Transactions will be reasonably acceptable to the Company and Parent (the
“
Announcement
”).
Thereafter, the Company (other than with respect to the portion of any communication relating to a Company Board Recommendation Change),
on the one hand, and Parent and Merger Sub, on the other hand, will use their respective commercially reasonable efforts to consult with
the other Parties before (a) participating in any media interviews; (b) engaging in any meetings or calls with analysts, institutional
investors or other similar Persons; or (c) providing any statements that are public or are reasonably likely to become public, in
any such case to the extent relating to the Transactions, except that the Company will not be obligated to engage in such consultation
with respect to communications that are (i) required by applicable law, regulation or stock exchange rule or listing agreement; (ii)
principally directed to employees, suppliers, customers, partners or vendors so long as such communications are consistent with the previous
press releases, public disclosures or public statements made jointly by the Parties (or individually if approved by the other Party);
or (iii) principally related to a Superior Proposal or Company Board Recommendation Change. Notwithstanding the foregoing, this
Section
6.11
shall not
apply to any press release or other public statement made by the Company or Parent that is consistent with the Announcement and the terms
of this Agreement and does not contain any information relating to the Company or Parent that has not been previously announced or made
public in accordance with the terms of this Agreement.
6.12
Company
Transaction Litigation
.
Prior to the Effective Time, the Company will provide Parent with prompt notice of all Company Transaction Litigation (including by providing
copies of all
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pleadings
with respect thereto) and keep Parent reasonably informed with respect to the status thereof. The Company will (a) give Parent the opportunity
to participate in the defense, settlement or prosecution of any Company Transaction Litigation; and (b) consult with Parent with respect
to the defense, settlement and prosecution of any Company Transaction Litigation. The Company may not compromise, settle or come to an
arrangement regarding, or agree to compromise, settle or come to an arrangement regarding, any Company Transaction Litigation unless Parent
has consented thereto in writing (such consent not to be unreasonably withheld, conditioned or delayed). For purposes of this
Section
6.12
, “participate”
means that Parent will be kept apprised of proposed strategy and other significant decisions with respect to the Company Transaction Litigation
by the Company (to the extent that the attorney-client privilege between the Company and its counsel is not undermined or otherwise affected),
and Parent may offer comments or suggestions with respect to such Company Transaction Litigation but will not be afforded any decision-making
power or other authority over such Company Transaction Litigation, prior to the Effective Time, except for the settlement or compromise
consent set forth above.
6.13
Parent
Transaction Litigation.
Prior to the Effective Time, Parent will provide the Company with prompt notice of all Parent Transaction Litigation (including by providing
copies of all pleadings with respect thereto) and keep the Company reasonably informed with respect to the status thereof.
6.14
Stock
Exchange Delisting; Deregistration
.
Prior to the Effective Time, the Company will cooperate with Parent and use its commercially reasonable efforts to take, or cause to be
taken, all actions and do, or cause to be done, all things reasonably necessary, proper or advisable on its part pursuant to applicable
law and the rules and regulations of NASDAQ to cause (a) the delisting of the Company Common Stock from NASDAQ as promptly as practicable
after the Effective Time; and (b) the deregistration of the Company Common Stock pursuant to the Exchange Act as promptly as practicable
after such delisting.
6.15
Additional
Agreements
. If
at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights, approvals and immunities of either of the Company or Merger
Sub, then the proper officers and directors of each Party will use their commercially reasonable efforts to take such action.
6.16
No
Control of the Other Party’s Business
.
The Parties acknowledge and agree that the restrictions set forth in this Agreement are not intended to give Parent or Merger Sub, on
the one hand, or the Company, on the other hand, directly or indirectly, the right to control or direct the business or operations of
the other at any time prior to the Effective Time. Prior to the Effective Time, each of Parent and the Company will exercise, consistent
with the terms, conditions and restrictions of this Agreement, complete control and supervision over their own business and operations.
6.17
No
Employment Discussions
.
Except as approved by the Company Board, at all times during the period commencing with the execution and delivery of this Agreement and
continuing until the earlier to occur of the termination of this Agreement pursuant to
Article
VIII
and the Effective
Time, Parent and Merger Sub will not, and will not permit any of their Subsidiaries or controlled Affiliates to authorize, make or enter
into, or commit or agree to enter into, any formal or informal arrangements or other understandings (whether or not binding) with any
executive officer of the Company (a) regarding any continuing employment or consulting relationship with the Surviving Corporation from
and after the Effective Time; (b) pursuant to which any such individual would be entitled to receive consideration of a different
amount or nature than the Merger Consideration in respect of such holder’s shares of Company Common Stock; or (c) pursuant to
which such individual would agree to provide, directly or indirectly, equity investment to Parent, Merger Sub or the Company to finance
any portion of the Merger.
6.18
Debt
Financing Matters
.
(a)
Subject
to the terms and conditions of this Agreement, the Company will not permit any amendment or modification to, any termination of, or any
waiver of any provision or remedy pursuant to, the ABL Loan Agreement (including the lender commitments thereunder and any letters of
credit issued in connection therewith), any related loan or security documents, or any liens or security interests granted in connection
therewith (including pursuant to that certain Pledge and Security Agreement, dated as of December 21, 2021, among the Company, Texas Capital
Bank and the other guarantors party thereto) without the prior written consent of the
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Parent,
such consent not to be unreasonably withheld, conditioned or delayed. For the avoidance of doubt, the Company shall not enter into the
ABL Loan Agreement Amendment until the same is approved in writing by Parent.
(b)
Debt
Financing
. Each
of Parent and Merger Sub will use its respective commercially reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary or advisable which are in Parent’s or Merger Sub’s control to enable the Company
(or with respect to Alternative Debt Financing, the Parent and Merger Sub) to arrange the Debt Financing or Alternative Debt Financing,
as applicable, and consummate the Debt Financing or Alternative Debt Financing, as applicable, on the Closing Date, including using its
commercially reasonable efforts to:
(i)
negotiate,
execute (if applicable) and deliver definitive agreements with respect to the Debt Financing or Alternative Debt Financing, as applicable,
to which Parent and/or Merger Sub is a party and provide copies of drafts thereof exchanged with the lenders under the ABL Loan Agreement
or definitive agreements with respect to the Alternative Debt Financing (the “
Alternative
Debt Financing Agreements
”)
to the Company following the Company’s reasonable request therefor (to the extent the Company does not already have copies);
(ii)
participate
in and assist with due diligence conducted in respect of Parent and/or Merger Sub; and
(iii)
satisfy
on a timely basis (or obtain a waiver to) all conditions to funding that are applicable to Parent and Merger Sub in the ABL Loan Agreement
Amendment or any Alternative Debt Financing Agreement.
(c)
Debt
Financing Cooperation
.
Unless the requirements in
Section
6.19
to seek Alternative
Debt Financing apply, the Company will use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary or advisable to arrange the Debt Financing (but not to arrange any Alternative Debt Financing) and to
consummate the Debt Financing on the Closing Date in accordance with the terms of the ABL Loan Agreement (as the same may be modified
by the ABL Loan Agreement Amendment), including using its commercially reasonable efforts to:
(i)
comply
with its obligations under the ABL Loan Agreement (as the same may be modified by the ABL Loan Agreement Amendment);
(ii)
not
reduce the amount available for borrowing under the Company’s existing $25,000,000 credit facility pursuant to the ABL Loan Agreement
below the Maximum Debt Financing Amount;
(iii)
negotiate,
execute and deliver the ABL Loan Agreement Amendment and such other definitive agreements with respect to the Debt Financing and continued
post-Closing financing of the business of the Surviving Corporation as Texas Capital Bank may reasonably require (provided, that, Parent’s
prior written consent shall be required with respect to each such item prior to the Company’s execution and delivery of the same,
such consent not to be unreasonably withheld, conditioned or delayed); in furtherance of the foregoing, the Company shall provide
copies of drafts of each such item exchanged with Texas Capital Bank to Parent for Parent’s review and comment;
(iv)
satisfy
on a timely basis (or obtain a waiver to) all conditions to funding that are applicable to the Company in the ABL Loan Agreement (as the
same may be modified by the ABL Loan Agreement Amendment);
206
(v)
enforce
its rights pursuant to the ABL Loan Agreement (as the same may be modified by the ABL Loan Agreement Amendment); and
(vi)
consummate
the Debt Financing simultaneously with the Closing, including by causing Texas Capital Bank to fund the Debt Financing at the Closing;
and
(vii)
participate
(and cause senior management and Representatives, with appropriate seniority and expertise, of the Company to participate) in a customary
and reasonable number of meetings, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies,
and otherwise cooperate with the marketing efforts for any of the Debt Financing.
(d)
Alternative
Debt Financing Cooperation
.
To the extent there may be any Alternative Debt Financing, the Company will use commercially reasonable efforts to:
(i)
assist
Parent with the preparation of customary rating agency presentations and bank information memoranda required in connection with any Alternative
Debt Financing;
(ii)
participate
(and cause senior management and Representatives, with appropriate seniority and expertise, of the Company to participate) in a customary
and reasonable number of meetings, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies,
and otherwise cooperate with the marketing efforts for any Alternative Debt Financing; and
(iii)
assist
Parent in connection with the preparation of (but not executing) any pledge and security documents, indentures and other definitive financing
documents as may be reasonably requested by Parent (including using commercially reasonable efforts to obtain, to the extent applicable,
consents of accountants for use of their reports in any materials relating to Alternative Debt Financing as reasonably requested by Parent),
and otherwise reasonably facilitate the pledging of collateral and the granting of security interests in respect of Alternative Debt Financing,
it being understood that such documents will not take effect until the Effective Time.
(e)
Information
.
The Company and Parent shall keep the other fully informed on a reasonably current basis of the status of its efforts to arrange the Debt
Financing and the ABL Loan Agreement Amendment, as applicable. Without limiting the generality of the foregoing, the Company shall give
Parent prompt notice of (i) any material breach, event of default under, or repudiation by any party to the ABL Loan Agreement of which
it becomes aware if such breach, event of default, or repudiation could reasonably be expected to result in a delay of the Closing Date,
or (ii) the receipt of any written notice of default under the ABL Loan Agreement that could reasonably be expected to result in the termination
of the ABL Loan Agreement or the acceleration of the Company’s outstanding obligations thereunder.
(f)
No
Exclusive Arrangements
.
In no event will the Parent, Merger Sub or any of their respective Affiliates (which for this purpose will be deemed to include each direct
investor in Parent or Merger Sub and the lenders under the ABL Loan Agreement) enter into any Contract, arrangement or understanding (i)
awarding any agent, broker, investment banker or financial advisor any financial advisory role on an exclusive basis; or (ii) prohibiting
or seeking to prohibit any bank, investment bank or other potential provider of debt financing from providing or seeking to provide debt
financing or financial advisory services to any Person, in each case in connection with a transaction relating to the Company Group or
in connection with the Merger.
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6.19
Alternative
Debt Financing
.
In the event any portion of the Debt Financing becomes unavailable (or is reasonably expected to become unavailable, as determined by
the Company in its discretion) on the terms and conditions set forth in this Agreement, the Company shall, as promptly as practicable,
notify the Parent in writing of such event and the reasons therefor and Parent shall use commercially reasonable efforts to obtain alternative
debt financing on terms substantially similar to those available under the ABL Loan Agreement or otherwise acceptable to Parent in its
sole discretion (“
Alternative
Debt Financing
”)
in an amount such that the aggregate funds available to Parent at Closing will be sufficient to (a) pay all amounts required to be paid
by Parent or Merger Sub pursuant to Article II, (b) repay, prepay, discharge or otherwise satisfy all Indebtedness of the Company and
its Subsidiaries required to be repaid, prepaid, discharged or satisfied at the Closing, (c) pay all fees and expenses required to be
paid by Parent or Merger Sub in connection with the Transactions, and (d) consummate the Transactions. In the event that Parent is required
to seek Alternative Debt Financing pursuant to this
Section
6.19
, references
to the “Debt Financing” shall be deemed to be modified to refer to such Alternative Debt Financing, as applicable, and the
provisions of
Section
6.18
shall apply
to an Alternative Debt Financing (unless specifically relating to the ABL Loan Agreement or the ABL Loan Agreement Amendment).
6.20
Debt
Financing Costs
.
(a)
If
this Agreement is terminated pursuant to any of
Sections
8.1(a)-(d)
,
Section
8.1(g)
, or
Section
8.1(i)
prior to
the Effective Time, Parent shall be solely responsible for, and shall promptly reimburse the Company Group for, all out-of-pocket fees,
costs and expenses (including reasonable attorneys’ fees of Texas Capital Bank for which the Company Group is responsible, but not
including other attorneys’ fees incurred by the Company Group) incurred by the Company Group in connection with the Debt Financing
or any Alternative Debt Financing, including any commitment fees, amendment fees, arrangement fees, consent fees, prepayment penalties
or similar charges relating to the ABL Loan Agreement, the ABL Loan Agreement Amendment, the Debt Financing or the Alternative Debt Financing.
(b)
If
the Closing occurs, all fees, costs and expenses incurred by the Company Group in connection with the Debt Financing or any Alternative
Debt Financing (including the fees and costs described in clause (a) above and subject to the limitations set forth therein) shall be
borne by the Surviving Corporation; provided, that such fees, costs and expenses shall not constitute “Company Transaction Expenses”
and shall not be taken into account for any purpose under
Section
3.28
or
Section
6.21
of this Agreement.
6.21
Transaction
Expense Update
.
From and after the date of this Agreement until the earlier of the Closing or the termination of this Agreement, the Company shall provide
Parent with reasonable updates, not less frequently than every 15 days, regarding any material increases in the aggregate Company Transaction
Expenses relative to the Transaction Expense Estimate. For the avoidance of doubt, (a) this
Section
6.21
is an informational
covenant only and shall not be construed as a cap or limitation on Company Transaction Expenses, (b) any increase in Company Transaction
Expenses shall not constitute a breach of any representation, warranty or covenant under this Agreement, and (c) no failure by the Company
to provide an update pursuant to this
Section
6.21
shall give
rise to a right of Parent to terminate this Agreement or to any claim for damages. The Company shall use its commercially reasonable efforts
to cause the Company Transaction Expenses to not exceed, in the aggregate, the amount set forth in
Section
3.28
of the Company
Disclosure Letter.
Article
VII
CONDITIONS
TO THE MERGER
7.1
Conditions
to Each Party’s Obligations to Effect the Merger
.
The respective obligations of Parent, Merger Sub and the Company to consummate the Merger are subject to the satisfaction or waiver (where
permissible pursuant to applicable law) prior to the Effective Time of each of the following conditions:
(a)
Requisite
Stockholder Approval
.
The Company will have received the Requisite Stockholder Approval at the Company Stockholder Meeting.
208
(b)
Form
S-4.
The Form S-4
shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order.
(c)
No
Prohibitive Laws or Injunctions
.
No temporary restraining order, preliminary or permanent injunction or other judgment or order issued by any court of competent jurisdiction
or other legal or regulatory restraint or prohibition preventing the consummation of the Merger will be in effect, nor will any action
have been taken by any Governmental Authority of competent jurisdiction, and no statute, rule, regulation or order will have been enacted,
entered, enforced or deemed applicable to the Merger, that in each case prohibits, makes illegal, or enjoins the consummation of the Merger.
7.2
Conditions
to the Obligations of Parent and Merger Sub
.
The obligations of Parent and Merger Sub to consummate the Merger will be subject to the satisfaction or waiver (where permissible pursuant
to applicable law) prior to the Effective Time of each of the following conditions, any of which may be waived exclusively by Parent:
(a)
Representations
and Warranties
.
(i)
Other
than the representations and warranties listed in
Section
7.2(a)(ii)
and
Section
7.2(a)(iii)
, the
representations and warranties of the Company set forth in this Agreement will be true and correct (without giving effect to any materiality,
Company Material Adverse Effect or similar qualifications contained therein) as of the Closing Date as if made at and as of the Closing
Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation
and warranty will be true and correct as of such earlier date), except for such failures to be true and correct that would not have a
Company Material Adverse Effect.
(ii)
The
representations and warranties set forth in
Section
3.1
(Organization;
Good Standing),
Section
3.2
(Corporate
Power; Enforceability),
Section
3.7(c)
(Company
Securities) (other than the first sentence thereof),
Section
3.7(d)
(Other Rights)
and
Section
3.24
(Brokers)
that (A) are not qualified by Company Material Adverse Effect or other materiality qualifications will be true and correct in all material
respects as of the Closing Date as if made at and as of the Closing Date (except to the extent that any such representation and warranty
expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct in all material respects
as of such earlier date); and (B) that are qualified by Company Material Adverse Effect or other materiality qualifications will be
true and correct in all respects (without disregarding such Company Material Adverse Effect or other materiality qualifications) as of
the Closing Date as if made at and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks
as of an earlier date, in which case such representation and warranty will be true and correct in all respects as of such earlier date).
(iii)
The
representations and warranties set forth in
Section
3.7(a)
(Capital
Stock),
Section
3.7(b)
(Company
Equity Awards) and the first sentence of
Section
3.7(c)
(Company
Securities) will be true and correct as of the Closing Date (except to the extent that any such representation and warranty expressly
speaks as of an earlier date, in which case such representation and warranty will be true and correct as of such earlier date), except
for de minimis inaccuracies.
(b)
Performance
of Obligations of the Company
.
The Company will have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it at or prior to the Closing.
209
(c)
Officer’s
Certificate
. Parent
and Merger Sub will have received a certificate of the Company, validly executed for and on behalf of the Company and in its name by a
duly authorized executive officer thereof, certifying that the conditions set forth in
Section
7.2(a)
and
Section
7.2(b)
have been
satisfied.
(d)
Company
Material Adverse Effect
.
No Company Material Adverse Effect will have occurred after the date of this Agreement that is continuing.
(e)
ABL
Loan Agreement Amendment
.
The Company shall have delivered to Parent the ABL Loan Agreement Amendment, duly executed by each party thereto other than Parent or
Merger Sub.
(f)
Availability
of Debt Financing.
All
conditions precedent to the making of the Debt Financing or the Alternative Debt Financing, as the case may be, on the Closing Date shall
have been satisfied or waived by Texas Capital Bank or the other applicable lender(s), other than conditions that, by their nature, are
to be satisfied at the Closing, and the Company and its Subsidiaries shall have available for borrowing under the ABL Loan Agreement or
the Alternative Debt Financing, as the case may be, on the Closing Date not less than the Maximum Debt Financing Amount.
(g)
Required
Consents
. Parent
shall have received evidence reasonably satisfactory to Parent that all notices, consents, waivers, approvals and notices of assignment
required to be given, obtained or delivered in connection with the consummation of the Merger and the other transactions contemplated
by this Agreement, including without limitation those set forth on
Schedule
7.2(g)
, have been
duly given, obtained or delivered, as applicable, and shall remain in full force and effect, except for such Consents the failure of which
to obtain would not have a Company Material Adverse Effect.
7.3
Conditions
to the Company’s Obligations to Effect the Merger
.
The obligations of the Company to consummate the Merger are subject to the satisfaction or waiver (where permissible pursuant to applicable
law) prior to the Effective Time of each of the following conditions, any of which may be waived exclusively by the Company:
(a)
Representations
and Warranties
.
(i)
Other
than the representations and warranties listed in
Section
7.3(a)(ii)
and
Section
7.3(a)(iii)
, the
representations and warranties of Parent set forth in this Agreement will be true and correct (without giving effect to any materiality,
Parent Material Adverse Effect or similar qualifications contained therein) as of the Closing Date as if made at and as of the Closing
Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation
and warranty will be true and correct as of such earlier date), except for such failures to be true and correct that would not have a
Parent Material Adverse Effect.
(ii)
The
representations and warranties set forth in
Section
4.1
(Organization;
Good Standing),
Section
4.2
(Power;
Enforceability),
Section
4.5(e)
(Parent
Securities) (other than the first sentence thereof),
Section
4.5(f)
(Other Rights)
and
Section
4.14
(Brokers)
that (A) are not qualified by Parent Material Adverse Effect or other materiality qualifications will be true and correct in all material
respects as of the Closing Date as if made at and as of the Closing Date (except to the extent that any such representation and warranty
expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct in all material respects
as of such earlier date); and (B) that are qualified by Parent Material Adverse Effect or other materiality qualifications will be
true and correct in all respects (without disregarding such Parent Material Adverse Effect or other materiality qualifications) as of
the Closing Date
210
as
if made at and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier
date, in which case such representation and warranty will be true and correct in all respects as of such earlier date).
(iii)
The
representations and warranties set forth in
Section
4.5(a)
(Capital
Stock),
Section
4.5(b)
(Parent
Preferred Stock),
Section
4.5(c)
(Authorization
and Reservation),
Section
4.5(d)
(Parent
Equity Awards) and the first sentence of
Section
4.5(e)
(Parent
Securities) will be true and correct as of the Closing Date (except to the extent that any such representation and warranty expressly
speaks as of an earlier date, in which case such representation and warranty will be true and correct as of such earlier date), except
for de minimis inaccuracies.
(b)
Performance
of Obligations of Parent and Merger Sub
.
Parent and Merger Sub will have performed and complied in all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by Parent and Merger Sub at or prior to the Closing.
(c)
Officer’s
Certificate
. The
Company will have received a certificate of Parent and Merger Sub, validly executed for and on behalf of Parent and Merger Sub and in
their respective names by a duly authorized officer thereof, certifying that the conditions set forth in
Section
7.3(a)
and
Section
7.3(b)
have been
satisfied.
(d)
Parent
Material Adverse Effect
.
No Parent Material Adverse Effect will have occurred after the date of this Agreement that is continuing.
7.4
Frustration
of Closing Conditions
.
Notwithstanding anything to the contrary set forth in this Agreement, none of the Company, Parent or Merger Sub may rely, either as a
basis for not consummating the Transactions or for terminating this Agreement and abandoning the Merger, on the failure of any condition
set forth in
Section
7.1
,
Section
7.2
or
Section
7.3
, as the case
may be, to be satisfied, if in any such case such Party’s breach of any of its representations, warranties, covenants or agreements
set forth in this Agreement or failure to perform fully its obligations under this Agreement in any manner has primarily caused or primarily
resulted in a failure of any such condition to be satisfied or otherwise have given rise to a right of termination of this Agreement.
Article
VIII
TERMINATION,
AMENDMENT AND WAIVER
8.1
Termination
.
This Agreement may be validly terminated only as follows (it being understood and agreed that this Agreement may not be terminated for
any other reason or on any other basis):
(a)
at
any time prior to the Effective Time (whether prior to or after the receipt of the Requisite Stockholder Approval) by mutual written agreement
of Parent and the Company;
(b)
by
either Parent or the Company, at any time prior to the Effective Time (whether prior to or after the receipt of the Requisite Stockholder
Approval) if (i) any permanent injunction or other judgment or order issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger will be in effect, or any action has been taken by any Governmental
Authority of competent jurisdiction, that, in each case, prohibits, makes illegal or enjoins the consummation of the Merger and has become
final and non-appealable; or (ii) any statute, rule, regulation or order will have been enacted, entered, enforced or deemed applicable
to the Merger that prohibits, makes illegal or enjoins the consummation of the Merger, except that the right to terminate this Agreement
pursuant to this
Section
8.1(b)
will not
be available to any Party (it being agreed that Parent and Merger Sub shall be a single Party for purposes of this clause (b)) that has
failed to comply with
Section
6.1
or to use its
commercially reasonable efforts to resist, appeal, obtain consent pursuant to, resolve or lift, as applicable, such injunction, action,
statute, rule, regulation or order;
211
(c)
by
either Parent or the Company, at any time prior to the Effective Time (whether prior to or after the receipt of the Requisite Stockholder
Approval) if the Effective Time has not occurred by 11:59 p.m., Eastern time, on March 1, 2027 (the “
Termination
Date
”), it
being understood that the right to terminate this Agreement pursuant to this
Section
8.1(c)
will not
be available to (i) (1) Parent if the Company has the valid right to terminate this Agreement pursuant to
Section
8.1(g)
or
Section
8.1(i)
; or
(2) the Company if Parent has the valid right to terminate this Agreement pursuant to
Section
8.1(e)
; and
(ii) any Party whose action or failure to act (which action or failure to act constitutes a breach by such Party of this Agreement) has
been the primary cause of, or primarily resulted in, either (A) the failure to satisfy the conditions to the obligations of the terminating
Party to consummate the Merger set forth in
Article
VII
prior to the
Termination Date; or (B) the failure of the Effective Time to have occurred prior to the Termination Date (it being agreed that Parent
and Merger Sub shall be a single Party for purposes of this clause (ii));
(d)
by
either Parent or the Company, at any time prior to the Effective Time if the Company fails to obtain the Requisite Stockholder Approval
at the Company Stockholder Meeting (or any adjournment or postponement thereof) at which a vote is taken on the adoption of this Agreement;
(e)
by
Parent, at any time prior to the Effective Time (whether prior to or after the receipt of the Requisite Stockholder Approval), if any
condition set forth in
Section
7.2
has failed
to be satisfied or has become incapable of being satisfied by the Termination Date, except that if such failure is capable of being cured
by the Termination Date, Parent shall not be entitled to terminate this Agreement pursuant to this
Section
8.1(e)
prior to
the earlier of (x) the date that is 30 days following delivery by Parent to the Company of written notice thereof and (y) the Termination
Date, it being understood that Parent shall not be entitled to terminate this Agreement if such failure has been cured prior to such earlier
date;
(f)
by
Parent, at any time prior to the receipt of the Requisite Stockholder Approval, if at any time the Company Board (or a committee thereof)
has effected a Company Board Recommendation Change;
(g)
by
the Company, at any time prior to the Effective Time (whether prior to or after the receipt of the Requisite Stockholder Approval), if
any condition set forth in
Section
7.3
has failed
to be satisfied or has become incapable of being satisfied by the Termination Date, except that if such failure is capable of being cured
by the Termination Date, the Company shall not be entitled to terminate this Agreement pursuant to this
Section
8.1(g)
prior to
the earlier of (x) the date that is 30 days following delivery by the Company to Parent of written notice thereof and (y) the Termination
Date, it being understood that the Company shall not be entitled to terminate this Agreement if such failure has been cured prior to such
earlier date;
(h)
by
the Company, at any time prior to the receipt of the Requisite Stockholder Approval, if (i) the Company has received a Superior Proposal;
(ii) the Company Board (or a committee thereof) has authorized the Company to enter into, and, substantially concurrently with such termination
the Company enters into, a definitive Alternative Acquisition Agreement to consummate the Acquisition Transaction contemplated by that
Superior Proposal; (iii) the Company has complied in all material respects with
Section
5.3
with respect
to such Superior Proposal; and (iv) prior to or concurrently with such termination the Company pays (or causes to be paid) the Company
Termination Fee due to Parent in accordance with
Section
8.3(b)(iii)
;
or
(i)
by
the Company, at any time prior to the Effective Time, if (i) all of the conditions set forth in
Section
7.1
and
Section
7.2
have been and
continue to be satisfied or waived (other than those conditions that by their terms are to be satisfied at the Closing, each of which
is capable of being satisfied at the Closing); (ii) Parent and Merger Sub fail to consummate the Merger on the date upon which Parent
is required to consummate the Merger pursuant to
Section
2.3
; (iii)
the Company has irrevocably notified Parent in writing that (A) it is ready, willing and able to consummate the Closing; and (B) all
conditions set forth in
Section
7.3
have been satisfied
(other than those conditions that by their terms are to be satisfied at the Closing,
212
each
of which is capable of being satisfied at the Closing) or that the Company is willing to waive any unsatisfied conditions set forth in
Section
7.3
; (iv) the
Company has given Parent written notice at least three Business Days prior to such termination stating the Company’s intention to
terminate this Agreement pursuant to this
Section
8.1(i)
if Parent
and Merger Sub fail to consummate the Merger on the date required pursuant to
Section
2.3
; and (v)
Parent and Merger Sub fail to consummate the Merger by the end of the three-Business Day period contemplated by the foregoing clause (iv)
and the date required pursuant to
Section
2.3
.
8.2
Manner
and Notice of Termination; Effect of Termination
.
(a)
Manner
of Termination
.
The Party terminating this Agreement pursuant to
Section
8.1
(other than
pursuant to
Section
8.1(a)
) must deliver
prompt written notice thereof to the other Parties setting forth in reasonable detail the provision of
Section
8.1
pursuant to
which this Agreement is being terminated and the facts and circumstances forming the basis for such termination pursuant to such provision.
(b)
Effect
of Termination
.
Any proper and valid termination of this Agreement pursuant to
Section
8.1
will be effective
immediately upon the mutual written agreement of Parent and the Company or the delivery of written notice by the terminating Party to
the other Parties. In the event of the termination of this Agreement pursuant to
Section
8.1
, this Agreement
will be of no further force or effect without liability of any Party (or any partner, member, manager, stockholder, director, officer,
employee, Affiliate, agent or other representative of such Party) to the other Parties, as applicable, except that
Section
6.11
, this
Section
8.2
,
Section
8.3
and
Article
IX
will each survive
the termination of this Agreement in accordance with their respective terms. Notwithstanding the foregoing but subject to
Section
8.3(g)
, nothing
in this Agreement will relieve any Party from any liability for any willful breach of this Agreement. For purposes of this Agreement,
“willful breach” means a material breach of this Agreement that is the consequence of an act or omission by a Party with the
actual knowledge or intention that the taking of such act or omission would constitute, or would reasonably be expected to constitute,
a material breach of this Agreement.
8.3
Fees
and Expenses
.
(a)
General
.
Except as otherwise set forth herein, all fees and expenses incurred in connection with this Agreement and the Transactions will be paid
by the Party incurring such fees and expenses whether or not the Merger is consummated. For the avoidance of doubt, Parent or the Surviving
Corporation will be responsible for all fees and expenses of the Payment Agent. Parent will pay or cause to be paid all (i) transfer,
stamp and documentary Taxes or fees; and (ii) sales, use, real property transfer and other similar Taxes or fees arising out of or
in connection with entering into this Agreement and the consummation of the Merger. With respect to the preparation and filing of Tax
Returns as related to the foregoing Taxes, Parent and the Company Group shall reasonably cooperate with each other and provide such documents
and assistance as may be reasonably necessary to prepare all such Tax Returns, and Parent shall timely file such Tax Returns.
(b)
Company
Payments
.
(i)
If
(A) this Agreement is validly terminated pursuant to
Section
8.1(c)
,
Section
8.1(d)
or
Section
8.1(e)
; (B)
following the execution and delivery of this Agreement and prior to the termination of this Agreement pursuant to
Section
8.1(c)
,
Section
8.1(d)
or
Section
8.1(e)
, an Acquisition
Proposal for an Acquisition Transaction has been publicly announced or disclosed; and (C) within one year following the termination
of this Agreement pursuant to
Section
8.1(c)
,
Section
8.1(d)
or
Section
8.1(e)
, as applicable,
either an Acquisition Transaction is consummated or the Company enters into a definitive agreement providing for the consummation of an
Acquisition Transaction, then the Company will concurrently with the consummation of such Acquisition Transaction pay (or cause to be
paid) to Parent an amount equal to $1,152,000 (the “
Company
Termination Fee
”).
For purposes of this
213
Section
8.3(b)(i)
, all
references to “25%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%.”
(ii)
If
this Agreement is validly terminated pursuant to
Section
8.1(f)
, then the
Company must promptly (and in any event within two Business Days) following such termination pay (or cause to be paid) to Parent the Company
Termination Fee.
(iii)
If
this Agreement is validly terminated pursuant to
Section
8.1(h)
, then prior
to or concurrently with such termination the Company must pay (or cause to be paid) to Parent the Company Termination Fee;
provided,
that if the Company has entered into a definitive Alternative Acquisition Agreement to consummate an Acquisition Transaction with a Person
or group of Persons that is an Exempted Party at the time of such termination, and such Alternative Acquisition Agreement is entered into
on or prior to the No-Shop Period Start Date, then the “Company Termination Fee” shall mean an amount equal to $576,000.
(c)
Parent
Payments
. If this
Agreement is validly terminated pursuant to
Section
8.1(g)
or
Section
8.1(i)
, then Parent
must promptly (and in any event within two Business Days) following such termination pay to the Company an amount equal to $1,152,000
in cash (the “
Parent
Termination Fee
”).
(d)
Single
Payment Only; Liquidated Damages
.
The Parties acknowledge and agree that in no event will the Company or Parent be required to pay the Company Termination Fee or Parent
Termination Fee, as applicable, on more than one occasion, whether or not the Company Termination Fee or Parent Termination Fee, as applicable,
may be payable pursuant to more than one provision of this Agreement at the same or at different times and upon the occurrence of different
events. The Parties agree that each of the Company Termination Fee and the Parent Termination Fee constitutes liquidated damages and not
a penalty.
(e)
No
Company
Termination Fee or Damages Related to Debt Financing or Alternative Debt Financing.
Notwithstanding
anything to the contrary in this Agreement (including anything in this
Section
8.3
or
Section
8.1
), in no event
will the Company be obligated to pay the Company Termination Fee (to the extent triggered pursuant to
Section
8.3(b)(i)
) or any
damages (whether direct, indirect, consequential or otherwise) to Parent, Merger Sub or any other Person, in each case, solely as a result
of or arising out of (i) any failure of the Debt Financing to be consummated or funded by any lender under the ABL Loan Agreement (or
failure of any Alternative Debt Financing to be consummated or funded by any lender under any Alternative Debt Financing) on the Closing
Date or at any other time, (ii) any breach, termination, repudiation, default or failure to perform by any lender under the ABL Loan Agreement
(or any lender under any Alternative Debt Financing Agreement) or any party (other than the Company or any of its Affiliates) to the ABL
Loan Agreement Amendment (or any party (other than the Company or any of its Affiliates) to any Alternative Debt Financing Agreement),
(iii) the failure of any conditions to the Debt Financing or any Alternative Debt Financing to be satisfied, (iv) the unavailability or
insufficiency of the Debt Financing or any Alternative Debt Financing for any reason, (v) any breach by the Company of any representation,
warranty, covenant or agreement in this Agreement to the extent that such breach relates to, results from, or is asserted in connection
with, any of the matters described in clauses (i) through (iv), or (vi) any termination of this Agreement pursuant to any provision hereof
to the extent the basis for such termination relates to, results from, or is asserted in connection with, any of the matters described
in clauses (i) through (iv), in each case, unless any of the matters described in clauses (i)-(vi) were materially caused by the Company’s
failure to comply with its obligations under
Section
6.18(c)
or
Section
6.18(d)
. For the
avoidance of doubt, nothing in this
Section
8.3(e)
shall limit
or restrict Parent’s entitlement to the Company Termination Fee in the event the Company Termination Fee becomes payable under
Section
8.3(b)(ii)
or
Section
8.3(b)(iii)
.
(f)
Sole
and Exclusive Remedy
.
214
(i)
Under
no circumstances will the collective monetary damages and any other amounts payable by Parent, Merger Sub or any of their Affiliates arising
out of or relating to this Agreement, the Transactions, the termination of this Agreement, breaches of this Agreement, or the failure
to consummate the Transactions exceed an amount in the aggregate (such aggregate amount, the “
Parent
Liability Limitation
”)
equal to $1,152,000 plus any costs and connections in payable pursuant to
Section
6.20
. In no event
will any of the Company Related Parties seek or obtain, nor will they permit any of their Representatives or any other Person acting on
their behalf to seek or obtain, nor will any Person be entitled to seek or obtain, any monetary recovery or monetary award (A) in
excess of the Parent Liability Limitation against Parent or Merger Sub; or (B) against the former, current or future direct or indirect
holders of any equity, controlling persons, directors, officers, employees, agents, attorneys, Affiliates (other than Parent or Merger
Sub), members, managers, general or limited partners, stockholders and assignees of each of Parent and Merger Sub (the Persons in clauses
(A) and (B) collectively, the “
Parent
Related Parties
”),
and in no event will the Company Group be entitled to seek or obtain any monetary damages of any kind, including consequential, special,
indirect or punitive damages, in excess of the Parent Liability Limitation against Parent or Merger Sub or in any case against the other
Parent Related Parties for, or with respect to, this Agreement or the Transactions (including, any breach by Parent or Merger Sub), the
termination of this Agreement, the failure to consummate any of the Transactions or any claims or actions under applicable law arising
out of any such breach, termination or failure. Other than the obligations of Parent and Merger Sub to the extent expressly provided in
this Agreement and other than the obligations of Parent, Merger Sub or any of their respective Affiliates to the extent expressly provided
in the Confidentiality Agreement, in no event will any Parent Related Party or any other Person other than Parent and Merger Sub have
any liability for monetary damages to the Company or any other Person relating to or arising out of this Agreement or the Transactions.
(ii)
Parent’s
receipt of the aggregate amount of the Company Termination Fee, to the extent owed pursuant to
Section
8.3(b)
, plus, to
the extent applicable, any costs and connections in payable pursuant to
Section
6.20
, will be the
maximum amount of monetary damages that Parent and Merger Sub and each of their respective Affiliates may recover from (A) the Company
Group and each of its Affiliates; and (B) the former, current or future direct or indirect holders of any equity, controlling persons,
directors, officers, employees, agents, attorneys, Affiliates, members, managers, general or limited partners, stockholders and assignees
of the Company Group and its Affiliates (the Persons in clauses (A) and (B) collectively, the “
Company
Related Parties
”)
in respect of this Agreement, any agreement executed in connection herewith and the transactions contemplated hereby and thereby, the
termination of this Agreement, the failure to consummate any of the Transactions or any claims or actions under applicable law arising
out of any such breach, termination or failure. Upon payment to Parent of the Company Termination Fee plus, to the extent applicable,
any costs and connections in payable pursuant to
Section
6.20
, (1) none
of the Company Related Parties will have any further liability or obligation to Parent or Merger Sub relating to or arising out of this
Agreement, any agreement executed in connection herewith or the transactions contemplated hereby and thereby or any matters forming the
basis of such termination (except that the Parties (or their Affiliates) will remain
215
obligated
with respect to, and Parent may be entitled to remedies with respect to, the Confidentiality Agreement,
Section
8.3(a)
and
Section
9.4
, as applicable);
and (2) none of Parent, Merger Sub or any other Person will be entitled to bring or maintain any claim, action or proceeding against the
Company or any Company Related Party arising out of this Agreement, any agreement executed in connection herewith or the transactions
contemplated hereby and thereby or any matters forming the basis for such termination (except that the Parties (or their Affiliates) will
remain obligated with respect to, and Parent may be entitled to remedies with respect to, the Confidentiality Agreement,
Section
8.3(a)
and
Section
9.4
, as applicable).
(iii)
Under
no circumstances will the collective monetary damages and any other amounts payable by the Company for breaches under this Agreement exceed
an amount equal to $1,152,000 (such aggregate amount, the “
Company
Liability Limitation
”).
In no event will any of the Parent Related Parties seek or obtain, nor will they permit any of their Representatives or any other Person
acting on their behalf to seek or obtain, nor will any Person be entitled to seek or obtain, any monetary recovery or monetary award in
excess of the Company Liability Limitation against any of the Company Related Parties, and in no event will Parent, Merger Sub or the
Parent Related Parties be entitled to seek or obtain any monetary damages of any kind, including consequential, special, indirect or punitive
damages, in excess of the Company Liability Limitation against the Company Related Parties for, or with respect to, this Agreement or
the Transactions, the termination of this Agreement, the failure to consummate any of the Transactions or any claims or actions under
applicable law arising out of any such breach, termination or failure. Other than the obligations of the Company to the extent expressly
provided in this Agreement and other than the obligations of the Company or any of its Affiliates to the extent expressly provided in
the Confidentiality Agreement, in no event will any Company Related Party or any other Person other than the Company have any liability
for monetary damages to Parent, Merger Sub or any other Person relating to or arising out of this Agreement or the Transactions.
(iv)
The
Company’s receipt of the aggregate amount of the Parent Termination Fee, to the extent owed pursuant to
Section
8.3(c)
, will be
the maximum amount of monetary damages that the Company Group and its Affiliates may recover from the Parent Related Parties in respect
of this Agreement, any agreement executed in connection herewith and the transactions contemplated hereby and thereby, the termination
of this Agreement, the failure to consummate any of the Transactions or any claims or actions under applicable law arising out of any
such breach, termination or failure. Upon payment to the Company of the Parent Termination Fee, (1) none of the Parent Related Parties
will have any further liability or obligation to the Company relating to or arising out of this Agreement, any agreement executed in connection
herewith or the transactions contemplated hereby and thereby or any matters forming the basis of such termination (except that the Parties
(or their Affiliates) will remain obligated with respect to, and the Company may be entitled to remedies with respect to, the Confidentiality
Agreement,
Section
8.3(a)
and
Section
9.4
); and (2)
none of the Company Group or any other Person will be entitled to bring or maintain any claim, action or proceeding against Parent, Merger
Sub or any Parent Related Party arising out of this Agreement, any agreement executed in connection herewith or the transactions contemplated
hereby and thereby or any matters forming the basis for such termination (except that the Parties (or
216
their
Affiliates) will remain obligated with respect to, and Company may be entitled to remedies with respect to, the Confidentiality Agreement,
Section
8.3(a)
and
Section
9.4
).
(g)
Acknowledgment
Regarding Specific Performance
.
Notwithstanding anything to the contrary in
Section
8.3(g)
, it is agreed
that Parent, Merger Sub and the Company will be entitled to an injunction, specific performance or other equitable relief as provided
in
Section
9.8(b)
, except
that, although the Company, in its sole discretion, may determine its choice of remedies hereunder, including by pursuing specific performance
in accordance with, but subject to the terms and limitations of,
Section
9.8(b)
, under no
circumstances will the Company be permitted or entitled to receive both specific performance of the type contemplated by
Section
9.8(b)
and any
monetary damages.
(h)
Non-Recourse
Parent Party
. In
no event will the Company or any Company Related Parties seek or obtain, nor will they permit any of its Representatives to seek or obtain,
nor will any Person be entitled to seek or obtain, any monetary recovery or monetary award against any Non-Recourse Parent Party (which
excludes, for the avoidance of doubt, Parent and Merger Sub) with respect to this Agreement or the transactions contemplated hereby (including
any breach by Parent or Merger Sub), the termination of this Agreement, the failure to consummate the transactions contemplated hereby
or any claims or actions under applicable laws arising out of any such breach, termination or failure, other than (i) from Parent or Merger
Sub to the extent expressly provided for in this Agreement; or (ii) from any Person that is party to, and solely pursuant to the terms
and conditions of, the Confidentiality Agreement.
(i)
Non-Recourse
Company Party
.
In no event will Parent or Merger Sub or any Parent Related Parties seek or obtain, nor will they permit any of its Representatives to
seek or obtain, nor will any Person be entitled to seek or obtain, any monetary recovery or monetary award against any Non-Recourse Company
Party (other than the Company) with respect to this Agreement or the transactions contemplated hereby (including any breach by the Company),
the termination of this Agreement, the failure to consummate the transactions contemplated hereby or any claims or actions under applicable
laws arising out of any such breach, termination or failure, other than (i) from the Company to the extent expressly provided for in this
Agreement; or (ii) from any Person that is party to, and solely pursuant to the terms and conditions of, the Confidentiality Agreement.
8.4
Amendment
.
Subject to applicable law and subject to the other provisions of this Agreement, this Agreement may be amended by the Parties at any time
by execution of an instrument in writing signed on behalf of each of Parent, Merger Sub and the Company (pursuant to authorized action
by the Company Board (or a committee thereof)), except that in the event that the Company has received the Requisite Stockholder Approval,
no amendment may be made to this Agreement that requires the approval of the Company Stockholders pursuant to the DGCL without such approval.
8.5
Extension;
Waiver
. At any
time and from time to time prior to the Effective Time, any Party may, to the extent legally allowed and except as otherwise set forth
herein, (a) extend the time for the performance of any of the obligations or other acts of the other Parties, as applicable; (b) waive
any inaccuracies in the representations and warranties made to such Party contained herein or in any document delivered pursuant to this
Agreement; and (c) subject to the requirements of applicable law, waive compliance with any of the agreements or conditions for the
benefit of such Party contained herein. Any agreement on the part of a Party to any such extension or waiver will be valid only if set
forth in an instrument in writing signed by such Party. Any delay in exercising any right pursuant to this Agreement will not constitute
a waiver of such right.
Article
IX
GENERAL
PROVISIONS
9.1
Survival
of Representations, Warranties and Covenants
.
The representations, warranties and covenants of the Company, Parent and Merger Sub contained in this Agreement will terminate at the
Effective Time, except that any covenants that by their terms survive the Effective Time will survive the Effective Time in accordance
with their respective terms.
217
9.2
Notices
.
All notices and other communications hereunder must be in writing and will be deemed to have been duly delivered and received hereunder
(i) four Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid; (ii) one Business
Day after being sent for next Business Day delivery, fees prepaid, via a reputable nationwide overnight courier service; (iii) immediately
upon delivery by hand (with a written or electronic confirmation of delivery) or by email (with electronic confirmation of receipt), in
each case to the intended recipient as set forth below:
(a)
if
to Parent or Merger Sub to:
Star
Equity Holdings, Inc.
53
Forest Avenue, Suite 101
Old
Greenwich, CT 06870
Attn:
Legal Dept
Email:
Legal@starequity.com
with
a copy (which will not constitute notice) to:
Baker
& Hostetler LLP
45
Rockefeller Plaza
New
York, NY 10111
Attn:
Adam Finerman
Email:
afinerman@bakerlaw.com
(b)
if
to the Company (prior to the Effective Time) to:
Harte
Hanks, Inc.
1 Executive Drive
Chelmsford, MA 01824
Attn: David Garrison
Email: david.garrison@hartehanks.com
with
a copy (which will not constitute notice) to:
Baker
Botts L.L.P.
910
Louisiana Street Houston, TX 77002
Attn: Travis Wofford; Carina Antweil
Email: travis.wofford@bakerbotts.com;
carina.antweil@bakerbotts.com
Any
notice sent by email or otherwise received at the addressee’s location on any Business Day after 5:00 p.m., addressee’s
local time, or on any day that is not a Business Day will be deemed to have been received at 9:00 a.m., addressee’s local time,
on the next Business Day. From time to time, any Party may provide notice to the other Parties of a change in its address or email address
through a notice given in accordance with this
Section
9.2
, except that
notice of any change to the address or any of the other details specified in or pursuant to this
Section
9.2
will not be
deemed to have been received until, and will be deemed to have been received upon, the later of the date (A) specified in such notice;
or (B) that is five Business Days after such notice would otherwise be deemed to have been received pursuant to this
Section
9.2
.
9.3
Assignment
.
No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval
of the other Parties, except that Parent and Merger Sub will have the right to assign all or any portion of their respective rights and
obligations pursuant to this Agreement from and after the Effective Time (a) in connection with a merger or consolidation involving Parent
or Merger Sub or other disposition of all or substantially all of the assets of Parent, Merger Sub or the Surviving Corporation or (b)
to any of their respective Affiliates and any Party may assign this Agreement or any of its rights, interests, or obligations hereunder
without the prior written consent of the other Parties to Texas Capital Bank pursuant to the terms of the Debt Financing
218
solely
for purposes of creating a security interest herein or otherwise assigning as collateral in respect of the Debt Financing, it being understood
that, in each case, such assignment will not impede or delay the consummation of the Transactions or otherwise impede the rights of the
holders of shares of Company Common Stock and Company Equity Awards pursuant to this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon and will inure to the benefit of the Parties and their respective successors and permitted assigns. No
assignment by any Party will relieve such Party of any of its obligations hereunder.
9.4
Confidentiality
.
Parent, Merger Sub and the Company hereby acknowledge that Parent (together with its subsidiaries) and the Company (together with its
subsidiaries) have previously executed a Non-Disclosure Agreement, dated January 8, 2026 (the “
Confidentiality
Agreement
”),
that will continue in full force and effect in accordance with its terms. Each of Parent, Merger Sub and their respective Representatives
will hold and treat all documents and information concerning the Company Group furnished or made available to Parent, Merger Sub or their
respective Representatives in connection with the Transactions in accordance with the Confidentiality Agreement, and the Company and its
Representatives will hold and treat all documents and information concerning the Parent Group furnished or made available to the Company
or its Representatives in connection with the Transactions in accordance with the Confidentiality Agreement; provided, however, that
nothing in this
Section
9.4
or in the Confidentiality
Agreement will prohibit Parent, Merger Sub or any of their respective Representatives, or the Company or any of its Representatives, from
making any disclosure required by applicable law, the rules or regulations of the SEC, NASDAQ or any other applicable stock exchange,
any Governmental Authority or law, including in connection with the Form S-4, the Proxy Statement, any Other Required Filing or any disclosure
made in compliance with
Section
6.11
.
9.5
Entire
Agreement
. This
Agreement and the documents and instruments and other agreements among the Parties as contemplated by or referred to herein, including
the Confidentiality Agreement and the Company Disclosure Letter, constitute the entire agreement among the Parties with respect to the
subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to
the subject matter hereof. Notwithstanding anything to the contrary in this Agreement, the Confidentiality Agreement will (a) not be superseded;
(b) survive any termination of this Agreement; and (c) continue in full force and effect until the earlier to occur of the Effective
Time and the date on which the Confidentiality Agreement expires in accordance with its terms or is validly terminated by the parties
thereto.
9.6
Third
Party Beneficiaries
.
Except as set forth in
Section
6.7
and this
Section
9.6
, the Parties
agree that their respective representations, warranties and covenants set forth in this Agreement are solely for the benefit of the other
Parties in accordance with and subject to the terms of this Agreement. This Agreement is not intended to, and will not, confer upon any
other Person any rights or remedies hereunder, except (a) as set forth in or contemplated by
Section
6.7
; and (b)
from and after the Effective Time, the rights of the holders of shares of Company Common Stock and Company Equity Awards to receive the
Merger Consideration set forth in
Article
II
.
9.7
Severability
.
In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably to effect the intent of the Parties. The Parties further
agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or unenforceable provision.
9.8
Remedies
.
(a)
Remedies
Cumulative
. Except
as otherwise provided herein, any and all remedies herein expressly conferred upon a Party will be deemed cumulative with and not exclusive
of any other remedy conferred hereby or by law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude
the exercise of any other remedy. Although the Company may pursue both a grant of specific performance and monetary damages (including
the payment of the Parent Termination Fee), under no circumstances will the Company be permitted or entitled to receive both a grant of
specific performance that results in the occurrence of the Closing and monetary damages (including any monetary damages in lieu of specific
performance and all or any portion of the Parent Termination Fee).
(b)
Specific
Performance
.
219
(i)
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 do not perform the provisions of this Agreement (including any Party failing to take such actions as are required
of it hereunder in order to consummate this Agreement) in accordance with its specified terms or otherwise breach such provisions. The
Parties acknowledge and agree that, (A) the Parties will be entitled, in addition to any other remedy to which they are entitled at law
or in equity, to an injunction, specific performance and other equitable relief to prevent breaches (or threatened breaches) of this Agreement
and to enforce specifically the terms and provisions hereof; (B) the provisions of
Section
8.3
are not intended
to and do not adequately compensate the Company, on the one hand, or Parent and Merger Sub, on the other hand, for the harm that would
result from a breach of this Agreement, and will not be construed to diminish or otherwise impair in any respect any Party’s right
to an injunction, specific performance and other equitable relief; and (C) the right of specific enforcement is an integral part of
the Merger and without that right, neither the Company nor Parent would have entered into this Agreement. It is explicitly agreed that
the Company shall have the right to an injunction, specific performance or other equitable remedies in connection with enforcing Parent’s
and Merger Sub’s obligations to consummate the Merger, provided that (1) all conditions set forth in
Section
7.1
and
Section
7.2
have been satisfied
or waived, (2) the Debt Financing (or any Alternative Debt Financing) has been funded or will be funded substantially concurrently with
such specific performance, (3) the Company has irrevocably confirmed in writing that if specific performance is granted and the Debt Financing
or any Alternative Debt Financing) is funded, it will consummate the Closing, and (4) Parent and Merger Sub are otherwise required to
consummate the Closing pursuant to
Section
2.3
.
(ii)
The
Parties agree not to raise any objections to (A) the granting of an injunction, specific performance or other equitable relief to prevent
or restrain breaches or threatened breaches of this Agreement by the Company, on the one hand, or Parent and Merger Sub, on the other
hand; and (B) the specific performance of the terms and provisions of this Agreement to prevent breaches or threatened breaches of,
or to enforce compliance with, the covenants, obligations and agreements of Parent and Merger Sub pursuant to this Agreement. Any Party
seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this
Agreement will not be required to provide any bond or other security in connection with such injunction or enforcement, and each Party
irrevocably waives any right that it may have to require the obtaining, furnishing or posting of any such bond or other security.
9.9
Governing
Law
. This Agreement
is governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern
under applicable principles of conflicts of laws thereof.
9.10
Consent
to Jurisdiction
.
(a)
General
Jurisdiction
. Each
of the Parties (i) irrevocably consents to the service of the summons and complaint and any other process (whether inside or outside the
territorial jurisdiction of the Chosen Courts) in any Legal Proceeding relating to the Transactions, for and on behalf of itself or any
of its properties or assets, in accordance with
Section
9.2
or in such
other manner as may be permitted by applicable law, and nothing in this
Section
9.10
will affect
the right of any Party to serve legal process in any other manner permitted by applicable law; (ii) irrevocably and unconditionally
consents and submits itself and its properties and assets in any Legal Proceeding to the exclusive jurisdiction of the Court of Chancery
of the State of Delaware
220
and
any state appellate court therefrom within the State of Delaware (or, if the Court of Chancery of the State of Delaware declines to accept
jurisdiction over a particular matter, any federal court within the State of Delaware) (the “
Chosen
Courts
”)
in the event that any dispute or controversy arises out of this Agreement or the transactions contemplated hereby; (iii) agrees that
it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court; (iv) agrees
that any Legal Proceeding arising in connection with this Agreement or the transactions contemplated hereby will be brought, tried and
determined only in the Chosen Courts; (v) waives any objection that it may now or hereafter have to the venue of any such Legal Proceeding
in the Chosen Courts or that such Legal Proceeding was brought in an inconvenient court and agrees not to plead or claim the same;
and (vi) agrees that it will not bring any Legal Proceeding relating to this Agreement or the transactions contemplated hereby in any
court other than the Chosen Courts. Each of Parent, Merger Sub and the Company agrees that a final judgment in any Legal Proceeding in
the Chosen Courts will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided
by applicable law.
9.11
WAIVER
OF JURY TRIAL
.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE OUT OF OR RELATE TO THIS AGREEMENT, OR THE NEGOTIATION, VALIDITY
OR PERFORMANCE OF THIS AGREEMENT, OR THE MERGER, IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT THAT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING (WHETHER
FOR BREACH OF CONTRACT, TORTIOUS CONDUCT OR OTHERWISE) DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE MERGER,
THE DEBT FINANCING OR ANY ALTERNATIVE DEBT FINANCING. EACH PARTY ACKNOWLEDGES AND AGREES THAT (a) NO REPRESENTATIVE, AGENT OR ATTORNEY
OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER; (b) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (c) IT MAKES THIS WAIVER VOLUNTARILY;
AND (d) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION
9.11
.
9.12
Company
Disclosure Letter References
.
The Parties agree that the disclosure set forth in any particular section or subsection of the Company Disclosure Letter will be deemed
to be an exception to (or, as applicable, a disclosure for purposes of) (a) the representations and warranties (or covenants, as applicable)
of the Company that are set forth in the corresponding Section or subsection of this Agreement; and (b) any other representations
and warranties (or covenants, as applicable) of the Company that are set forth in this Agreement, but in the case of this clause (b) only
if the relevance of that disclosure as an exception to (or a disclosure for purposes of) such other representations and warranties (or
covenants, as applicable) is reasonably apparent on the face of such disclosure.
9.13
Counterparts
.
This Agreement and any amendments hereto may be executed in one or more counterparts, all of which will be considered one and the same
agreement and will become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties,
it being understood that all Parties need not sign the same counterpart. Any such counterpart, to the extent delivered by .pdf, .tif,
.gif, .jpg or similar attachment to email (any such delivery, an “
Electronic
Delivery
”),
will be treated in all manner and respects as an original executed counterpart and will be considered to have the same binding legal effect
as if it were the original signed version thereof delivered in person. No Party may raise the use of an Electronic Delivery to deliver
a signature, or the fact that any signature or agreement or instrument was transmitted or communicated through the use of an Electronic
Delivery, as a defense to the formation of a contract, and each Party forever waives any such defense, except to the extent such defense
relates to lack of authenticity.
9.14
No
Limitation
. It
is the intention of the Parties that, to the extent possible, unless provisions are mutually exclusive and effect cannot be given to both
or all such provisions, the representations, warranties, covenants and closing conditions in this Agreement will be construed to be cumulative
and that each representation, warranty, covenant and closing condition in this Agreement will be given full, separate and independent
effect and nothing set forth in any provision herein will in any way be deemed to limit the scope, applicability or effect of any other
provision hereof.
9.15
Performance
Guarantee
. Parent
hereby guarantees the due, prompt and faithful performance and discharge by, and compliance with, all of the obligations, covenants, terms,
conditions
221
and
undertakings of Merger Sub under this Agreement in accordance with the terms hereof, including any such obligations, covenants, terms,
conditions and undertakings that are required to be performed, discharged or complied with following the Effective Time by the Surviving
Corporation.
[
Signature
pages follow
.]
222
IN
WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their respective duly authorized officers as of
the date first written above.
STAR
EQUITY HOLDINGS, INC.
By:
/s/Jeffrey
E. Eberwein
Name:
Jeffrey E. Eberwein
Title: CEO
MERGER
SUB - R, INC.
By:
Jeffrey
E. Eberwein
Name:
Jeffrey E. Eberwein
Title: President
223
IN
WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their respective duly authorized officers as of
the date first written above.
HARTE
HANKS, INC.
By:
/s/David
Fisher
Name:
David Fisher
Title: President
224
Annex
B
August
12, 2026
PERSONAL
AND CONFIDENTIAL
The
Board of Directors Harte Hanks, Inc.
1
Executive Drive
Chelmsford,
MA 01824
Members
of the Board of Directors of Harte Hanks, Inc.:
We
understand that Harte Hanks, Inc. (the “
Company
”), Star Equity Holdings, Inc. (“
Parent
”) and Merger
Sub – R, Inc. (“
Merger Sub
”) propose to enter into an Agreement and Plan of Merger (the “
Agreement
”),
which provides, among other things, for the merger of Merger Sub with and into the Company (the “
Merger
”), as a result
of which the Company will become a wholly-owned subsidiary of Parent.
Pursuant
to the Agreement, each outstanding share of common stock of the Company, par value $1.00 per share (the “
Company Common Stock
”)
(other than Owned Company Shares (as defined in the Agreement)) will be converted into the right to receive, at the election of the holder
(A) cash in an amount equal to $5.00 per share, without interest (the “
Cash Consideration
”); (B) 0.50 shares of Parent
Preferred Stock (as defined in the Agreement) (the “
Preferred Stock Consideration
”, and together with the Cash Consideration,
and any combination, and any cash in lieu of fractional shares of Parent Preferred Stock, collectively the “
Merger Consideration
”),
or (C) the Cash Consideration, the Preferred Stock Consideration or a combination of both, in each case subject to election, proration
and adjustment pursuant to Sections 2.7 and 2.8 of the Agreement.
The
terms and conditions of the Merger are more fully set forth in the Agreement. Capitalized terms used herein shall have the meanings used
in the Agreement, unless otherwise defined herein.
You
have asked for our opinion as to whether the Merger Consideration to be received by the holders of the Company Common Stock (other than
the Parent and its affiliates) in the Merger is fair, from a financial point of view, to such holders.
For
purposes of the opinion set forth herein, we have:
(i)
reviewed
certain publicly available financial statements and certain other business and financial
information relating to the Company furnished to Citizens JMP Securities, LLC (“
Citizens
”);
(ii)
reviewed
certain internal financial statements and other financial and operating data concerning the
Company prepared by the management of the Company;
(iii)
reviewed
certain financial forecasts prepared by the management of the Company;
(iv)
compared
the financial performance of the Company with that of certain other publicly−traded
companies that we believe are generally comparable to the Company;
(v)
reviewed
the financial terms, to the extent publicly available, of certain acquisition transactions
involving companies in lines of business that we believe are generally comparable to the
Company;
(vi)
participated
in discussions with members of the senior management of the Company with respect to the business
prospects and financial outlook of the Company;
(vii)
reviewed
the Agreement draft dated as of August 10, 2026 and certain related documents; and
(viii)
performed
such other analysis and considered such other factors as we deemed appropriate.
225
In
conducting our review and arriving at our opinion, we have assumed and relied, without independent verification, upon the accuracy and
completeness of all information and data that was publicly available or furnished to or otherwise reviewed by or discussed with us. We
have further relied upon the assurance of the management of the Company that they are not aware of any facts or circumstances that would
make such information inaccurate or misleading. With respect to the financial forecasts of the Company, the management of the Company
has advised us, and we have assumed, that they have been reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the management of the Company as to the future financial performance of the Company and other matters covered
thereby. We have not been engaged to assess the reasonableness or achievability of such forecasts or the assumptions on which they were
based and express no view as to such forecasts or assumptions.
For
purposes of rendering our opinion, we have assumed that the representations and warranties of each party contained in the Agreement are
true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the Agreement
and that all conditions to the consummation of the Merger will be satisfied without waiver thereof. We have assumed that the final form
of the Agreement will not vary materially from the last draft Agreement reviewed by us and that the Merger will be consummated substantially
on the terms described in such draft, without any amendment or waiver of material terms or conditions. We have also assumed that all
necessary governmental, regulatory and other consents and approvals contemplated by the Agreement will be obtained and that in the course
of obtaining those consents and approvals no costs or restrictions will be imposed or waivers made that would have an adverse effect
on the contemplated benefits of the Merger.
We
are not legal, tax or regulatory advisors and have relied upon, without independent verification, the assessment of the Company and their
legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. We are not in the business of appraising tangible
assets and have not made any independent valuation or appraisal of any or all of the assets or liabilities (including any contingent,
derivative or off-balance-sheet assets or liabilities) of the Company, nor have we been furnished with any such valuations or appraisals.
In addition, we have not evaluated the solvency of any party to the Agreement under any state or federal laws relating to bankruptcy,
insolvency or similar matters. Our opinion is necessarily based on financial, economic, market and other conditions as in effect on,
and the information made available to us as of, the date hereof. Events occurring after the date hereof may affect this opinion and the
assumptions used in preparing it, and we do not assume any obligation to update, revise or reaffirm this opinion.
We
were not requested to consider, and our opinion does not address, the Company’s underlying business decision to enter into the
Agreement and pursue the Merger, or the relative merits of the Merger as compared to any alternative business strategies that might exist
for the Company or the effect of any other transaction in which the Company might engage. We are not requested to consider, and our opinion
does not address, the non-financial terms of the Agreement or the Merger, nor does it address the terms of any of the related agreements
to be entered into by the parties. Our opinion addresses only the Merger Consideration to be received by the holders of Company Common
Stock (other than Owned Company Shares) in the Merger. We were not requested to consider, and our opinion does not address, the fairness
of any consideration to be received in the Merger by the holders of any other class or series of capital stock, creditors or other constituencies
of the Company, the allocation of the Merger Consideration amongst the holders of any class or series of capital stock, creditors or
other constituencies of the Company, the conversion ratio pursuant to the Agreement for any class or series of capital stock or any election,
proration or adjustment of the Merger Consideration. We have assumed that the value of the Parent Preferred Stock is the liquidation
preference of $10.00 per share, and we express no opinion as to the price at which the Parent Preferred Stock may be sold at in the future.
Furthermore, we express no opinion with respect to the amount or nature of any compensation to be received by any officers, directors
or employees of any party to the Merger, or any class of such persons, relative to the Merger Consideration to be paid to the holders
of the Company Common Stock in the Merger or otherwise, or with respect to the fairness of any such compensation.
We,
as part of our investment banking business, are customarily engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of securities, private placements
and valuations for estate, corporate and other purposes.
226
We
have acted as financial advisor to the Company in connection with the Merger and will receive a fee for our services, a portion of which
is payable for providing this opinion and a significant portion of which will become payable only if the Merger is consummated. In addition,
the Company has agreed to indemnify us against certain liabilities arising out of our engagement. We have not otherwise had a material
relationship with, nor otherwise received fees from, the Company or any other party to the Merger during the two years preceding the
date hereof.
In
the ordinary course of our trading, brokerage, investment management and financing activities, we or our affiliates may at any time hold
long or short positions, and may trade or otherwise effect transactions, for our own account or the accounts of customers, in debt or
equity securities of other companies or any currency that may be involved in the Merger. In the future, we may maintain other relationships
with, and provide advisory and other services to the Company, Parent and their respective affiliates, and may receive fees for providing
such services.
This
opinion is given at the request of, and is intended for the benefit and use of, the Board of Directors of the Company in connection with
its consideration of the Merger, and it is not intended to be and does not constitute a recommendation to any shareholder of the Company
as to how such shareholder should vote or act on any matter relating to the Merger. This opinion shall not be used for any other purpose,
and may not be disseminated, reproduced, quoted from or referred to at any time, without our prior written approval; provided that this
opinion may be included in its entirety in any proxy statement, information statement or solicitation/recommendation statement on Schedule
14d-9 required to be delivered to the Company’s stockholders in connection with the Merger, and provided further that we shall
have a reasonable opportunity to review, comment on and approve any summary of or reference to this opinion contained in such statements
in advance of any such delivery.
The
issuance of this opinion was approved by our fairness opinion review committee.
Based
upon and subject to the foregoing, we are of the opinion on the date hereof that the Merger Consideration to be received by the holders
of the Company Common Stock (other than Owned Company Shares) in the Merger is fair, from a financial point of view, to such holders.
Very
truly yours,
/s/
CITIZENS JMP SECURITIES, LLC
227
Annex
C
Solely
for purposes of this Annex C, references to “the Company,” “we,” “us,” and “our” refer
to Star Equity Holdings, Inc., as defined below.
This
Annex C includes disclosure from Star’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed on March
20, 2026, including Star’s audited consolidated financial statements and related notes and Management’s Discussion and Analysis
of Financial Condition and Results of Operations for the years ended December 31, 2025 and 2024. This Annex C also includes Star’s
unaudited condensed consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition
and Results of Operations for the three and six months ended June 30, 2026 and 2025, from Star’s Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2026, filed on August 14, 2026.
BUSINESS
General
Star
Equity Holdings, Inc. (“Star Equity,” “Star,” the “Company,” “we,” or “our,”
formerly known as Hudson Global, Inc. (“Hudson”)) is a diversified multi-industry holding company operating through four
reportable segments: Building Solutions, Business Services, Energy Services, and Investments. Our common stock and 10% Series A Cumulative
Perpetual Preferred Stock are listed on the Nasdaq Global Market under the symbols “STRR” and “STRRP,” respectively.
The
Building Solutions segment operates in the construction industry. The Business Services segment, which consists of Hudson Talent Solutions,
LLC (“HTS”), delivers customized recruitment and contracting solutions to mid-to-large multinational companies, including
Recruitment Process Outsourcing (“RPO”), project-based RPO, contingent workforce solutions, recruitment consulting, outsourced
professional contract staffing, and managed service provider (“MSP”) services. The Energy Services segment consists of Alliance
Drilling Tools, Inc. (“ADT”), which manufactures and supplies specialized drilling tools and downhole equipment used in directional
drilling for oil and gas well construction as well as other applications, including mining, geothermal, and water wells. The Investments
segment holds and manages certain corporate-owned real estate assets and investments in a limited number of publicly traded and private
companies.
Merger
On
August 22, 2025, Star completed its previously announced acquisition of Star Operating Companies, Inc. (“SOC” or “Star
Operating Companies”, formerly known as Star Equity Holdings, Inc.) pursuant to the Agreement and Plan of Merger, dated as of May
21, 2025 (the “Merger Agreement”), by and among Star, SOC and HSON Merger Sub, Inc., a wholly owned subsidiary of Star (“Merger
Sub”). Upon the terms and subject to the conditions of the Merger Agreement, on August 22, 2025, at the effective time (the “Effective
Time”) of the closing of the transaction pursuant to the Merger Agreement (the “Merger”), Merger Sub merged with and
into SOC, with SOC continuing as the surviving corporation of the Merger under the name “Star Operating Companies, Inc.”
as a wholly owned subsidiary of Star. Capitalized terms used herein but not defined have the meanings set forth in the Merger Agreement.
Pursuant
to the terms of the Merger Agreement, at the Effective Time, (i) each share of common stock of SOC issued and outstanding immediately
prior to the Effective Time (other than certain shares as set forth in the Merger Agreement) were automatically converted into the right
to receive 0.23 shares of Star common stock and (ii) each share of preferred stock of SOC issued and outstanding immediately prior to
the Effective Time (other than certain shares set forth in the Merger Agreement) were automatically converted into the right to receive
one (1) share of Star 10% Series A Cumulative Perpetual preferred stock (“Preferred Stock”). As a result of the Merger, former
SOC common stockholders received approximately 744,291 shares of Star common stock for their SOC common shares and former SOC preferred
stock stockholders received approximately 2,690,637 shares of Star Preferred Stock. No fractional shares of Star common stock were issued
in the Merger, and SOC stockholders became entitled to receive cash in lieu of fractional shares in accordance with the Merger Agreement.
In
addition, pursuant to the terms of the Merger Agreement, at the Effective Time, each award of SOC restricted stock units (“RSUs”)
outstanding immediately prior to the Effective Time was converted into Star RSUs issued under the Hudson Global, Inc. 2009 Incentive
Stock and Awards Plan, as amended (the “Plan”), in accordance with the Merger Agreement.
228
Amendment
to Certificate of Incorporation
On
September 4, 2025, Star Equity filed a certificate of amendment (the “Amendment”) to the Company’s Amended and Restated
Certificate of Incorporation, as Amended (the “Charter”), to change the name of the Company from Hudson Global, Inc. to Star
Equity Holdings, Inc. (the “Name Change”). The Name Change was approved by the Company’s Board of Directors (the “Board”)
on September 2, 2025, and became effective at 12:01 a.m. (Eastern Time) on September 5, 2025.
Strategy
Star
Equity Holdings, Inc.
Star
Equity Holdings, Inc. operates as a diversified holding company. Corporate management focuses on capital allocation, strategic oversight,
mergers and acquisitions, capital markets activities, investor relations, and oversight of the Investments segment. Operating subsidiaries
are responsible for day-to-day operations, organic growth initiatives, and operational performance.
The
Company periodically evaluates strategic alternatives intended to enhance its market position, improve profitability, generate liquidity,
and increase shareholder value. Such alternatives may include organic growth initiatives, selective acquisitions, divestitures, business
combinations, equity offerings, debt financings, and corporate restructurings. The timing and structure of any such transactions depend
on market conditions, available capital, valuation considerations, and other relevant factors.
Operating
Businesses
The
Company operates in markets that management believes offer opportunities for growth. The principal elements of the Company’s growth
strategy include the following:
●
Organic growth from our core businesses.
The Company operates in markets and geographies that management believes provide opportunities
for growth in its core businesses. The Company’s primary focus is on markets in which it currently maintains a presence, allowing
it to leverage existing personnel, infrastructure, and brand recognition.
●
Expansion of service offerings.
The Company evaluates opportunities to broaden its service
offerings to better serve its customer base, including expansion into adjacent market segments and complementary services.
●
Acquisition of complementary businesses.
The Company intends to continue evaluating complementary businesses that meet
its financial and strategic acquisition criteria. Potential targets may include small public and private companies that can be integrated
into the Company’s existing platform, as well as larger, more transformative transactions, subject to assessments of value, risk,
and expected return. The timing and structure of any such transactions will depend on market conditions, availability of capital, valuation
considerations, and other relevant factors. The Company does not intend to pursue transactions unless management determines that the
anticipated post-transaction value creation is favorable to stockholders.
Segments
The
Company operates four segments: Building Solutions, Business Services, Energy Services, and Investments. Building Solutions includes
KBS Builders, Inc. (“KBS”), EdgeBuilder, Inc. (“EdgeBuilder”), Glenbrook Building Supply, Inc. (“Glenbrook”)
(together, “EBGL”), and Timber Technologies Solutions, Inc. (“TT”), which manufacture modular buildings, structural
wall panels, engineered wood products, and glue-laminated timber for residential, commercial, and industrial markets. The Business Services
segment consists of Hudson Talent Solutions (“HTS”) and provides RPO, contingent workforce solutions, recruitment consulting,
outsourced professional contract staffing, and MSP services across eighteen countries across three geographic regions: the Americas,
Asia Pacific, and Europe, Middle East, and Africa. The Energy Services segment consists of ADT, a Wyoming- and Texas-based provider of
downhole drilling tools and services to the oil and gas, geothermal, mining, and waterwell sectors, with a cost structure that allows
most variable costs to be passed through to customers. The Investments segment holds and manages certain corporate-owned real estate
assets and investments in a limited number of publicly traded and private companies.
Our
reportable segments are based upon our internal organizational structure, the manner in which our operations are managed, the criteria
used by our Chief Executive Officer (Chief Operating Decision Maker or “CODM”) to evaluate segment performance, the availability
of separate financial information, and overall materiality considerations. See Note 17. Segments, within the notes to our accompanying
consolidated financial statements.
229
We
continue to explore strategic alternatives to maximize value for the Company’s stockholders, including, without limitation, improving
the market position and profitability of our services and enhancing our valuation. We may pursue these objectives through organic growth,
strategic initiatives, or other alternatives.
In
addition, we will continue to monitor capital markets for opportunities to repurchase shares and consider other actions designed to enhance
stockholder value. From time to time, we also review potential acquisition or business combination opportunities and may provide information
to third parties regarding potential dispositions of assets or business lines.
Clients
The
Company serves a diverse client base across multiple industries through its operating segments, including construction, energy, and global
talent solutions, with customers that include mid-to-large multinational corporations, commercial contractors, energy companies, and
government agencies. For the years ended December 31, 2025 and 2024, approximately 73% and 85% of revenue, respectively, was generated
by its top 25 clients. In 2025, one client accounted for 23% of revenue, while in 2024 three clients accounted for an aggregate of 46%
of revenue. As of December 31, 2025 and 2024, one client represented approximately 14% and 24% of accounts receivable, respectively.
Our business is dependent upon the continuation of these business relationships as well as new client development. As part of our client
retention and renewal strategy, we continue to develop and foster long-term relationships, and have been successful in retaining and
negotiating multi-year (three to five year) contracts with most of our key partners.
Competition
The
markets for our Business Services, Energy Services, and Building Solutions segments are highly competitive and, in certain cases, characterized
by limited barriers to entry and market fragmentation. Competition is based on factors such as industry expertise, product and service
quality, geographic reach, operational scale, pricing, and the ability to efficiently execute and deliver projects. In our Energy Services
segment, demand is closely tied to oil prices, as customer drilling activity and capital spending are influenced by prevailing market
conditions. In our Building Solutions segment, activity levels are influenced by broader construction trends, interest rates, and access
to project financing. Companies with greater scale, operational efficiencies, and differentiated capabilities may achieve competitive
advantages and improved margins across these markets.
Intellectual
Property
Intellectual
property in our businesses primarily consists of trademarks held.
Patents
We
do not hold any patents within our businesses.
Raw
Materials
Building
Solutions.
KBS,
EBGL and TT operate in the wood-based construction market. The primary raw materials used in their production processes include dimensional
lumber, mainly spruce-pine-fir, and sheathing/sheet goods (OSB and plywood). The majority of underlying raw material for KBS, EBGL, and
TT are sourced by wholesalers and mills in the United States, though from time to time limited quantities are also sourced from Canada.
These businesses depend on the reliability of the lumber supply chain and are sensitive to varying degrees to wood-based commodity price
fluctuations.
Raw
materials are not material to the operations of the Company’s other business segments.
Manufacturing
Building
Solutions.
KBS
began manufacturing single family homes in 2001 and commercial modular multi-family housing units in 2008. In subsequent years, KBS expanded
its product offerings to include a variety of commercial-scale multi-family buildings including apartments, condominiums, townhouses,
and dormitories. The structures are built inside our climate-controlled factories and are then transported to the site where they are
set, assembled, and secured to the foundation. Electrical, plumbing, and HVAC systems are inspected and tested in the factory prior to
transportation to the site to ensure the modules meet all local building codes and quality requirements.
230
Modular
construction has gained acceptance and is a preferred building method by many architects and general contractors. The advantages of modular
construction include: modules are constructed in a climate-controlled environment; weather conditions usually do not interrupt or delay
construction; the building is protected from weather, reducing the risk of mold or other materials damage due to materials absorbing
moisture from rain or snow; reduced site work; improved safety and security; reduced vandalism and attrition; and a significant reduction
in overall project time. Manufacturing is not material to the operations of the Company’s other business segments.
EBGL
consists of two separate companies (EdgeBuilder and Glenbrook) operating in tandem with a common management team. EdgeBuilder manufactures
wall panels and permanent wood foundations in a climate-controlled factory, then transports the panels to the construction site via flat-bed
trucks. The panels are typically unloaded by crane and erected, or assembled, on site by professional framing contractors. Panelized
construction, especially in large-scale, multi-unit projects, is becoming increasingly popular due to the heightened demand for construction
labor. Additionally, because the wall panels are constructed in a controlled indoor environment, waste, weather-related delays, and mistakes
are minimized. This shaves weeks off large, multi-unit construction schedules.
Glenbrook,
as a retailer of professional building products, is not directly involved in manufacturing but does often sell and ship product in tandem
with EdgeBuilder wall panel deliveries. As the International Building Code® continues to evolve, KBS and EBGL, along with our professional
partners in the industry, meet code changes with innovative products and a dedicated staff to ensure adherent builds.
TT
started operations in 2003 and has been manufacturing glue-laminated (glulam) wood columns and beams for post frame builders since that
time. Timber Technologies products include treated and untreated columns for sidewalls and end walls in post frame buildings, glue-laminated
headers and beams, and architectural grade beams for high-end commercial structures.
Human
Capital Resources
The
Company’s success significantly depends upon its workforce. The Company employs approximately 1,200 people worldwide, of which
approximately 950 employees are within its Business Services segment, including approximately 110 employees in the United States (“U.S.”)
and 840 employees internationally. The Company is dedicated to acquiring, investing in, and retaining top talent. Business Services global
and regional employees have vast training and expertise across human capital solutions. Specifically, of the Company’s Business
Services employees, approximately 870 are client-facing consultants who sell and deliver talent solutions services to its existing client
base. The Company’s consultant population has deep expertise in specific functional areas and industry sectors, and provides broad-based
recruitment and solution services based on the needs of each client on a regional and global basis.
The
Company has a total of 245 employees in its Building Services and Energy Services segments, of which 162 were employed in manufacturing,
17 in operational roles, 37 in general and administrative functions, and 29 in marketing and sales. All of our 245 employees are full-time
employees. All positions are in the United States. We also utilize varying amounts of temporary workers as necessary to fulfill customer
requirements.
Our
regional well-being programs are rolling out a variety of initiatives aimed at raising awareness and encouraging employees to look after
their health and well-being. Our employee assistance programs offer additional support and information to our staff and a range of additional
training modules were rolled out focusing on topics such as mental health awareness, health and wellness in the workplace, and keeping
remote teams connected.
Employees
have access to a range of training courses, including courses on anti-harassment, discrimination, and unconscious bias. eLearning is
an integral part of the continuous development journey that we offer. We have access to over 200 hours of learning modules.
All
our employees play an important part in contributing to and shaping our culture. We have taken actions to enhance our employees’
experience working for the Company through the implementation of a continuous performance management framework in order to drive employees’
performance, development, and engagement. We have policies to prevent discrimination based on gender, race, disability, ethnicity, nationality,
religion, and other classes of persons, recognized within the varied regions we work. We take affirmative action to ensure that applicants
are employed, and that employees are treated during employment, without regard to their race, color, religion, sex, or national origin.
We also take affirmative action to employ and advance veterans in employment. We have not experienced any abnormal work stoppages and
consider our employee relations to be good.
231
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2025
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in
conjunction with the Consolidated Financial Statements and the notes thereto, included in Item 8 of this Form 10-K. This MD&A contains
forward-looking statements. Please see “FORWARD-LOOKING STATEMENTS” for a discussion of the uncertainties, risks, and assumptions
associated with these statements. This MD&A also uses the non-generally accepted accounting principle measure of earnings before
interest, taxes, depreciation and amortization (“EBITDA”). See Note 18 to the Consolidated Financial Statements in Item 8
for EBITDA segment reconciliation information. Note that amounts within this Item shown in millions may not recalculate due to rounding.
All defined terms included in this MD&A for the year ended December 31, 2025 shall be as defined in this discussion.
This
MD&A includes the following sections:
●
Executive Overview
●
Results of Operations
●Liquidity
and Capital Resources
●
Contingencies
●
Critical Accounting Estimates
●
Recent Accounting Pronouncements
●
Forward-Looking Statements
Executive
Overview
Star
Equity Holdings, Inc. is a diversified multi-industry holding company operating through four
reportable segments: Building Solutions, Business Services, Energy Services, and Investments. Our common stock and 10% Series A Cumulative
Perpetual Preferred Stock are listed on the Nasdaq Global Market under the symbols “STRR” and “STRRP,” respectively.
The
Building Solutions segment operates in the construction industry. The Business Services segment, which consists of HTS, delivers customized
recruitment and contracting solutions to mid-to-large multinational companies, including Recruitment Process Outsourcing (“RPO”),
project-based RPO, contingent workforce solutions, recruitment consulting, outsourced professional contract staffing, and MSP services.
The Energy Services segment consists of ADT, which manufactures and supplies specialized drilling tools and downhole equipment used in
directional drilling and other oil and gas well construction applications. The Investments segment holds and manages certain corporate-owned
real estate assets and investments in a limited number of publicly traded and private companies.
Merger
On
August 22, 2025, Star completed its previously announced acquisition of Star Operating Companies (formerly known as Star Equity Holdings,
Inc.) pursuant to the Merger Agreement, by and among Star, SOC and Merger Sub. Upon the terms and subject to the conditions of the Merger
Agreement, on August 22, 2025, at the Effective Time of the Merger, Merger Sub merged with and into SOC, with SOC continuing as the surviving
corporation of the Merger under the name “Star Operating Companies, Inc.” as a wholly owned subsidiary of Star. Capitalized
terms used herein but not defined have the meanings set forth in the Merger Agreement.
Pursuant
to the terms of the Merger Agreement, at the Effective Time, (i) each share of common stock of SOC issued and outstanding immediately
prior to the Effective Time (other than certain shares as set forth in the Merger Agreement) were automatically converted into the right
to receive 0.23 shares of Star common stock and (ii) each share of preferred stock of SOC issued and outstanding immediately prior to
the Effective Time (other than certain shares set forth in the Merger Agreement) were automatically converted into the right to receive
one (1) share of Star 10% Series A Cumulative Perpetual Preferred Stock. As a result of the Merger, former SOC common stockholders received
approximately 744,291 shares of Star common stock for their SOC common shares and former SOC preferred stockholders received approximately
2,690,637 shares of Star Preferred Stock. No fractional shares of Star common stock were issued in the Merger, and SOC stockholders became
entitled to receive cash in lieu of fractional shares in accordance with the Merger Agreement.
232
In
addition, pursuant to the terms of the Merger Agreement, at the Effective Time, each award of SOC RSUs outstanding immediately prior
to the Effective Time was converted into Star RSUs issued under the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan, as amended
(the “Plan”), in accordance with the Merger Agreement.
Amendment
to Certificate of Incorporation
On
September 4, 2025, Star Equity filed an Amendment to the Company’s Charter, to affect the Name Change. The Name Change was approved
by the Company’s Board on September 2, 2025, and became effective at 12:01 a.m. (Eastern Time) on September 5, 2025.
Segments
The
Company’s Building Solutions segment consists of the following operating businesses: KBS; EdgeBuilder; Glenbrook; and TT. KBS,
based in Maine, manufactures modular buildings, primarily serving the single-family and multi-family residential markets in New England.
EBGL, based in the Minneapolis-Saint Paul area, manufactures and delivers structural wall panels and other engineered wood-based products
and distributes building materials through two lumberyard locations, primarily serving professional builder customers in the Upper Midwest
region. TT, located outside the Minneapolis-Saint Paul area, manufactures glulam products for a range of end markets and applications,
including agriculture, industrial, infrastructure, and building construction (commercial and residential).
The
Business Services segment consists of HTS and provides customized recruitment and contracting solutions to mid-to-large multinational
companies. Service offerings include RPO, project-based RPO, contingent workforce solutions, recruitment consulting, outsourced professional
contract staffing, and MSP services. HTS operates directly in eighteen countries across three geographic regions: the Americas, Asia
Pacific, and Europe, Middle East, and Africa. HTS delivery teams utilize standardized recruitment methodologies and project management
expertise to support clients’ ongoing workforce requirements. HTS leverages its consultants and proprietary processes to identify,
select, and engage talent for critical client roles. In addition, clients may receive outsourced professional contract staffing services
and MSP solutions, offered on a standalone basis or as part of an integrated total talent solution. HTS-employed professionals are placed
with client organizations, individually or as teams, for defined periods based on specific business requirements.
The
Business Services segment provides talent and workforce solutions, including Talent Advisory, Executive Search, Talent Technology, and
RPO. The Business Services segment primarily serves mid-to-large multinational organizations and operates in twenty-one countries across
the Americas, Asia Pacific, and Europe, Middle East and Africa (“EMEA”).
The
Business Services segment delivers customized talent solutions that support clients’ workforce planning and hiring needs. Its services
include advisory and consulting services, executive and professional search, and outsourced recruiting programs.
The
Business Services segment’s RPO offering utilizes a proprietary recruiting platform,
HudsonFlow
, incorporating agentic artificial
intelligence capabilities designed to support candidate sourcing, screening, and interview coordination. These technology-enabled capabilities
are combined with recruiting professionals and industry specialists who manage client engagements and candidate evaluation.
The
Business Services segment delivers services through a range of engagement models, including fully outsourced recruitment programs, project-based
recruiting engagements, contingent workforce solutions, and targeted search assignments for permanent hires. The Business Services segment
also provides outsourced contract staffing and managed service provider solutions under which professionals employed by the Company are
placed with client organizations for defined periods based on the clients’ business needs.
The
Company’s Energy Services segment consists of ADT, a Wyoming and Texas based provider of drilling tools and services to the energy
industry, a key sector of the economy. ADT is a full-service downhole drilling tool company that provides sales and rental tools in the
Oil & Gas, Geothermal, Mining, and Waterwells sectors. ADT is strategically located near premier oilfields in the Rockies, a geothermal
and mining hub, and in Midland, TX within the Permian Basin. ADT’s business model allows the majority of costs, such as freight,
repairs, and damages, to be passed directly to customers.
233
The
Investments segment holds and manages certain of our corporate-owned real estate, including a manufacturing facility in Maine that is
leased to KBS and a manufacturing facility in Wisconsin that is leased to TT. The Investments segment holds and manages certain corporate-owned
real estate assets and investments in a limited number of publicly traded and private companies. SOC acquired these interests in May
2023 as a result of the sale of Digirad Health. The Investments segment also holds an investment in Enservco Corporation consisting of
an investment in Enservco Common Stock, an investment in Enservco Preferred Stock, and an investment in a call option, all of which were
acquired in the third quarter of 2024 and which currently have a carrying value of zero. See Note 18,
Supplementary Balance Sheet
Information
to the notes to our accompanying consolidated financial statements.
This
MD&A discusses the results of the Company’s business for the years ended December 31, 2025 and 2024.
Current
Market Conditions
The
target customers for our Building Solutions segment include professional home builders, general contractors, project owners, developers,
and design firms. Despite a higher interest rate environment, we continue to experience meaningful demand for our products; however,
certain projects have been delayed as customers secure and finalize financing. We have benefited from implementing both price increases
and margin protection language in our contracts, and these changes have had a positive effect on our profitability. Although we have
experienced slower business activity and lower revenues over the past four quarters, we believe this slowdown is temporary. Our sales
pipelines continue to indicate strong potential demand for our services, but we can give no assurances as to our ability to compete for
these opportunities, or the periods during which successfully negotiated projects will be completed.
In
our Business Services segment, our clients’ demands for RPO and contracting services largely depend on the market conditions and
the strength of the labor markets in the countries where we operate. In 2025, the market conditions remained challenging due to persistent
inflation, market uncertainty related to trade disruptions, and decreased demand for labor in certain markets. We anticipate that these
challenging market conditions will continue into 2026.
In
our Energy Services segment, demand for our products is closely tied to oil prices, as customer drilling activity and capital spending
are influenced by prevailing market conditions. Higher and stable oil prices generally support increased drilling and tool utilization,
while lower or volatile prices may reduce activity and negatively impact our revenues and operating results. During 2025, improved oil
prices contributed to increased customer activity, and the segment delivered strong performance.
Economic
conditions in many of the world’s major markets remained uncertain throughout 2025. While inflationary pressures moderated in certain
regions, elevated interest rates and tighter credit conditions continued to impact market activity. These conditions contributed to wage
pressures, higher operating costs, staffing challenges, fluctuating consumer confidence, and constrained access to capital markets, each
of which affected our business. In connection with this environment, some customers reduced demand for our services, and certain others
temporarily deferred or permanently discontinued engagements. Ongoing macroeconomic uncertainty, including the potential for renewed
inflationary pressures or changes in interest rate policy, could have material adverse effects on various aspects of our business in
future periods.
Economic
uncertainty has also continued to contribute to volatility in global currency markets. Fluctuations in foreign exchange rates relative
to the U.S. dollar during reporting periods impact the translation of our foreign operations’ results into U.S. dollars and may
affect comparability of reported results.
We
continue to explore all strategic alternatives to maximize value for the Company’s stockholders, including without limitation,
improving the market position and profitability of our services in the marketplace, and enhancing our valuation. We may pursue our goals
through organic growth, strategic initiatives, or other alternatives. Additionally, we will continue to monitor capital markets for opportunities
to repurchase shares, and consider other actions designed to enhance value to our stockholders, as well as review information regarding
potential acquisitions or combinations, and provide information to third parties regarding potential dispositions of assets or business
lines, from time to time.
Summary
of Financial Performance Highlights For the Year Ended December 31, 2025
●
Revenue was $172.2 million
for the year ended December 31, 2025, compared to $140.1 million for the same period in 2024, an increase of $32.1 million, or 22.9%.
The increase in revenue was principally driven by the inclusion of revenues from the Star Operating Companies acquisition, which contributed
23 percentage points to the revenue growth.
●
Gross profit was $79.9 million
for the year ended December 31, 2025, compared to $70.2 million for the same period in 2024, an increase of $9.7 million, or 13.9%.
The increase in gross profit was driven by the acquisition of Star Operating Companies, which increased gross profit growth by 12 percentage
points.
234
●
SG&A and Non-Op other
income (expense) was 82.8 million for the year ended December 31, 2025, compared to $72.6 million for the same period in 2024. The
acquisition of Star Operating Companies increased SG&A and Non-Op other income (expense) by $7.3 million, which contributed 10
percentage points to the increase.
●
EBITDA loss was $2.0 million
for the year ended December 31, 2025, compared to EBITDA loss of $2.5 million for the same period in 2024.
●
Net loss attributable to
common shareholders was $6.7 million for the year ended December 31, 2025, compared to net loss of $4.8 million for the same period
in 2024.
Use
of EBITDA (Non-GAAP Financial Measure)
Management
believes EBITDA is a meaningful indicator of the Company’s performance that provides useful information to investors regarding
the Company’s financial condition and results of operations. EBITDA is considered by management as an indicator of operating performance
and the most comparable measure across the regions in which we operate. Management uses this measurement to evaluate capital needs and
working capital requirements. Similar to constant currency, EBITDA should not be considered in isolation or as a substitute for operating
income or net income prepared in accordance with U.S. GAAP or as a measure of the Company’s profitability. EBITDA is derived from
net income (loss) adjusted for the provision for (benefit from) income taxes, interest expense (income), and depreciation and amortization.
The
reconciliation of EBITDA to the most directly comparable U.S. GAAP financial measure is provided in the table below:
Year
Ended December 31,
$ in thousands
2025
2024
Net loss attributable to common
shareholders
$
(6,657
)
$
(4,770
)
Dividends on Series A
perpetual preferred stock
740
-
Net loss
(5,917
)
(4,770
)
Adjustments to
net (loss) income
Provision for income taxes
2,061
1,300
Interest income, net
(260
)
(360
)
Depreciation and amortization
expense-within cost of revenues
866
-
Depreciation
and amortization expense -within selling, general and administrative expense
1,212
1,361
Total
adjustments from net (loss) income to EBITDA
3,879
2,301
EBITDA loss
$
(2,038
)
$
(2,469
)
Results
of Operations
Building
Solutions
Revenue
- Building Solutions
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Building Solutions
Revenue
$
27.6
$
-
$
27.6
N/A
For
the year ended December 31, 2025, Building Solutions contributed $27.6 million to the Company’s revenue. Performance during the
year reflects a recovery from macroeconomic headwinds and severe Midwest flooding that delayed project starts in the prior year. Activity
improved for much of the year, supported by backlog and steady project execution, though residential demand remained somewhat slower
than expected. Toward year-end, activity softened due to weather-related site shutdowns, shipment timing delays, and certain projects
shifting into Q1 2026, with December order activity also lighter due to seasonal factors.
235
Gross
Profit - Building Solutions
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Building Solutions
Gross profit
$
6.3
$
-
$
6.3
N/A
For
the year ended December 31, 2025, Building Solutions contributed $6.3 million to the Company’s gross profit. Performance during
the period reflects higher activity levels and improved project mix for much of the year, which supported better overhead absorption
and steady margin performance. This was aided by consistent execution on project scope, scheduling, and cost management, though residential
activity remained somewhat softer and moderated margin expansion. Toward year-end, lower revenue levels reduced gross profit dollars,
and margins were modestly pressured by lower production volumes, higher temporary labor and freight costs, and inefficiencies associated
with early-stage production on certain projects.
SG&A
and Non-Op other income (expense) - Building Solutions
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Building Solutions
SG&A and
Non-Op other income (expense)
$
4.1
$
-
$
4.1
N/A
SG&A and Non-Op other
income (expense) as a percentage of revenue
15
%
N/A
N/A
N/A
For
the year ended December 31, 2025, Building Solutions SG&A and Non-op other income (expense) was 4.1 million or 15% of revenue. Expenses
were generally in line with normal operating levels, with lower third-party commission costs contributing to a modest reduction in overall
SG&A for the period.
Operating
(Loss) Income and EBITDA - Building Solutions
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Building Solutions
Operating income
$
2.0
$
-
$
2.0
N/A
EBITDA
$
2.4
$
-
$
2.4
N/A
EBITDA as a percentage
of revenue
9
%
N/A
N/A
N/A
For
the year ended December 31, 2025, Building Solutions generated operating income of $2.0 million and EBITDA of $2.4 million, or 9% of
revenue. Stronger volumes and an improved project mix, together with disciplined execution and controlled SG&A, supported the segment’s
operating performance during the period. Late in the year, EBITDA was affected by the same factors that pressured gross margins, including
lower production volumes, higher temporary labor and freight costs, and early-stage production inefficiencies on certain projects.
236
Business
Services
Revenue
- Business Services
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Business Services
Revenue
$
139.7
$
140.1
$
(0.4
)
-
%
For
the year ended December 31, 2025, revenue decreased $0.4 million compared to 2024, driven by a decrease in contracting revenue of $0.8
million, partially offset by an increase in RPO revenue of $0.4 million, as discussed below.
In
the Americas, revenue increased $1.5 million, or 5%, for the year ended December 31, 2025, compared to the same period in 2024. The increase
was primarily driven by RPO revenue, which increased $1.1 million, or 5%, while contracting revenue increased $0.4 million, or 12%, due
to higher demand from existing clients as well as new client wins. In Asia Pacific, revenue increased $0.1 million for the year-ended
December 31, 2025, compared to the same period in 2024. RPO revenue increased $2.4 million, or 9%, due to stronger existing client demand,
while contracting revenue decreased $2.3 million, or 4%, due to lower client demand. In EMEA, revenue decreased $2.1 million, or 8%,
for the year-ended December 31, 2025, compared to the same period in 2024, driven by a decline in RPO revenue of $3.2 million, or 20%,
partly offset by an increase in contracting revenue of $1.1 million, or 12%.
Gross
Profit - Business Services
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Business Services
Gross Profit
$
71.8
$
70.2
$
1.6
2
%
For
the year ended December 31, 2025, gross profit increased $1.6 million or 2%, driven by an increase in contracting gross profit of $1.0
million and an increase in RPO gross profit of $0.7 million, compared to the same period in 2024.
In
the Americas, gross profit increased by $1.1 million, or 4%, for the year ended December 31, 2025, compared to the same period in 2024.
The growth reflects a $0.9 million, or 4%, increase in RPO gross profit, along with a $0.2 million, or 24%, increase in contracting gross
profit. In Asia Pacific, gross profit increased by $3.4 million, or 12%, for the year ended December 31, 2025, compared to the same period
in 2024, driven by an increase in RPO gross profit of $2.5 million and an increase in contracting gross profit of $0.9 million, driven
by higher demand from existing clients. In EMEA, gross profit declined by $2.9 million, or 19%, for the year ended December 31, 2025,
compared to the same period in 2024, primarily driven by a decrease in RPO gross profit of $2.8 million, or 18%. The decrease in gross
profit was due to lower client demand.
SG&A
and Non-Op other income (expense) - Business Services
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Business Services
SG&A and
Non-Op other income (expense)
$
70.4
$
69.0
$
1.4
2
%
SG&A and Non-Op other
income (expense) as a percentage of revenue
50
%
50
%
-
N/A
For
the year ended December 31, 2025, SG&A and Non-Op other income (expense) increased $1.4 million, or 2%, compared to the same period
in 2024, while SG&A and Non-Op other income (expense) as a percentage of revenue remained unchanged at 50%.
237
Operating
Income and EBITDA - Business Services
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Business Services
Operating income
$
1.9
$
1.0
$
1.0
97
%
EBITDA
$
1.4
$
1.1
$
0.3
24
%
EBITDA as a percentage
of revenue
1
%
1
%
N/A
N/A
For
the year ended December 31, 2025, operating income was $1.9 million, compared to operating income of $1.0 million in 2024, and EBITDA
was $1.4 million, or 1% of revenue, compared to EBITDA of $1.1 million, or 1% of revenue, in 2024.
Energy
Services
Revenue
- Energy Services
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Energy Services
Revenue
$
4.9
$
-
$
4.9
N/A
For
the year ended December 31, 2025, Energy Services contributed $4.9 million in revenue, reflecting a gradual recovery in drilling activity
across key markets. While market conditions in the sector in the first half of the year was subdued due to lower rig counts, the segment
continued to capture market share through competitive pricing and strong customer relationships. Activity accelerated in the third quarter,
supported by growth in non-oil-and-gas demand, and focused sales efforts in high-growth areas such as the Permian Basin.
Gross
Profit - Energy Services
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Energy Services
Gross Profit
$
1.9
$
-
$
1.9
N/A
For
the period ended December 2025, the contribution of Energy Services to the Company’s Gross Profit was $1.9 million. Margins were
maintained despite trough pricing driven by lower U.S. rig counts in 2025. The segment continued to gain market share through competitive
pricing and strong customer relationships, helping to support gross profit during a period of softer overall pricing in the market.
SG&A
and Non-Op other income (expense) - Energy Services
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Energy Services
SG&A and
Non-Op other income (expense)
$
1.4
$
-
$
1.4
N/A
SG&A and Non-Op other
income (expense) as a percentage of revenue
29
%
N/A
N/A
N/A
For
the year ended December 31, 2025, Energy Services’ SG&A and non-operating other income (expense) totaled $1.4 million or 29%
of revenue. Expenses were generally in line with normal operating levels, with a slight increase in sales commissions reflecting efforts
to expand market share during the period.
238
Operating
Income and EBITDA - Energy Services
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Energy Services
Operating income
$
0.4
$
-
$
0.4
N/A
EBITDA
$
1.0
$
-
$
1.0
N/A
EBITDA as a percentage
of revenue
21
%
N/A
N/A
N/A
For
the year ended December 31, 2025, Energy Services reported an operating income of $0.4 million and EBITDA of $1.0 million or 21% of revenue.
Despite trough pricing in a softer rig environment, disciplined execution, competitive pricing, and targeted sales efforts supporting
market-share gains helped the segment achieve positive EBITDA for the period.
Investments
Revenue-Investments
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Investments
Revenue
$
0.2
$
-
$
0.2
N/A
For
the year ended December 31, 2025, Investments contributed $0.2 million to the Company’s revenue, reflecting rental income from
owned properties.
Gross
Profit - Investments
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Investments
Gross profit
$
0.1
$
-
$
0.1
N/A
For
the year ended December 31, 2025, Investments contributed $0.1 million to the Company’s gross profit, reflecting rental income
after accounting for property depreciation.
239
SG&A
and Non-Op other income (expense) - Investments
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Investments
SG&A and
Non-Op other income (expense)
$
0.2
$
-
$
0.2
N/A
SG&A and Non-Op other
income (expense) as a percentage of revenue
108
%
N/A
N/A
N/A
For
the year ended December 31, 2025, Investments SG&A and Non-Op other income (expense) was $0.2 million.
Operating
(Loss) Income and EBITDA - Investments
Year
Ended December 31,
$ in millions
2025
2024
Change
in amount
Change
in %
Investments
Operating loss
$
(0.01
)
$
-
$
(0.01
)
N/A
EBITDA (loss)
$
(0.01
)
$
-
$
(0.01
)
N/A
EBITDA (loss) as a percentage
of revenue
(8
)
%
N/A
N/A
N/A
For
the year ended December 31, 2025, Investments operating loss was $0.01 million, and EBITDA loss was $0.01 million, or 8% of revenue.
Additional
Results of Operations
Corporate
expenses
For
the year ended December 31, 2025, corporate expenses were $6.9 million compared to $3.6 million in 2024, an increase of $3.3 million,
or 92%. The increase was primarily due to professional fees associated with the acquisition of Star Operating Companies.
Total
Depreciation and Amortization Expense
Depreciation
and amortization expense, including amounts in Cost of Revenues, was $2.1 million and $1.4 million for the years ended December 31, 2025
and 2024, respectively.
Interest
Income, Net
Net
interest income was $0.3 million and $0.4 million for the years ended December 31, 2025 and 2024, respectively.
Other
Income (Expense), Net
Net
other expense was $0.4 million for the year ended December 31, 2025, as opposed to net other expense of $0.0 million for the same period
in 2024.
Provision
for (benefit from) Income Taxes
The
provision for income taxes for the year ended December 31, 2025 was $2.1 million, on $3.9 million of pre-tax loss, compared to a provision
from income taxes of $1.3 million on $3.5 million of pre-tax loss for 2024. The effective tax rate (“ETR”) for the year ended
December 31, 2025 was negative 53%, compared to negative 37% for 2024. For the year ended December 31, 2025, the effective tax rates
differed from the U.S. federal statutory rate of 21% primarily due to pre-tax losses for which no tax benefit can be recognized, changes
in valuation allowances in the U.S., China, and certain foreign jurisdictions that reduce or eliminate the ETR on current year profits
or losses, foreign tax rate differences, and non-deductible expenses. For the year ended December 31, 2024, the effective tax rates differed
from the U.S. federal statutory rate of 21% primarily due to pre-tax losses for which no tax benefit can be recognized, changes in valuation
allowances in the U.S., China, and certain foreign jurisdictions that reduce or eliminate the ETR on current year profits or losses,
foreign tax rate differences, and non-deductible expenses The current year ETR differs significantly from the prior year ETR primarily
due to the interaction of similar rate reconciliation items, including change in valuation allowance, combined with a shift in the geographic
mix of earnings toward higher-tax jurisdictions, including Australia.
240
Net
(Loss) Income Attributable to Common Shareholders
Net
loss attributable to common shareholders was $6.7 million for the year ended December 31, 2025, compared to net loss of $4.8 million
for 2024, an increase in net loss of $1.9 million. Basic and diluted loss per share was $2.08 for the year ended December 31, 2025, compared
to basic and diluted loss per share of $1.59 in 2024.
Liquidity
and Capital Resources
As
of December 31, 2025, cash and cash equivalents and restricted cash totaled $13.4 million, as compared to $17.7 million as of December
31, 2024. The following table summarizes the cash flow activities for the years ended December 31, 2025 and 2024:
For
The Year Ended December 31,
$ in millions
2025
2024
Net cash used in operating activities
$
(7.3
)
$
(2.8
)
Net cash provided by investing activities
4.6
1.1
Net cash used in financing activities
(2.0
)
(3.1
)
Effect of exchange rates
on cash, cash equivalents, and restricted cash
0.4
(0.7
)
Net decrease in cash,
cash equivalents, and restricted cash
$
(4.3
)
$
(5.5
)
Cash
Flows from Operating Activities
For
the year ended December 31, 2025, net cash used in operating activities was $7.3 million, as compared to $2.8 million of net cash used
in operating activities for the same period in 2024, resulting in an increase in net cash used in operating activities of $4.5 million.
The decline in cash was principally from the Company’s lower net income in 2025, partially offset by more favorable working capital
comparisons to the prior year.
Cash
Flows from Investing Activities
For
the year ended December 31, 2025, net cash provided by investing activities was $4.6 million, compared to $1.1 million of net cash provided
by investing activities in 2024. Net cash provided by investing activities in 2025 reflects $7.0 million in cash received in connection
with the SOC acquisition, while net cash used in investing activities in 2024 primarily reflects cash received from benefit payouts.
Cash
Flows from Financing Activities
For
the year ended December 31, 2025, net cash used in financing activities was $2.0 million, compared to $3.1 million in 2024. The decrease
in net cash used was primarily attributed to borrowing under credit facilities. Repurchases of shares of common stock were $2.6 million
in 2025, including cash paid for tax withholdings, compared to repurchases of $2.8 million in the previous year.
Credit
Facilities
See
Note 9, Debt, in the accompanying notes to the consolidated financial statements for further details.
241
Liquidity
and Capital Resources Outlook
As
of December 31, 2025, the Company had cash and cash equivalents on hand of $10.3 million, as well as our lines of credit and other debt
instruments. Other than as described in Note 9 - Debt in the consolidated financial statements included in Part II, Item 8 of this Form
10-K, the Company has no financial guarantees, outstanding debt or other lease agreements or arrangements that could trigger a requirement
for an early payment or that could change the value of our assets. The Company believes that it has sufficient liquidity to satisfy its
needs through at least the next 12 months, based on the Company’s financial position as of December 31, 2025. The Company’s
near-term cash requirements during 2025 are primarily related to the funding of the Company’s operations.
As
of December 31, 2025, $5.2 million of the Company’s cash and cash equivalents noted above were held in the U.S. and the remainder
were held outside the U.S., primarily in Singapore ($1.3 million) Philippines ($0.9 million), the U.K. ($0.9 million), Hong Kong ($0.8
million), and India ($0.3 million). The majority of the Company’s offshore cash is available to it as a source of funds, net of
any tax obligations or assessments.
Off-Balance
Sheet Arrangements
As
of December 31, 2025, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
Contingencies
From
time to time in the ordinary course of business, the Company is subject to compliance audits by U.S. federal, state, local, and foreign
government regulatory, tax, and other authorities relating to a variety of regulations, including wage and hour laws, unemployment taxes,
workers’ compensation, immigration, and income, value-added, and sales taxes. The Company is also subject to, from time to time
in the ordinary course of business, various claims, lawsuits, and other complaints from, for example, clients, candidates, suppliers,
landlords for both leased and subleased properties, former and current employees, and regulators or tax authorities. Periodic events
and management actions such as business reorganization initiatives can change the number and types of audits, claims, lawsuits, contract
disputes, or complaints asserted against the Company. Such events can also change the likelihood of assertion and the behavior of third
parties to reach resolution regarding such matters.
The
economic conditions in the recent past have given rise to many news reports and bulletins from clients, tax authorities and other parties
about changes in their procedures for audits, payment, plans to challenge existing contracts and other such matters aimed at being more
aggressive in the resolution of such matters in their own favor. The Company believes that it has appropriate procedures in place for
identifying and communicating any matters of this type, whether asserted or likely to be asserted, and it evaluates its liabilities in
light of the prevailing circumstances. Changes in the behavior of third parties could cause the Company to change its view of the likelihood
of a claim and what might constitute a trend. Employment laws vary in the markets in which we operate, and in some cases, employees and
former employees have extended periods during which they may bring claims against the Company.
For
matters that reach the threshold of probable and estimable, the Company establishes reserves for legal, regulatory, and other contingent
liabilities. The Company had $0.2 million and $0.0 million of legal reserves as of December 31, 2025 and 2024, respectively. Although
the outcome of these matters cannot be determined, the Company believes that none of the currently pending matters, individually or in
the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations, or liquidity.
Critical
Accounting Estimates
Our
discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which
have been prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires our management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure
of contingent assets and liabilities. U.S. GAAP provides the framework from which to make these estimates, assumptions and disclosures.
We choose accounting policies within U.S. GAAP that our management believes are appropriate to accurately and fairly report our operating
results and financial position in a consistent manner. Our management regularly assesses these policies in light of current and forecasted
economic conditions. Our accounting policies are stated in Note 2 to the Consolidated Financial Statements in Item 8. We believe the
following accounting policies are critical to understanding our results of operations and affect the more significant judgments and estimates
used in the preparation of our Consolidated Financial Statements that are inherently uncertain.
242
Revenue
Recognition
Business
Services
The
Company recognizes revenue for our RPO business over time in an amount that reflects the consideration we expect to be entitled to and
have an enforceable right to payment in exchange for our services. The client simultaneously receives and consumes the benefits of the
services as they are provided. The transaction prices contain both fixed fee and variable usage-based consideration. Variable usage-based
consideration is constrained by candidates accepting offers of permanent employment. We recognize revenue on the fixed fee as the performance
obligations are satisfied and usage-based fees as the constraint is lifted. We do not incur incremental costs to obtain our RPO contracts.
The costs to fulfill these contracts are expensed as incurred.
The
Business Services segment recognizes revenue for our contracting services over time as services are performed in an amount that reflects
the consideration we expect to be entitled to and have an enforceable right to payment in exchange for our services, which is generally
calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits
of the services as they are provided. We do not incur incremental costs to obtain our contracting contracts. The costs incurred to fulfill
these contracts are expensed as incurred.
Building
Solutions and Energy Services
We
recognize revenue when a customer obtains control of promised goods or services. We record the amount of revenue that reflects the consideration
that we expect to receive in exchange for those goods or services. We apply the following five-step model in order to determine this
amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services
are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction
price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and
(v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Revenue
recognition is evaluated on a contract basis. Performance obligations are satisfied over time as work progresses or at a point in time.
From time-to-time we enter into contracts within our building solutions sector that produce assets with no alternative use and contain
an enforceable right to payment, including a reasonable profit margin. Determining if an enforceable right to payment includes a reasonable
profit margin requires judgment and is assessed on a contract by contract basis. For contracts requiring over time revenue recognition,
the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services
to be provided. We use a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which
occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress,
the extent of progress towards completion is measured based on the costs incurred to date. We had no contracts in place as of December
31, 2025 that require recognition over time.
As
a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original
duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for
services performed.
Income
Taxes
We
account for income taxes using the asset and liability method in accordance with Accounting Standards Codification (“ASC”)
740, “
Income Taxes.
” This standard establishes financial accounting and reporting standards for the effects of income
taxes that result from an enterprise’s activities. It requires an asset and liability approach for financial accounting and reporting
of income taxes.
The
calculation of net deferred tax assets assumes sufficient future earnings for the realization of such assets as well as the continued
application of currently anticipated tax rates. Included in net deferred tax assets is a valuation allowance for deferred tax assets
where management believes it is more likely than not that the deferred tax assets will not be realized in the relevant jurisdiction.
If we determine that a deferred tax asset will not be realizable, an adjustment to the deferred tax asset will result in a reduction
of earnings at that time. Our assessment includes an analysis of whether deferred tax assets will be realized in the ordinary course
of operations based on the available positive and negative evidence, including the scheduling of deferred tax liabilities and forecasted
income from operations. The underlying assumptions we use in forecasting future taxable income require significant judgment. In the event
that actual income from operations differs from forecasted amounts, or if we change our estimates of forecasted income from operations,
we could record additional charges or reduce allowances in order to adjust the carrying value of deferred tax assets to their realizable
amount. Such adjustments could be material to our Consolidated Financial Statements. See Note 8 to the Consolidated Financial Statements
in Item 8 for further information regarding deferred tax assets and valuation allowances.
243
ASC
740-10-55-3, “
Recognition and Measurement of Tax Positions - a Two Step Process,”
provides implementation guidance
related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a two-step
evaluation process for a tax position taken or expected to be taken in a tax return. The first step is recognition and the second is
measurement. ASC 740 also provides guidance on derecognition, measurement, classification, disclosures, transition and accounting for
interim periods. In addition, ASC 740-10-25-9 provides guidance on how to determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits. As of December 31, 2025, the Company’s gross liability for income
taxes associated with uncertain tax positions was $0.1 million.
The
Company’s unrecognized tax benefits, if recognized in the future, would affect the Company’s annual effective income tax
rate. See Note 8 to the Consolidated Financial Statements in Item 8 for further information regarding unrecognized tax benefits. We elected
to continue our historical practice of classifying applicable interest and penalties as a component of the provision for income taxes.
We
provide tax reserves for federal, state, local and international exposures relating to periods subject to audit. The development of reserves
for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate. We assess
our tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts,
circumstances and information available at the reporting dates. For those tax positions where it is more likely than not that a tax benefit
will be sustained, we have recorded the largest amount of tax benefit with greater than 50% likelihood of being realized upon settlement
with a tax authority that has full knowledge of all relevant information. For those tax positions where it is not more likely than not
that a tax benefit will be sustained, no tax benefit has been recognized in the Consolidated Financial Statements. Where applicable,
associated interest and penalties have also been recognized. Although the outcome relating to these exposures are uncertain, we believe
that our reserves reflect the probable outcome of known tax contingencies. In certain circumstances, the ultimate outcome of exposures
and risks involves significant uncertainties which render them inestimable. If actual outcomes differ materially from these estimates,
including those that cannot be quantified, they could have a material impact on our results of operations.
The
Company has provided for tax on all unremitted earnings of our foreign subsidiaries taking into consideration all expected future events
based on presently existing tax laws and rates.
The
Company has elected to recognize the tax on Global Intangible Low Taxed Income (“GILTI”) as a period expense in the year
the tax is incurred.
Business
Combinations and Asset Acquisitions
Business
Combinations are accounted for under the acquisition method in accordance with ASC 805, “
Business Combinations
.” The
acquisition method requires identifiable assets acquired and liabilities assumed and any non-controlling interest in the business acquired
to be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired
business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets
acquired and liabilities assumed is recorded as goodwill. Acquisitions that do not meet the definition of a business under the ASC are
accounted for as asset acquisitions. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual
assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition with any consideration
in excess of net assets acquired allocated to acquired assets on a relative fair value basis. Transaction costs are expensed in a business
combination and are considered a component of the cost of the acquisition in an asset acquisition.
Recent
Accounting Pronouncements
See
Note 3 to our Consolidated Financial Statements in Item 8 regarding the impact or potential impact of recent accounting pronouncements
upon our financial position and results of operations.
244
Forward-Looking
Statements
This
Form 10-K contains statements that the Company believes to be “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Form 10-K, including statements
regarding the Company’s future financial condition, results of operations, business operations and business prospects, are forward-looking
statements. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,”
“plan,” “predict,” “believe,” and similar words, expressions, and variations of these words and expressions
are intended to identify forward-looking statements. All forward-looking statements are subject to important factors, risks, uncertainties,
and assumptions, including industry and economic conditions that could cause actual results to differ materially from those described
in the forward-looking statements. Such factors, risks, uncertainties, and assumptions include, but are not limited to, (1) global economic
fluctuations, (2) changes in the cost and availability of commodities, materials, and equipment, (3) risks related to providing uninterrupted
service to clients, (4) the ability of clients to terminate their relationship with the Company at any time, (5) risks associated with
real estate ownership, (6) the Company’s ability to successfully achieve its strategic initiatives, (7) risks related to fluctuations
in the Company’s operating results from quarter to quarter, (8) risks related to potential acquisitions or dispositions of businesses
by the Company, (9) our profitability and growth being tied to the success of our operating businesses, (10) risks associated with our
financial investments in other businesses, (11) our ability to improve existing products and services and develop, introduce, and market
new products and services successfully, (12) the loss of or material reduction in our business with any of the Company’s largest
customers, (13) competition in the Company’s markets, (14) risks related to potential decreases in demand for products, (15) our
ability to maintain costs at an acceptable level, (16) the negative cash flows and operating losses that may recur in the future, (17)
risks related to international operations, including foreign currency fluctuations, political events, trade wars, natural disasters or
health crises, including the Russia-Ukraine war, and potential conflict in the Middle East, (18) risks relating to how future credit
facilities may affect or restrict our operating flexibility, (19) our ability to generate or borrow sufficient cash to make payments
on our indebtedness, (20) risks related to indebtedness, (21) risks associated with the Company’s investment strategy, (22) the
Company’s dependence on key management personnel, (23) the Company’s ability to attract and retain highly skilled professionals,
management, and advisors, (24) the Company’s ability to collect accounts receivable, (25) the Company’s exposure to legal
proceedings, investigations and disputes, and limits on related insurance coverage, (26) the Company’s ability to utilize net operating
loss carryforwards, (27) the potential for goodwill impairment, (28) volatility of the Company’s stock price, (29) risks related
to our historically low trading volume, (30) risks related to securities or industry analysts, (31) the Company’s ability to declare
dividends, (32) risks associated with failure to pay dividends on our Series A Preferred Stock, (33) our history of annual net losses,
(34) risks related to our international operations, (35) risks related to compliance with federal and state laws, regulations, and other
rules, (36) our exposure to employment-related claims, legal liability, and costs from clients, employees, and regulatory authorities,
(37) risks related to the imposition of licensing or tax requirements or new regulations, (38) the effect of Anti-takeover provisions
in our organizational documents, (39) the effect of the protective amendment contained in our Restated Certificate of Incorporation,
(40) the impact of our stockholder rights plan, or “poison pill,” on stockholder decision making, (41) risks related to our
scaled disclosure requirements as a smaller reporting company, (42) risks related to evolving ESG and DEI rules and regulations, (43)
the Company’s heavy reliance on information systems and the impact of potentially losing or failing to develop technology, (44)
the adverse impacts of cybersecurity threats and attacks, and (45) risks related to the use of new and evolving technologies. The foregoing
list should not be construed to be exhaustive. Actual results could differ materially from the forward-looking statements contained in
this Form 10-K. In view of these uncertainties, you should not place undue reliance on any forward-looking statements, which are based
on our current expectations. These forward-looking statements speak only as of the date of this Form 10-K. The Company assumes no obligation,
and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events
or otherwise.
245
Star
Equity Holdings, Inc.
Index
to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
(Wolf & Company, P.C., PCAOB ID #392)
247
Consolidated Statements of Operations for the years ended
December 31, 2025 and 2024
248
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2025 and 2024
249
Consolidated Balance Sheets as of December 31, 2025
and 2024
250
Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024
251
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025 and 2024
252
Notes to Consolidated Financial Statements
253
All
schedules for which provision is made in the applicable rules and regulations of the SEC have been omitted as the schedules are not required
under the related instructions, are not applicable, or the information required thereby is set forth in the consolidated financial statements
or notes thereto.
246
Report
of Independent Registered Public Accounting Firm
To
the Shareholders and the Board of Directors of Star Equity Holdings, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Star Equity Holdings, Inc. (the Company) as of December 31, 2025 and 2024,
the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows, for the years then
ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the
results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in
the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Star
Operating Companies (“SOC”) Acquisition - Refer to Notes 1 and 5 to the financial statements
On
August 22, 2025, the Company completed its acquisition of SOC pursuant to the Agreement and Plan of Merger, dated as of May 21, 2025
(the “Merger Agreement”). This resulted in a business combination pursuant to ASC 805, Business Combinations. Management
engaged an independent third-party valuation specialist to assist with the fair value allocation of the purchase price. In accordance
with ASC 805, Business Combinations, The Company accounted for this transaction as a business combination and recorded the acquired assets
of SOC at their estimated fair value. The valuation of assets acquired and liabilities assumed has not yet been finalized as of December
31, 2025.
We
identified the purchase price allocation related to the SOC Acquisition as a critical audit matter because of the estimates and assumptions
used to determine the fair value of identifiable assets acquired and liabilities assumed. This required an increased extent of audit
effort and specialized skill, including the need to involve our fair value specialists, when performing audit procedures to evaluate
the reasonableness of management’s estimates and assumptions.
How
the Critical Audit Matter Was Addressed in the Audit
To
address this matter, we performed various procedures, including: (i) understanding management’s process for accounting for the
transaction, (ii) testing management’s process for determining opening balance sheet amounts, (iii) testing the processes used
by management and the third-party experts to develop valuation models, and (iv) evaluating the significant assumptions used in these
models. We considered whether these assumptions were consistent with evidence obtained in other areas of the audit and assessed their
sensitivity to change.
We
have served as the Company’s auditor since 2023.
/s/
Wolf & Company, P.C.
Boston,
Massachusetts
March
20, 2026
247
STAR
EQUITY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
Year
Ended December 31,
2025
2024
Revenues:
Building Solutions
$
27,578
$
-
Business Services
139,652
140,056
Energy
Services
4,929
-
Total revenues
172,159
140,056
Cost of revenues:
Building Solutions
21,303
-
Business Services
67,879
69,904
Energy Services
3,001
-
Investments
107
-
Total
cost of revenues
92,290
69,904
Gross profit
79,869
70,152
Operating expenses:
Salaries and related
63,545
58,309
Office and general
14,843
10,703
Marketing and promotion
3,957
3,588
Depreciation
and amortization
1,212
1,361
Total
operating expenses
83,557
73,961
Operating loss
(
3,688
)
(
3,809
)
Non-operating income (expense):
Interest income, net
260
360
Other
income (expense), net
(
428
)
(
21
)
Loss before income taxes
(
3,856
)
(
3,470
)
Provision
for income taxes
2,061
1,300
Net loss
(
5,917
)
(
4,770
)
Dividends
on Series A perpetual preferred stock
(
740
)
-
Net
loss attributable to common shareholders
$
(
6,657
)
$
(
4,770
)
Loss per share:
Basic
$
(
1.85
)
$
(
1.59
)
Diluted
$
(
1.85
)
$
(
1.59
)
Loss per share, attributable
to common shareholders
Basic
$
(
2.08
)
$
(
1.59
)
Diluted
$
(
2.08
)
$
(
1.59
)
Weighted-average shares outstanding:
Basic
3,198
3,000
Diluted
3,198
3,000
Dividends declared per
share of Series A perpetual preferred stock
$
0.275
$
-
See
accompanying notes to Consolidated Financial Statements.
248
STAR
EQUITY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(in
thousands)
Year
Ended December 31,
2025
2024
Comprehensive loss:
Net loss
$
(
5,917
)
$
(
4,770
)
Other comprehensive income
(loss):
Foreign
currency translation adjustment, net of income taxes
1,353
(
1,427
)
Total
other comprehensive income (loss), net of income taxes
1,353
(
1,427
)
Comprehensive loss
$
(
4,564
)
$
(
6,197
)
See
accompanying notes to Consolidated Financial Statements.
249
STAR
EQUITY HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except per share amounts)
As of December
31,
2025
2024
ASSETS
Current assets:
Cash and cash
equivalents
$
10,269
$
17,011
Restricted cash, current
1,819
476
Investments in equity securities
3,767
-
Accounts receivable, less allowance for expected
credit losses of $
275
and $
391
, respectively
35,220
20,093
Inventories, net
6,988
-
Note receivable, current
portion
256
-
Prepaid
and other
4,168
2,560
Total current assets
62,487
40,140
Property and equipment, net of accumulated
depreciation of $
6,367
and $
1,668
, respectively
18,610
242
Operating lease right-of-use assets
11,675
1,024
Goodwill
5,944
5,703
Intangible assets, net of accumulated amortization
of $
4,795
and $
3,897
, respectively
1,688
2,491
Long term investments
953
-
Notes receivable, net of current portion
8,629
-
Deferred tax assets
1,911
2,648
Restricted cash, non-current
1,322
180
Other assets
12
155
Total
assets
$
113,231
$
52,583
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
4,769
$
1,789
Accrued salaries, commissions,
and benefits
7,526
4,306
Accrued expenses and other
current liabilities
6,907
4,375
Short-term debt
8,473
-
Deferred revenue
1,496
129
Operating
and finance lease obligations, current
655
623
Total current liabilities
29,826
11,222
Income tax payable
99
93
Operating and finance lease obligations
11,235
441
Note payable
-
long
term
6,056
-
Other liabilities
308
399
Total
liabilities
47,524
12,155
Commitments and contingencies
Stockholders’ equity:
Series A Preferred stock, $
0.001
par value,
10,000
shares authorized;
2,691
and
0
issued;
2,370
and
0
shares outstanding, respectively
3
-
Common stock, $
0.001
par value,
20,000
shares
authorized;
5,366
and
4,033
shares issued;
3,755
and
2,750
shares outstanding, respectively
5
4
Additional paid-in capital
530,136
494,209
Accumulated deficit
(
435,934
)
(
430,017
)
Accumulated other comprehensive loss, net of
applicable tax
(
1,364
)
(
2,717
)
Treasury stock,
1,611
and
1,283
common shares;
321
and
0
preferred shares, respectively, at cost
(
27,139
)
(
21,051
)
Total
stockholders’ equity
65,707
40,428
Total
liabilities and stockholders’ equity
$
113,231
$
52,583
See
accompanying notes to Consolidated Financial Statements.
250
STAR
EQUITY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
Year
Ended December 31,
2025
2024
Cash flows from operating activities:
Net loss
$
(
5,917
)
$
(
4,770
)
Adjustments to reconcile net loss to net cash
used by operating activities:
Total depreciation and
amortization
2,078
1,361
Provision for expected
credit losses
103
24
Provision for deferred
income taxes
942
532
Stock-based compensation
1,497
1,280
Non-cash interest income
(
305
)
-
Unrealized net losses on
equity securities and lumber derivatives
176
-
Gross profit from sale
of lost-in-hole equipment
(
396
)
-
Changes in operating assets and liabilities,
net of effect of dispositions:
Accounts receivable
(
2,588
)
(
1,275
)
Inventories
2,113
-
Prepaid and other assets
(
175
)
(
531
)
Deferred revenue
(
2,248
)
36
Accounts
payable, accrued expenses, and other liabilities
(
2,535
)
556
Net
cash (used in) provided by operating activities
(
7,255
)
(
2,787
)
Cash flows from investing activities:
Capital expenditures
(
1,703
)
(
18
)
Proceeds from corporate
benefit policy
-
1,076
Cash acquired in connection
with the acquisition of Star Operating Companies
6,967
-
Net cash paid in acquisition
of Alpha Consulting Group
(
132
)
-
Proceeds from sale of lost-in-hole
equipment
482
-
Proceeds from sale of property
and equipment
119
-
Purchases of equity securities
(
1,540
)
-
Proceeds from sales of
equity securities
228
-
Repayment
of note receivable
149
-
Net
cash (used in) provided by investing activities
4,570
1,058
Cash flows from financing
activities:
Proceeds from borrowings
11,426
-
Repayment of debt
(
10,940
)
-
Net borrowings under invoice
finance credit facility
1,385
-
Preferred stock dividends
paid
(
740
)
-
Purchase of treasury stock
(including payment of tax withholdings)
(
2,638
)
(
2,775
)
Cash
paid for net settlement of employee restricted stock units
(
451
)
(
327
)
Net
cash used in financing activities
(
1,958
)
(
3,102
)
Effect of exchange rates
on cash, cash equivalents, and restricted cash
386
(
672
)
Net decrease in cash, cash
equivalents, and restricted cash
(
4,257
)
(
5,503
)
Cash,
cash equivalents, and restricted cash, beginning of the period
17,667
23,170
Cash,
cash equivalents, and restricted cash, end of the period
$
13,410
$
17,667
Supplemental disclosures of cash flow information:
Cash paid during the period
for interest
$
383
$
-
Cash received during the
period for interest
$
299
$
360
Net cash payments during
the period for income taxes
$
1,895
$
455
Cash paid for amounts included
in operating lease liabilities
$
1,144
$
809
Supplemental non-cash disclosures:
Right-of-use assets obtained
in exchange for operating lease liabilities
$
3,112
$
416
See
accompanying notes to Consolidated Financial Statements.
251
STAR
EQUITY HOLDINGS, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(in
thousands)
Accumulated
Preferred stock
Common stock
Additional paid-in
Accumulated
other comprehensive
Treasury stock
Shares
Value
Shares
Value
capital
deficit
income (loss)
Shares
Value
Total
Balance at December 31, 2023
-
$
-
3,896
$
4
$
493,036
$
(
425,247
)
$
(
1,290
)
(
1,089
)
$
(
17,949
)
$
48,554
Net loss
-
-
-
-
-
(
4,770
)
-
-
-
(
4,770
)
Other comprehensive loss, translation adjustments
-
-
-
-
-
-
(
1,427
)
-
-
(
1,427
)
Purchase of treasury stock
-
-
-
-
-
-
-
(
173
)
(
2,775
)
(
2,775
)
Purchase of net settled restricted stock
-
-
-
-
-
-
-
(
21
)
(
327
)
(
327
)
Stock-based compensation and vesting of restricted stock units
-
-
137
-
1,173
-
-
-
-
1,173
Balance at December 31, 2024
-
$
-
4,033
$
4
$
494,209
$
(
430,017
)
$
(
2,717
)
(
1,283
)
$
(
21,051
)
$
40,428
Net loss
-
-
-
-
-
(
5,917
)
-
-
-
(
5,917
)
Dividends to holders of preferred stock
-
-
-
-
(
740
)
-
-
-
-
(
740
)
Preferred stock issued in connection with acquisition of Star Operating Companies
2,691
3
-
-
25,477
-
-
-
-
25,480
Common stock issued in connection with acquisition of Star Operating Companies
-
-
744
1
6,694
-
-
-
-
6,695
Issuance of common shares in exchange for preferred treasury shares
-
-
288
-
2,999
-
-
-
(
2,999
)
-
Other comprehensive income (loss), translation adjustments
-
-
-
-
-
-
1,353
-
-
1,353
Purchase of treasury stock
-
-
-
-
-
-
-
(
281
)
(
2,638
)
(
2,638
)
Purchase of net settled restricted stock
-
-
-
-
-
-
-
(
47
)
(
451
)
(
451
)
Stock-based compensation and vesting of restricted stock units
-
-
301
-
1,497
-
-
-
-
1,497
Balance at December 31, 2025
2,691
$
3
5,366
$
5
$
530,136
$
(
435,934
)
$
(
1,364
)
(
1,611
)
$
(
27,139
)
$
65,707
See
accompanying notes to Consolidated Financial Statements.
252
STAR
EQUITY HOLDINGS , INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
NOTE
1 -
DESCRIPTION OF BUSINESS
Star
Equity Holdings, Inc. is a diversified multi-industry holding company operating through
four
reportable segments: Building Solutions, Business Services, Energy Services, and Investments. Our common stock and 10% Series A Cumulative
Perpetual Preferred Stock are listed on the Nasdaq Global Market under the symbols “STRR” and “STRRP,” respectively.
The
Building Solutions segment operates in the construction industry. The Business Services segment, which consists of Hudson Talent Solutions,
LLC (“HTS”), delivers customized recruitment and contracting solutions to mid-to-large multinational companies, including
Recruitment Process Outsourcing (“RPO”), project-based RPO, contingent workforce solutions, recruitment consulting, outsourced
professional contract staffing, and managed service provider (“MSP”) services. The Energy Services segment consists of Alliance
Drilling Tools, Inc. (“ADT”), which manufactures and supplies specialized drilling tools and downhole equipment used in directional
drilling and other oil and gas well construction applications. The Investments segment holds and manages certain corporate-owned real
estate assets and investments in a limited number of publicly traded and private companies.
MERGER
On
August 22, 2025, Star completed its previously announced acquisition of Star Operating Companies, Inc. (“SOC” or “Star
Operating Companies”, formerly known as Star Equity Holdings, Inc.) pursuant to the Agreement and Plan of Merger, dated as of May
21, 2025 (the “Merger Agreement”), by and among Star, SOC and HSON Merger Sub, Inc., a wholly owned subsidiary of Star (“Merger
Sub”). Upon the terms and subject to the conditions of the Merger Agreement, on August 22, 2025, at the effective time (the “Effective
Time”) of the closing of the transaction pursuant to the Merger Agreement (the “Merger”), Merger Sub merged with and
into SOC, with SOC continuing as the surviving corporation of the Merger under the name “Star Operating Companies, Inc.”
as a wholly owned subsidiary of Star. Capitalized terms used herein but not defined have the meanings set forth in the Merger Agreement.
Pursuant
to the terms of the Merger Agreement, at the Effective Time, (i) each share of common stock of SOC issued and outstanding immediately
prior to the Effective Time (other than certain shares as set forth in the Merger Agreement) were automatically converted into the right
to receive
0.23
shares of Star common stock (the “exchange ratio”) and (ii) each share of preferred stock of SOC issued and
outstanding immediately prior to the Effective Time (other than certain shares set forth in the Merger Agreement) were automatically
converted into the right to receive one (
1
) share of Star
10
% Series A Cumulative Perpetual preferred stock (“Preferred Stock”).
As a result of the Merger, former SOC common stockholders received approximately
744,291
shares of Star common stock for their SOC common
shares and former SOC preferred stock stockholders received approximately
2,690,637
shares of Star Preferred Stock.
No
fractional shares
of Star common stock were issued in the Merger, and SOC stockholders became entitled to receive cash in lieu of fractional shares in
accordance with the Merger Agreement.
In
addition, pursuant to the terms of the Merger Agreement, at the Effective Time, each award of SOC restricted stock units (“RSUs”)
outstanding immediately prior to the Effective Time was converted into Star RSUs issued under the Hudson Global, Inc. 2009 Incentive
Stock and Awards Plan, as amended (the “Plan”), in accordance with the Merger Agreement.
The
accompanying consolidated financial statements include the financial results of SOC beginning on August 22, 2025 and reflect the post-merger
results of the Building Solutions, Energy Services, and Investments segments for the period from August 22, 2025 through December 31,
2025. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. All significant
intercompany accounts and transactions have been eliminated in consolidation.
AMENDMENT
TO CERTIFICATE OF INCORPORATION
On
September 4, 2025, Star Equity filed a certificate of amendment (the “Amendment”) to the Company’s Amended and Restated
Certificate of Incorporation, as Amended (the “Charter”), to change the name of the Company from Hudson Global, Inc. to Star
Equity Holdings, Inc. (the “Name Change”). The Name Change was approved by the Company’s Board of Directors (the “Board”)
on September 2, 2025, and became effective at 12:01 a.m. (Eastern Time) on September 5, 2025.
253
SEGMENTS
The
Company’s Building Solutions segment consists of the following operating businesses: KBS Builders, Inc. (“KBS”); EdgeBuilder,
Inc. (“EdgeBuilder”); Glenbrook Building Supply, Inc. (“Glenbrook”); and Timber Technologies Solutions, Inc.
(“TT”). EdgeBuilder and Glenbrook are managed together and are referred to collectively as “EBGL.” KBS, based
in Maine, manufactures modular buildings, primarily serving the single-family and multi-family residential markets in New England. EBGL,
based in the Minneapolis-Saint Paul area, manufactures and delivers structural wall panels and other engineered wood-based products and
distributes building materials through two lumberyard locations, primarily serving professional builder customers in the Upper Midwest
region. TT, located outside the Minneapolis-Saint Paul area, manufactures glue-laminated timber (“glulam”) products for a
range of end markets and applications, including agriculture, industrial, infrastructure, and building construction (commercial and residential).
The
Business Services segment consists of HTS and provides customized recruitment and contracting solutions to mid-to-large multinational
companies. Service offerings include Recruitment Process Outsourcing (“RPO”), project-based RPO, contingent workforce solutions,
recruitment consulting, outsourced professional contract staffing, and managed service provider (“MSP”) services. HTS operates
directly in
eighteen
countries across
three
geographic regions: the Americas, Asia Pacific, and Europe, Middle East, and Africa. HTS
delivery teams utilize standardized recruitment methodologies and project management expertise to support clients’ ongoing workforce
requirements. HTS leverages its consultants and proprietary processes to identify, select, and engage talent for critical client roles.
In addition, clients may receive outsourced professional contract staffing services and MSP solutions, offered on a standalone basis
or as part of an integrated total talent solution. HTS-employed professionals are placed with client organizations, individually or as
teams, for defined periods based on specific business requirements.
The
Company’s Energy Services segment consists of ADT, a Wyoming and Texas based provider of drilling tools and services to the energy
industry, a key sector of the economy. ADT is a full-service downhole drilling tool company that provides sales and rental tools in the
Oil & Gas, Geothermal, Mining, and Waterwells sectors. ADT is strategically located near premier oilfields in the Rockies, a geothermal
and mining hub, and in Midland, TX within the Permian Basin. ADT’s business model allows the majority of costs, such as freight,
repairs, and damages, to be passed directly to customers.
The
Investments segment holds and manages certain of our corporate-owned real estate, including a manufacturing facility in Maine that is
leased to KBS and a manufacturing facility in Wisconsin that is leased to TT. The Investments segment manages investments in a small
number of public and private companies. SOC acquired these interests in May 2023 as a result of the sale of Digirad Health. The Investments
segment also holds an investment in Enservco Corporation consisting of an investment in Enservco Common Stock, an investment in Enservco
Preferred Stock, and an investment in a call option, all of which were acquired in the third quarter of 2024 and which currently have
a carrying value of
zero
.
See
Note 17 to the Consolidated Financial Statements for further details regarding the Company’s reportable segments: Building Solutions,
Business Services, Energy Services and Investments.
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”)
in the United States of America (“U.S.”). Certain prior period amounts have been reclassified to conform to the current year
presentation with no material impact on the Consolidated Financial Statements. Unless otherwise stated, amounts are presented in U.S.
dollars and all amounts are in thousands, except for number of shares and per share amounts.
Principles
of Consolidation
The
Consolidated Financial Statements include the accounts of the Company and all of its wholly owned and majority-owned subsidiaries. All
significant inter-company accounts and transactions between and among the Company and its subsidiaries have been eliminated in consolidation.
254
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events.
These estimates and the underlying assumptions affect the reported amounts of assets and liabilities, the disclosures about contingent
assets and liabilities, and the reported amounts of revenue and expenses. The critical accounting estimates include revenue recognition,
income taxes, and business combinations and asset acquisitions. These estimates and assumptions are based on management’s best
estimates and judgment. Management evaluates the estimates and assumptions on an ongoing basis using historical experience and other
factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company
adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined
with precision, actual results could differ significantly from those estimates.
Concentration
and Credit Risk
The
Company serves a diverse client base across multiple industries through its operating segments, including construction, energy, and global
talent solutions, with customers that include mid-to-large multinational corporations, commercial contractors, energy companies, and
government agencies. For the years ended December 31, 2025 and 2024, approximately
73
% and
85
% of revenue, respectively, was generated
by its top 25 clients. In 2025, one client accounted for
23
% of revenue, while in 2024 three clients accounted for an aggregate of
46
%
of revenue. As of December 31, 2025 and 2024, one client represented approximately
14
% and
24
% of accounts receivable, respectively.
Our business is dependent upon the continuation of these business relationships as well as new client development. As part of our client
retention and renewal strategy, we continue to develop and foster long-term relationships, and have been successful in retaining and
negotiating multi-year (three to five year) contracts with most of our key partners.
Financial
instruments, which potentially subject the Company to concentrations of credit risk, are primarily cash and accounts receivable. The
Company performs continuing credit evaluations of its customers and does not require collateral. The Company has not experienced significant
losses related to receivables in the Consolidated Statements of Operations.
The
Company may from time to time maintain cash in banks in excess of Federal Deposit Insurance Corporation insurance limits. However, the
Company regularly monitors the financial condition of the institutions in which it has depository accounts and believes the risk of loss
is minimal as these banks are large financial institutions with strong credit ratings.
Revenue
Recognition
Revenue
is measured according to ASC 606, Revenue - “Revenue from Contracts with Customers,” and is recognized based on consideration
specified in a contract with a client. We account for a contract when both parties to the contract have approved the contract, the rights
of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration
is probable. Revenues are recognized over time, using an input or output method, as the control of the promised services is transferred
to the client in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of
our contracts are short-term in nature as they include termination clauses that allow either party to cancel within a short termination
period, without cause. Revenue includes billable travel and other reimbursable costs and is reported net of value added taxes, sales,
or use taxes collected from clients and remitted to taxing authorities.
Business
Services Revenue Recognition
Certain
client contracts have variable consideration, including usage-based fees that increase the transaction price and volume rebates or other
similar items that generally reduce the transaction price. We estimate variable consideration using the expected value method based on
the terms of the client contract and historical evidence. These amounts may be constrained and are only included in revenue to the extent
we do not expect a significant reversal when the uncertainty associated with the variable consideration is resolved. Other than bonuses
to be paid to contractors, on behalf of our clients, our estimated amounts of variable consideration subject to constraints at period
end are not material and we do not believe that there will be significant changes to our estimates. Certain contract employees are entitled
to performance bonuses at the sole discretion of the client and are constrained until approved. Bonuses of $
1.1
million were approved
and paid to our contract employees on behalf of our clients for the year ended December 31, 2025.
No
bonuses were approved and paid to
our contract employees on behalf of our clients for year ended December 31, 2024.
We
record accounts receivable when our right to consideration becomes unconditional. The Company’s accounts receivable balances are
composed of trade and unbilled receivables. Unbilled accounts receivable represent revenue recorded in advance of processing formal invoices
pursuant to the completion of contract provisions and, generally, become billable at contractually specified dates. Unbilled amounts
are expected to be invoiced and collected within one year. Contract assets primarily relate to our rights to consideration for services
provided that such rights to consideration are conditional on satisfaction of future performance obligations. A contract liability for
deferred revenue is recorded when consideration is received, or is unconditionally due, from a client prior to transferring control of
services to the client under the terms of a contract. Deferred revenue balances typically result from advance payments received from
clients prior to transferring control of services. We do not have any material contract assets or liabilities as of and for the years
ended December 31, 2025 and 2024.
255
Payment
terms vary by client and the services being provided to the client. We consider payment terms that exceed one year to be extended payment
terms. Substantially all of the Company’s contracts include payment terms of 90 days or less, and we do not extend payment terms
beyond one year.
We
primarily record revenue on a gross basis in the Consolidated Statements of Operations based upon the following key factors:
●
We maintain the direct contractual
relationship with the client and are responsible for fulfilling the service promised to the client.
●
We maintain control over
our contractors while the services to the client are being performed, including our contractors’ billing rates.
RPO.
We provide complete recruitment outsourcing, project-based outsourcing, and recruitment consulting services for clients’ permanent
staff hires. We recognize revenue for our RPO over time in an amount that reflects the consideration we expect to be entitled to and
have an enforceable right to payment in exchange for our services. The client simultaneously receives and consumes the benefits of the
services as they are provided. The transaction prices contain both fixed fee and variable usage-based consideration. Variable usage-based
consideration is constrained by candidates accepting offers of permanent employment. We recognize revenue on fixed fees as the performance
obligations are satisfied and on usage-based fees as the constraint is lifted. We do not incur incremental costs to obtain our RPO contracts.
The costs to fulfill these contracts are expensed as incurred.
We
recognize permanent placement revenue when employment candidates accept offers of permanent employment. We have a substantial history
of estimating the financial impact of permanent placement candidates who do not remain with our clients through a guarantee period. Fees
to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement
services are charged to employment candidates.
Contracting.
We provide clients with a range of outsourced professional contract staffing services and managed service provider services offered sometimes
on a standalone basis and sometimes as part of a blended total talent solution. We recognize revenue for our contracting services over
time as services are performed in an amount that reflects the consideration we expect to be entitled to and have an enforceable right
to payment in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate.
The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur incremental costs
to obtain our contracts for outsourced professional contract staffing services and managed service provider services. The costs incurred
to fulfill these contracts are expensed as incurred.
Building
Solutions Revenue Recognition
We
recognize revenue when a customer obtains control of promised goods or services. We record the amount of revenue that reflects the consideration
that we expect to receive in exchange for those goods or services. We recognize revenue upon transfer of control of promised products
or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
The
majority of our contracts have a single performance obligation, including certain instances which we provide a series of distinct goods
or services that are substantially the same and are transferred with the same pattern to the customer. For contracts with multiple performance
obligations, we allocate the total transaction price to each performance obligation using our best estimate of the standalone selling
price of each distinct good or service in the contract. We use an observable price to determine the stand-alone selling price for separate
performance obligations or a cost plus margin approach when one is not available. For bill and hold sales, we determine when the customer
obtains control of the product on a case-by-case basis to determine the amount of revenue to recognize each period.
Revenue
recognition is evaluated on a contract by contract basis. Performance obligations are satisfied over time as work progresses or at a
point in time. A performance obligation is satisfied over time when the company creates an asset with no alternative use and we have
an enforceable right to payment, including a reasonable profit margin. Determining if an enforceable right to payment includes a reasonable
profit margin requires judgment and is assessed on a contract by contract basis. For contracts requiring over time revenue recognition,
the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services
to be provided. We use a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which
occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress,
the extent of progress towards completion is measured based on the costs incurred to date.
256
Our
products are generally not sold with a right of return and the Company does not provide significant credits or incentives, which may
be variable consideration when estimating the amount of revenue to be recognized.
Within
the Building Solutions segment, we service residential and commercial construction projects by manufacturing modular housing units and
other products, supplying general contractors with building materials and providing glulam products to distributors and end users. KBS
manufactures modular buildings for both single-family residential homes and larger, commercial building projects. EdgeBuilder manufactures
structural wall panels, permanent wood foundation systems and other engineered wood products, and Glenbrook is a retail supplier of lumber
and other building supplies. Retail sales at Glenbrook are recognized at the point of sale. TT manufactures glue-laminated timber products
(“glulam”) for various end markets and applications, including agriculture, industrial, infrastructure, and building construction
(commercial and residential). For bill and hold sales, we determine when the customer obtains control of the product on a case-by-case
basis to determine the amount of revenue to recognize each period. Revenue is generally recognized at point in time upon delivery of
product or over time by measuring progress towards completion.
Energy
Services Revenue Recognition
ADT
is principally engaged in the business of renting drilling tools. We also sell new drilling tools, drilling parts, supplies, and used
rental tools. In addition, ADT offers repair services to support its customers. Tools purchased for sale are recorded as inventory. Tools
intended for rental are recorded as part of fixed assets. Equipment rental revenue is recognized on a straight-line basis over the length
of the rental contract. New tools, parts, and supplies sales are recognized as revenue upon transfer of control, which generally occurs
when products are picked up by or delivered to the customer. Repair services revenues are recognized in the period the services are provided.
Upon the sale of other rental tools from fixed assets, we recognize a gain or loss on the sale in other income (expense), net.
ADT’s
equipment rental agreements generally contain provisions whereby should the rented tools or components provided to a customer be deemed
to be irretrievably lost during drilling operations, commonly referred to as “lost-in-hole,” ADT has the right to receive
reimbursement for such losses. Amounts billed to customers are at an agreed upon price relative to the specific piece of equipment, the
revenue of which is recognized at the time the loss of the equipment is confirmed. The gross profit recognized from lost-in-hold transactions
is normally calculated as the difference between the amounts billed to the customer and the net book value of the lost equipment. This
gross profit is presented as a separate line item in the statement of cash flows under operating activities, and the cash received in
connection with these activities is presented as an offset to cash purchases of property and equipment in the investing section of the
statement of cash flows, to the extent it does not exceed the cash used for the purchases of the replacement equipment.
Unsatisfied
performance obligations.
As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts
with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have
the right to invoice for services performed. See Note 4 for information on disaggregated revenue.
Operating
Expenses
Salaries
and related expenses include the salaries, commissions, payroll taxes and employee benefits related to recruitment professionals, executive
level employees, administrative staff, and other employees of the Company who are not temporary contractors. Office and general expenses
include occupancy, equipment leasing and maintenance, utilities, travel expenses, professional fees, and provision for expected credit
losses. The Company expenses job board and legal costs as incurred.
Stock-Based
Compensation
The
Company applies the fair value recognition provisions of ASC 718, “
Compensation - Stock Compensation.”
The Company
determines the fair value as of the grant date. For awards with graded vesting conditions, the values of the awards are determined by
valuing each tranche separately and expensing each tranche over the required service period. The service period is the period over which
the related service is performed, which is generally the same as the vesting period. The Company accounts for forfeitures as they occur.
During the years ended December 31, 2025 and 2024, the Company only granted restricted stock units and restricted shares of common stock.
257
Employee
Benefit Programs
The
Company in the U.S. sponsors a defined contribution plan covering substantially all of its full-time employees (the “401(k) Plan”).
The Company recognized expense related to the 401(k) Plan totaling approximately $
264
and $
216
for the years ended December 31, 2025
and 2024, respectively.
Income
Taxes
In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances annual income
tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid. The standard is effective for the Company
for annual periods beginning after January 1, 2025, and has been adopted on a prospective basis, with earlier periods not revised. The
guidance does not change the recognition or measurement of income taxes under ASC 740; rather, it results in expanded disclosures in
the notes to the consolidated financial statements, including additional disaggregation of the rate reconciliation, income taxes paid
by jurisdiction, and certain information about income (loss) from continuing operations and related income tax expense by jurisdiction.
Earnings
from the Company’s global operations are subject to tax in various jurisdictions both within and outside the United States. The
Company accounts for income taxes in accordance with ASC 740, “
Income Taxes.”
This standard establishes financial
accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities. It requires an
asset and liability approach for financial accounting and reporting of income taxes.
The
calculation of net deferred tax assets assumes sufficient future earnings for the realization of such assets as well as the continued
application of currently anticipated tax rates. Included in net deferred tax assets is a valuation allowance for deferred tax assets
where management believes it is more likely than not that the deferred tax assets will not be realized in the relevant jurisdiction.
If we determine that a deferred tax asset will not be realizable, an adjustment to the deferred tax asset will result in a reduction
of earnings at that time. See Note 8 to the Consolidated Financial Statements for further information regarding deferred tax assets and
our valuation allowance.
ASC
740-10-55-3, “
Recognition and Measurement of Tax Positions - a Two Step Process,”
provides implementation guidance
related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a two-step
evaluation process for a tax position taken or expected to be taken in a tax return. The first step is recognition and the second is
measurement. ASC 740 also provides guidance on derecognition, measurement, classification, disclosures, transition, and accounting for
interim periods. The Company provides tax reserves for U.S. federal, state, local, and international unrecognized tax benefits for all
periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and
timing, and is a subjective critical estimate. The Company assesses its tax positions and records tax benefits for all years subject
to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates.
For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount
of tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all
relevant information. For those tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit
has been recognized in the financial statements. Where applicable, associated interest and penalties have also been recognized as a component
of income tax expense. Although the outcome related to these exposures is uncertain, in management’s opinion, adequate provisions
for income taxes have been made for estimable potential liabilities emanating from these exposures. In certain circumstances, the ultimate
outcome for exposures and risks involves significant uncertainties which render them inestimable. If actual outcomes differ materially
from these estimates, including those that cannot be quantified, they could have material impact on the Company’s results of operations.
The
Company has provided tax on all unremitted earnings of our foreign subsidiaries taking into consideration all expected future events
based on presently existing tax laws and rates.
The
Company has elected to recognize the tax on Global Intangible Low Taxed Income (“GILTI”) as a period expense in the year
the tax is incurred.
(
Loss)
earnings Per Share
Basic
(loss) earnings per share (“EPS
”
) is computed by dividing the Company’s net income by the weighted average number
of shares outstanding during the period. When the effects are not anti-dilutive, diluted (loss) earnings per share is computed by dividing
the Company’s net income by the weighted average number of shares outstanding and the impact of all dilutive potential common shares,
primarily stock options “in-the-money
”
and unvested restricted stock. The dilutive impact of stock options and unvested
restricted stock is determined by applying the “treasury stock
”
method. Performance-based restricted stock awards
are included in the computation of diluted (loss) earnings per share only to the extent that the underlying performance conditions: (i)
are satisfied prior to the end of the reporting period, or (ii) would be satisfied if the end of the reporting period were the end of
the related performance period and the result would be dilutive under the treasury stock method. Stock awards subject to vesting or exercisability
based on the achievement of market conditions are included in the computation of diluted (loss) earnings per share only when the market
conditions are met.
258
Income
(loss) per share calculations for each quarter include the weighted average effect for the quarter; therefore, the sum of quarterly income
per share amounts may not equal year-to-date income per share amounts, which reflect the weighted average effect on a year-to-date basis.
In addition, the calculation of the impact of dilutive potential common shares might be dilutive on a quarterly basis but anti-dilutive
on a year-to-date basis or vice versa.
Fair
Value of Financial Instruments
Fair
value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date and is measured using inputs in one of the following three categories:
Level
1
measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability
to access. Valuation of these items does not entail a significant amount of judgment.
Level
2
measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.
Level
3
measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair
value of the assets or liabilities.
The
carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable and
short-term borrowings approximate fair value because of the immediate or short-term maturity of these financial instruments.
The
Company occasionally enters into derivative financial instruments to manage certain market risks. These derivative instruments are not
designated as hedging instruments and accordingly, are recorded at fair value in the Consolidated Balance Sheets with the changes in
fair value recognized in cost of revenue in the Consolidated Statements of Operations.
Cash
and Cash Equivalents
For
financial statement presentation purposes, the Company considers all highly liquid investments having an original maturity of three months
or less as cash equivalents.
Restricted
Cash
Restricted
cash primarily represents amounts required to be held on deposit for a travel and entertainment program in the U.K., a bank guarantee
for licensing in Switzerland, and deposits held for office space. Restricted cash also includes cash for letters of credit for our real
estate leases and certain minimum balance requirements on our banking arrangements.
Equity
Securities
Securities
consist of investments in equity securities that are publicly traded. These equity securities are measured at fair value on a trade date
basis and changes in fair value are recognized in net income in other income (expense). Investments that are strategic in nature, with
the intent to hold the investment over a several year period, are classified as long-term investments.
Accounts
Receivable
The
Company’s accounts receivable balances are composed of trade and unbilled receivables. Unbilled accounts receivable represent revenue
recorded in advance of processing formal invoices pursuant to the completion of contract provisions and, generally, become billable at
contractually specified dates. Unbilled receivables of $
6,960
and $
5,925
as of December 31, 2025 and 2024, respectively, are expected
to be invoiced and collected within one year. The Company records accounts receivable when its right to consideration becomes unconditional.
Contract assets primarily relate to our rights to consideration for services provided that they are conditioned on satisfaction of future
performance obligations. Accounts receivable, net, are stated at the amount the Company expects to collect, which is net of estimated
losses resulting from the inability of its customers to make required payments.
259
Allowance
for Expected Credit Losses
The
allowance for expected credit losses is estimated based on the CECL model and takes into account information about past events, current
conditions, and reasonable and supportable forecasts of future economic conditions. It represents the aggregate amount of credit risk
arising from the inability of specific clients to pay our fees or from disputes that may affect our ability to fully collect billed accounts
receivable. In determining the collectability of specific customer accounts, we evaluate a number of factors, including customer creditworthiness,
past transaction history, changes in financial stability, payment terms and practices, and the effect of market conditions on each customer.
Other factors considered include, but are not limited to, current economic conditions and forward-looking estimates. Actual results may
differ from our estimates. If the financial condition of our clients deteriorates, resulting in their inability or unwillingness to pay
our fees, we may be required to record additional provisions for expected credit losses in future periods. Credit risk may be mitigated
to the extent that we receive retainers from certain clients prior to performing services.
Changes
in the allowance for expected credit losses are recorded in office and general expenses in the Consolidated Statements of Operations
and were not material for the year ended December 31, 2025. Accounts receivable, net of the allowance for expected credit losses, represents
the amount we expect to collect. At each reporting date, we adjust the allowance to reflect our current estimate. Billed accounts receivable
are written off when the potential for recovery is considered remote.
The
Company generally establishes customer credit limits and estimates the allowance for credit losses on a country or geographic basis.
Customer credit limits are based on an initial evaluation of the customer’s credit quality and are adjusted based on ongoing credit
assessments, including payment history and changes in credit quality. The allowance for expected credit losses is determined based on
an assessment of past collection experience, as well as consideration of current and future economic conditions and changes in customer
collection trends.
Long-Term
Investments
As
a part of the sale of Digirad Health, Star Operating Companies received common equity in Insignia TTG Parent LLC (“Catalyst Parent”),
the parent entity of Catalyst formerly known as TTG Imaging Solutions, LLC. In accounting for this investment, we have elected the measurement
alternative under ASC 321 “Accounting for Investments in Equity Securities”. The measurement alternative election allows
for equity securities that do not have readily determinable fair values to be recorded at cost, with adjustments for impairment and certain
observable price changes reflected in earnings. Such securities are adjusted to fair value when an observable price change occurs or
impairment is identified. Each reporting period, we perform a qualitative and quantitative assessment considering impairment indicators
to evaluate whether the investment is impaired. Impairment indicators include, but are not limited to, significant deterioration in earnings
performance, significant adverse changes in the regulatory or economic environment and working capital deficiencies. If an investment
is determined to be impaired, we include an impairment loss as a component of other income (expense) equal to the difference between
the fair value of the investment and its carrying amount. During the period from August 22, 2025 through December 31, 2025 we recognized
no impairment loss on this investment
.
On
August 9, 2024, SOC completed an investment in Enservco Corporation (“Enservco”) (“Investment in Enservco”),
which consisted of Enservco Common Stock, Enservco Preferred Stock, and certain other options reflected in the Share Exchange Agreement,
and the Enservco Note Receivable (See Note 18,
Supplementary Balance Sheet Information
). The Investment in Enservco is required
to be accounted for using the equity method of accounting under ASC 323, “Equity Method Investments and Joint Venture
s”
,
as we are deemed to have significant influence over Enservco based upon GAAP rules.
Inventory
Inventories
are valued using first-in, first-out, or the weighted-average inventory method; stated at the lower of cost or net realizable value.
Finished goods and work-in-process inventory values include the cost of raw materials, labor, and manufacturing overhead. Inventory,
when written down to net realizable value, establishes a new cost basis and its value is not subsequently increased based upon changes
in underlying facts and circumstances. We also make adjustments to reduce the carrying amount of inventories for estimated excess or
obsolete inventories. Factors influencing these adjustments include inventory on-hand compared with historical and estimated future sales
and usage for new and existing products and assumptions about the likelihood of obsolescence.
260
Debt
Issuance Costs
We
incur debt issuance costs in connection with debt financings. Debt issuance costs for line of credit are presented in other assets and
are amortized over the term of the revolving debt agreements using the straight-line method. Debt issuance costs for term debt are netted
against the debt and are amortized over the term of the loan using the effective interest method. Amortization of debt issuance costs
are included in interest expense. As of December 31, 2025 we have
no
unamortized debt issuance costs.
Shipping
and Handling Fees and Costs
We
record all shipping and handling costs billed to customers as revenue earned for the goods provided. Shipping and handling costs related
to continuing operations are included in cost of revenues and totaled $
1,469
for the year ended December 31, 2025. There were
no
shipping
and handling fees or costs recorded for the year ended December 31, 2024.
Warranties
Within
our Building Solutions segment, KBS provides a limited assurance warranty on its residential homes that covers substantial defects in
materials or workmanship for a period of
12
months after delivery to the owner. EBGL provides a limited warranty on the sale of its wood
foundation products that covers leaks resulting from defects in workmanship for a period of
25
years. TT provides a limited warranty
on glulam products for a period of
50
years. Estimated warranty costs are accrued in the period that the related revenue is recognized.
See Note
18,
Supplementary Balance Sheet Information
, for further information.
Advertising
and Marketing Costs
Advertising
and marketing costs are expensed as incurred and are reported as Marketing and promotion in the Consolidated Income Statements. Total
advertising and marketing costs were $
3,957
and $
3,588
for the years ended December 31, 2025 and 2024, respectively.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:
Years
Buildings
and improvements
5
-
20
Furniture,
machinery, and equipment
3
-
13
Capitalized
software costs
3
-
10
Computer
equipment
3
-
5
Leasehold
improvements
2
-
5
Leasehold
improvements are amortized over the shorter of their estimated useful lives or the lease term. The amortization periods of material leasehold
improvements are estimated at the inception of the lease term.
Leases
Lease
liabilities are recognized at the commencement of a lease based on the sum of lease payments over the term of the lease. Lease liabilities
are reduced as payments are made. A corresponding right-of-use asset is recognized at the same time as the lease liability based on the
total amount of lease expense to be recognized, which is generally the same amount as the corresponding lease liabilities. Right-of-use
assets are amortized over the life of the lease on a straight-line basis. The Company’s lease agreements may include options to
renew, extend, or terminate the lease. These clauses are included in the measurement of the lease liabilities when the Company is reasonably
certain that it will exercise such options.
The
Company has elected to exclude short-term leases from the recognition requirements of ASC 842. A lease is short-term if, at the commencement
date, it has a term of less than or equal to one year. Lease expense related to short-term leases is recognized on a straight-line basis
over the lease term.
261
Capitalized
Software Costs
Capitalized
software costs consist of costs to purchase and develop software for internal use. The Company capitalizes certain incurred software
development costs in accordance with ASC 350-40, “Intangibles Goodwill and Other: Internal-Use Software.” Costs incurred
during the application-development stage for software purchased and further customized by outside vendors for the Company’s use
and software developed by a vendor for the Company’s proprietary use have been capitalized. Labor costs incurred during the application-development
stage for the Company’s own personnel which are directly associated with software development are capitalized as appropriate. The
Company expenses software and overhead cost incurred during the preliminary and/or post implementation of the project stage such as maintenance,
training and upgrades or enhancements that do not increase functionality. Capitalized software costs are included in property and equipment.
Business
Combinations and Asset Acquisitions
Business
Combinations are accounted for under the acquisition method in accordance with ASC 805, “
Business Combinations
.” The
acquisition method requires identifiable assets acquired and liabilities assumed and any non-controlling interest in the business acquired
to be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired
business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets
acquired and liabilities assumed is recorded as goodwill. Acquisitions that do not meet the definition of a business under the ASC are
accounted for as asset acquisitions. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual
assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition with any consideration
in excess of net assets acquired allocated to acquired assets on a relative fair value basis. Transaction costs are expensed in a business
combination and are considered a component of the cost of the acquisition in an asset acquisition.
Intangible
Assets
Intangible
assets consist of customer relationships, trade names, non-competition agreements and developed technology. The Company periodically
evaluates whether events or changes in circumstances have occurred that indicate long-lived assets may not be recoverable. When such
circumstances are present, the Company assesses whether the carrying value will be recovered through the expected undiscounted future
cash flows resulting from the use and eventual disposition of the long-lived asset. In the event the sum of the expected undiscounted
future cash flows is less than the carrying value of the long-lived asset, an impairment loss equal to the excess of the long-lived asset’s
carrying value over its fair value is recorded in accordance with ASC 360-10-35. There were no impairment triggers during the year ended
December 31, 2025.
Amortization
expense is computed using the straight-line method over the following estimated useful lives:
Years
Non-compete
agreements
2
-
3
Developed
Technology
3
Customer
lists
2
-
6
Trade
name
2
-
10
Goodwill
The
Company records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities
assumed in a business combination as goodwill. The Company has allocated goodwill for certain acquisitions to its Americas reportable
segment and others to its Asia Pacific reportable segment. Goodwill is not amortized and is tested for impairment on an annual basis
on October 1, or when an event or changes in circumstances indicate that its carrying value may not be recoverable.
Goodwill
impairment is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment.
The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.
An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however,
the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
The
Company has the option to perform a qualitative assessment for reporting units to determine whether the existence of events or circumstances
leads to a determination that it is more likely than not that the fair value of one or more of its reporting units is greater than its
carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that
the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if
the Company concludes otherwise, then it is required to perform a quantitative impairment test by calculating the fair value of the reporting
unit and comparing the fair value with the carrying amount of the reporting unit. If the fair value of the reporting unit is less than
its carrying value, an impairment loss is recorded based on that difference. Alternatively, the Company has the option to bypass the
qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.
There were
no
impairment charges recorded in either fiscal year 2025 or 2024.
262
Foreign
Currency Translation
The
financial position and results of operations of the Company’s international subsidiaries are determined using local currency as
the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each year-end.
Statements of Operations accounts are translated at the average rate of exchange prevailing during each period. Translation adjustments
arising from the use of differing exchange rates from period to period are included in the accumulated other comprehensive income (loss)
account in stockholders’ equity, other than translation adjustments on short-term intercompany balances, which are included in
other income (expense). Gains and losses resulting from other foreign currency transactions are included in other income (expense). Intercompany
receivable balances of a long-term investment nature are considered part of the Company’s permanent investment in a foreign jurisdiction
and the gains or losses on such balances are reported in other comprehensive income (loss).
Comprehensive
Income (Loss)
Comprehensive
income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
The Company’s other comprehensive income (loss) is primarily comprised of foreign currency translation adjustments, which relate
to investments that are permanent in nature.
NOTE
3 -
ACCOUNTING PRONOUNCEMENTS
In
July 2025, the FASB issued Accounting Standards Update 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses for Accounts Receivable and Contract Assets. The ASU provides a practical expedient for estimating expected credit losses on current
accounts receivable and contract assets arising from revenue transactions under ASC 606. Under the expedient, entities may assume that
conditions existing as of the balance-sheet date will remain unchanged over the remaining life of those assets, thereby simplifying the
estimation process for short-term receivables. The amendments are effective for fiscal years beginning after December 15, 2025, including
interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this ASU
on its consolidated financial statements and related disclosures.
In
September 2025, the FASB issued ASU 2025-06, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted
Improvements to the Accounting for Internal-Use Software”, ASU 2025-06 updates the accounting for internal-use software by removing
the previous “project stage” model and requiring capitalization only when management authorizes and commits to funding a
project that is probable of completion. The ASU also adds guidance on assessing development uncertainty, incorporates website development
into Subtopic 350-40, and aligns presentation and disclosure requirements with ASC 360. The amendments are effective for annual periods
beginning after December 15, 2027, and interim periods within those years, with early adoption permitted. Entities may apply the standard
prospectively, modified-prospectively, or retrospectively. The Company is currently evaluating the impact of this guidance and does not
expect the adoption to have a material effect on its consolidated financial statements.
Adoption
of New Accounting Pronouncements
In
November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures
(Subtopic 220-40): Disaggregation of Income Statement Expenses.” This update requires public entities to disclose additional information
about specific expense categories in the notes to the financial statements on both an interim and annual basis. Subsequently, in January
2025, the FASB issued ASU 2025-01, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic
220-40): Clarifying the Effective Date. The new guidance is effective for the Company for fiscal years beginning after December 15, 2026,
and for interim periods within annual reporting periods beginning after December 15, 2027. It may be applied on a retrospective or prospective
basis, with early adoption permitted. The Company evaluated the update to determine the impact on the Company’s disclosures, and
the amendments will be applied on a prospective basis.
263
In
November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.”
The amendments in this ASU improve segment reporting requirements, primarily through enhanced disclosures on significant segment expenses.
Other disclosures that the ASU requires public entities to provide include the title and position of the Chief Operating Decision Maker
(“CODM”) and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance
and deciding how to allocate resources. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in
which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with
a single reportable segment, and contain other disclosure requirements. The amendments in this ASU are effective for fiscal years beginning
after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public
entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. The Company
adopted this ASU for the year ended December 31, 2024, and has disclosed significant expenses reviewed by the CODM for each reportable
segment, with no additional significant expenses identified beyond those presented. See Note 17, “Segment and Geographic Data”
to the Consolidated Financial Statements.
NOTE
4 -
REVENUE RECOGNITION
Building
Solutions Revenue Recognition
Within
the Building Solutions segment, we service residential and commercial construction projects by manufacturing modular housing units and
other products, supplying general contractors with building materials and providing glue-laminated timber products (“glulam”)
to distributors and end users. KBS manufactures modular buildings for both single-family residential homes and larger, commercial building
projects. EdgeBuilder manufactures structural wall panels, permanent wood foundation systems, and other engineered wood products, and
Glenbrook is a retail supplier of lumber and other building supplies. Retail sales at Glenbrook are recognized at the point of sale.
TT manufactures glulam for various end markets and applications, including agriculture, industrial, infrastructure, and building construction
(commercial and residential). For bill and hold sales, we determine when the customer obtains control of the product on a case-by-case
basis to determine the amount of revenue to recognize each period. Revenue is generally recognized at point in time upon delivery of
product or over time by measuring progress towards completion. There are no contracts as of December 31, 2025 that are subject to over
time recognition.
Business
Services Revenue Recognition
We
account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment
terms are identified, the contract has commercial substance, and collectability of consideration is probable. Revenues are recognized
over time or as services are delivered to customers, using an input or output method, as the control of the promised services is transferred
to the client in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of
our contracts are short-term in nature as they include termination clauses that allow either party to cancel within a short termination
period, without cause. Revenue includes billable travel and other reimbursable costs and is reported net of sales or use taxes collected
from clients and remitted to taxing authorities.
We
generally determine standalone selling prices based on the prices included in our client contracts, using expected cost plus profit,
or other observable prices. The price as specified in our client contracts is generally considered the standalone selling price as it
is an observable input that depicts the price as if sold to a similar client in similar circumstances. Certain client contracts have
variable consideration, including usage-based fees that increase the transaction price and volume rebates or other similar items that
generally reduce the transaction price. We estimate variable consideration using the expected value method based on the terms of the
client contract and historical evidence. These amounts may be constrained and are only included in revenue to the extent we do not expect
a significant reversal when the uncertainty associated with the variable consideration is resolved. Other than bonuses to be paid to
contractors, on behalf of our clients, our estimated amounts of variable consideration subject to constraints are not material, and we
do not believe that there will be significant changes to our estimates. Certain contract employees are entitled to performance bonuses
at the sole discretion of the client and are constrained until approved. $
1.1
million in bonuses were approved and paid to our contract
employees in year ended December 31, 2025.
No
bonuses were approved and paid to our contract employees on behalf of our clients for year
ended December 31, 2024.
We
record accounts receivable when our right to consideration becomes unconditional. Contract assets primarily relate to our rights to consideration
for services provided that such rights to consideration are conditional on satisfaction of future performance obligations. A contract
liability for deferred revenue is recorded when consideration is received, or is unconditionally due, from a client prior to transferring
control of services to the client under the terms of a contract. Deferred revenue balances typically result from advance payments received
from clients prior to transferring control of services. Other than deferred revenue, we do not have any material contract assets or liabilities
as of and for the year ended December 31, 2025 and 2024.
264
Payment
terms vary by client and the services being provided to the client. We consider payment terms that exceed one year to be extended payment
terms. Substantially all of the Company’s contracts include payment terms of 90 days or less, and we do not extend payment terms
beyond one year.
We
primarily record revenue on a gross basis in the Consolidated Statements of Operations and Comprehensive Income based upon the following
key factors:
●We
maintain the direct contractual relationship with the client and are responsible for fulfilling the service promised to the client.
●We
maintain control over our contractors while the services to the client are being performed, including our contractors’ billing
rates, and are ultimately responsible for paying them.
RPO.
We provide complete recruitment outsourcing, project-based outsourcing, and recruitment consulting services for clients’ permanent
staff hires. We recognize revenue for our RPO over time in an amount that reflects the consideration we expect to be entitled to and
have an enforceable right to payment in exchange for our services. The client simultaneously receives and consumes the benefits of the
services as they are provided. The transaction prices contain both fixed fees and variable consideration. Variable consideration is constrained
by candidates accepting offers of permanent employment. We recognize revenue on fixed fees as the performance obligations are satisfied
and variable fees as the constraint is lifted. We do not incur incremental costs to obtain our RPO contracts. The costs to fulfill these
contracts are expensed as incurred.
We
recognize permanent placement revenue when employment candidates accept offers of permanent employment. We have a substantial history
of estimating the financial impact of permanent placement candidates who do not remain with our clients through a guarantee period. Fees
to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement
services are charged to employment candidates.
Contracting.
We provide clients with a range of outsourced professional contract staffing services and managed service provider services, sometimes
offered on a standalone basis and sometimes offered as part of a blended total talent solution. We recognize revenue for our contracting
services over time as services are performed in an amount that reflects the consideration we expect to be entitled to and have an enforceable
right to payment in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill
rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur incremental
costs to obtain our contracts for outsourced professional contract staffing services and managed service provider services. The costs
incurred to fulfill these contracts are expensed as incurred.
Unsatisfied
performance obligations.
As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts
with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have
the right to invoice for services performed.
Energy
Services Revenue Recognition
ADT
is principally engaged in the business of renting drilling tools. We also sell new drilling tools, drilling parts, supplies, and used
rental tools. In addition, ADT offers repair services to support its customers. Tools purchased for sale are recorded as inventory. Tools
intended for rental are recorded as part of fixed assets. Equipment rental revenue is recognized on a straight-line basis over the length
of the rental contract. New tools, parts, and supplies sales are recognized as revenue upon transfer of control, which generally occurs
when products are picked up by or delivered to the customer. Repair services revenues are recognized in the period the services are provided.
Upon the sale of other rental tools from fixed assets, we recognize a gain or loss on the sale in other income (expense), net.
ADT’s
equipment rental agreements generally contain provisions whereby should the rented tools or components provided to a customer be deemed
to be irretrievably lost during drilling operations, commonly referred to as “lost-in-hole,” ADT has the right to receive
reimbursement for such losses. Amounts billed to customers are at an agreed upon price relative to the specific piece of equipment, the
revenue of which is recognized at the time the loss of the equipment is confirmed. The gross profit recognized from lost-in-hold transactions
is normally calculated as the difference between the amounts billed to the customer and the net book value of the lost equipment. This
gross profit is presented as a separate line item in the statement of cash flows under operating activities, and the cash received in
connection with these activities is presented as an offset to cash purchases of property and equipment in the investing section of the
statement of cash flows, to the extent it does not exceed the cash used for the purchases of the replacement equipment. Revenue recognized
for the period ended December 31, 2025, totaled $
418
. No significant lost-in-hole reimbursements were outstanding or contingent as of
the end of the year.
265
Billings
in excess of costs and estimated profit.
We recognize billings in excess of costs and estimated profit on uncompleted contracts
within current liabilities. Such amounts relate to fixed-price contracts recognized over time, and represents payments in advance of
performing the related contract work. Billings in excess of costs and estimated profit on uncompleted contracts are not considered to
be a significant financing component because they are generally used to meet working capital demands that can be higher in the early
stages of a contract. Contract liabilities are reduced when the associated revenue from the contract is recognized, which is generally
within one year. There are no liabilities associated with billings in excess of costs at December 31, 2025.
Contract
Costs
.
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those
costs to be longer than one year. The Company applies a practical expedient to expense costs as incurred for these costs when the amortization
period is one year or less. These costs primarily consist of internal sales commissions; under the terms of these programs these are
generally earned and the costs are recognized at the time the associated revenue is recognized. As of December 31, 2025, there were no
contract costs recognized.
Deferred
Revenue.
Deferred revenue represents customer deposits and advanced payments for contracts that are subject to point-in-time
recognition, or payments received prior to transferring control of services to customers. We have determined our contracts do not include
a significant financing component.
Changes
in deferred revenue for the year ended December 31, 2025 are as follows:
Balance
at December 31, 2024
$
129
Revenue
recognized that was included in balance at beginning of the year
(
129
)
Deferred
revenue, net, assumed from the acquisition of Star Operating Companies
3,609
Deferred
revenue, net, related to contracts entered into during the year
(
2,113
)
Balance
at December 31, 2025
$
1,496
Disaggregation
of Revenue
The
following tables present our revenue disaggregated by major source for the years ended December 31, 2025 and 2024, respectively:
Year
ended December 31, 2025
Building
Solutions
Business
Services
Energy
Services
Total
Major
Goods/Service Lines
Revenue
from RPO Customers
$
-
$
68,379
$
-
$
68,379
Revenue
from Contracting Customers
-
71,273
-
71,273
Revenue
from Other Contracts with Customers
27,578
-
4,929
32,507
Total
Revenues
$
27,578
$
139,652
$
4,929
$
172,159
Timing
of Revenue Recognition
Services
and goods transferred over time
$
-
$
99,386
$
3,447
$
102,833
Services
and goods transferred at a point in time
27,578
40,266
1,482
69,326
Total
Revenues
$
27,578
$
139,652
$
4,929
$
172,159
266
Year
ended December 31, 2024
Business
Services
Major
Goods/Service Lines
Revenue
from RPO Customers
$
67,993
Revenue
from Contracting Customers
72,063
Total
Revenues
$
140,056
Timing
of Revenue Recognition
Services
and goods transferred over time
$
103,098
Services
and goods transferred at a point in time
36,958
Total
Revenues
$
140,056
NOTE
5 -
ACQUISITIONS
Star
Operating Companies
On
August 22, 2025, the Company completed its previously announced acquisition of SOC pursuant to the Agreement and Plan of Merger, dated
as of May 21, 2025 (the “Merger Agreement”). This resulted in a business combination pursuant to ASC 805,
Business Combinations
.
The
terms of the Merger Agreement determined consideration for the purchase as follows: at the Effective Time, (i) each share of common stock
of SOC issued and outstanding immediately prior to the Effective Time (other than certain shares as set forth in the Merger Agreement)
were automatically converted into the right to receive
0.23
shares of Company common stock and (ii) each share of preferred stock of
SOC issued and outstanding immediately prior to the Effective Time (other than certain shares set forth in the Merger Agreement) were
automatically converted into the right to receive one (
1
) share of Star
10
% Series A Cumulative Perpetual preferred stock (“Preferred
Stock”). As a result of the Merger, former SOC common stockholders received approximately
744,291
shares of Star common stock for
their SOC common shares and former SOC preferred stockholders received approximately
2,690,637
shares of Preferred Stock.
No
fractional
shares of Star common stock were issued in the Merger, and SOC stockholders became entitled to receive cash in lieu of fractional shares
in accordance with the Merger Agreement. The total consideration paid for SOC, which represents the fair value of the common and preferred
stock, totaled approximately $
32,174
. Prior to the completion of the Merger Agreement, the Company determined that the Merger Agreement
was in the best interests of the Company and for each of the Star and the SOC stockholders.
In
accordance with ASC 805,
Business Combinations
, we accounted for this transaction as a business combination and recorded the acquired
assets of SOC at their estimated fair value. The valuation of assets acquired and liabilities assumed has not yet been finalized as of
December 31, 2025. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment,
intangible assets, inventory, income taxes, and goodwill, among other items. The amounts recognized will be finalized as the information
necessary to complete the analysis is obtained, but no later than one year after the acquisition date. Finalization of the valuation
during the measurement period could result in a change in the amounts recorded for the acquisition date fair value. The fair values of
assets acquired and liabilities assumed were determined using valuation techniques consistent with ASC 820,
Fair Value Measuremen
t.
These fair value measurements are considered nonrecurring and were determined as of the acquisition date. As noted in Note 2, Description
of Business, SOC is reported as part of our Building Solutions, Energy Services, and Investments segments. The Company incurred transaction
costs related to the SOC Acquisition of $
1,600
that were expensed as part of “Office and general”.
During
the measurement period, the Company recorded adjustments to the preliminary purchase price allocation related to additional information
obtained about facts and circumstances that existed as of the acquisition date. These adjustments resulted in an increase to Accrued
expenses and other current liabilities of $
896
and a decrease to Inventory and Accounts receivable, net of $
457
and $
352
, respectively.
In addition, Notes receivable, net of current portion increased by $
1,705
to reflect updated information obtained during the measurement
period regarding the terms and estimated fair value of the contingent consideration associated with the Catalyst acquisition.
The
increase in Accrued expenses and other current liabilities primarily reflects the recognition of pre-acquisition obligations consisting
of $
180
for litigation expenses, $
375
of sales tax liabilities, $
65
of professional fees, and $
428
of current liabilities related to
inventory management system implementation and benefit cost, partially offset by a $
152
state tax refund. The decrease in Accounts receivable,
net relates to the write-off of a receivable that was determined not to be collectible as of the acquisition date.
267
In
connection with the terms of the acquisition of ADT by Star Operating Companies, Inc. on March 3, 2025, the Company agreed to pay $
1.0
million in cash to the former owners of ADT on or before the one-year anniversary of the acquisition date.
Related
Party Considerations
As
disclosed in the Registration Statement on Form S-4, which was declared effective by the SEC on July 22, 2025, and the Joint Proxy Statement/Prospectus
filed with the SEC on July 23, 2025 (the “Joint Proxy Statement/Prospectus”), Jeffrey Eberwein, Hudson’s Chief Executive
Officer and the holder of approximately
10
% of Hudson’s common stock at the time of the Merger, was also a director and substantial
stockholder of Star Operating Companies. The number of shares of common stock issued in connection with the Merger represented in excess
of
5
% of the shares of Hudson common stock outstanding immediately prior to the Merger, and stockholders of Star Operating Companies
immediately prior to the Merger held approximately
21
% of the outstanding shares of Hudson common stock following the consummation of
the Merger. Mr. Eberwein continues to serve as Chief Executive Officer and remains a significant stockholder of the Company, holding
approximately
27
% of outstanding shares of Star Equity Holdings, Inc. as of December 31, 2025.
The
following table sets forth the purchase price allocation of SOC to the estimated fair value of assets acquired as of the acquisition
date:
Fair
Value
Assets
Acquired:
Cash
and cash equivalents
$
4,641
Restricted
cash, current
597
Investments
in equity securities
2,561
Accounts
receivable
11,463
Inventories,
net
9,101
Note
receivable, current portion
269
Prepaid
and other
1,246
Property
and equipment, net
17,959
Operating
lease right-of-use assets
8,608
Long
term investments
953
Notes
receivable, net of current portion
8,473
Restricted
cash, non-current
1,729
Assets
Acquired
$
67,600
Liabilities
Assumed:
Current
payables
$
3,203
Accrued
salaries, commissions and benefits
2,165
Accrued
expenses and other current liabilities
5,162
Short-term
debt
6,042
Deferred
revenue
3,609
Operating
lease liabilities, current portion
228
Long-term
debt, net of current portion
6,630
Operating
lease liabilities, net of current portion
8,387
Liabilities
assumed
$
35,426
Fair
value of consideration transferred
$
32,174
The
revenue and net income of SOC from August 22, 2025 through December 31, 2025 totaled $
32,507
and $
613
, respectively.
268
Unaudited
Pro Forma Financial Information
The
following unaudited consolidated pro forma information gives effect to the acquisitions of SOC as if the transactions had occurred on
January 1, 2024.
Year
ended December 31,
Pro-forma
2025
2024
Revenue
$
222,967
$
193,415
Gross
Profit
$
93,995
$
81,207
Net
loss attributable to common shareholders
$
(
6,589
)
$
(
17,248
)
Alpha
Consulting Group Acquisition
On
July 23, 2025, the Company announced that it had acquired Alpha Consulting Group (“ACG”) (“Seller”), a Japan-based
provider of recruitment services. The acquisition of ACG represents the Company’s entry into the Japanese market as part of its
localization strategy for its Business Services segment. In connection with the ACG acquisition, the Seller received total $
146
in cash,
subject to certain adjustments, at closing. There were no earn-out payment arrangements associated with the transaction. The ACG acquisition
was accounted for as a business combination under the acquisition method of accounting. The total purchase price of $
146
consisted of
$
200
paid in cash, net of cash acquired of $
14
, and a working capital adjustment of negative $
68
. The purchase price was allocated to
the net tangible and intangible assets and liabilities based on their estimated fair values as of the acquisition date, with the excess
recorded as goodwill. The Company incurred $
11
of transaction costs related to the ACG Acquisition, which were expensed as part of “Office
and general.”
The
Company’s Consolidated Statements of Operations for the year ended December 31, 2025, included revenue of $
254
and net loss
of $
136
from ACG.
Below
is a summary of the fair value of the net assets acquired on the acquisition date:
Fair
Value
Assets
Acquired:
Cash
and cash equivalents
$
10
Accounts
receivable
29
Prepaid
and other
5
Intangible
assets
95
Goodwill
242
Restricted
cash, non-current
4
Assets
Acquired
$
385
Liabilities
Assumed:
Current
payables
$
77
Accrued
salaries, commissions and benefits
3
Accrued
expenses and other current liabilities
126
Deferred
tax Liabilities
33
Liabilities
Assumed
$
239
Fair
value of consideration transferred
$
146
NOTE
6 -
STOCK-BASED COMPENSATION
Equity
Compensation Plans
The
Company maintains the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan, as amended and restated on May 24, 2016 and further amended
on September 14, 2020, May 17, 2022 and August 22, 2025 (the “ISAP”), pursuant to which it can issue equity-based compensation
incentives to eligible participants. The ISAP permits the granting of stock options, restricted stock, restricted stock units, and other
types of equity-based awards. The Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”)
will establish such conditions as it deems appropriate for the granting or vesting of stock options, restricted stock, restricted stock
units and other types of equity-based awards. As determined by the Compensation Committee, equity awards may also be subject to immediate
vesting upon the occurrence of certain events including death, disability, retirement or a change in control of the Company. When we
make grants of restricted stock or restricted stock units to our executive officers, including the named executive officers, we enter
into Restricted Stock Agreements and Restricted Stock Unit Agreements with such executive officers that contain provisions that are triggered
upon a termination of an executive officer or a change in control of our Company. For awards of restricted stock granted beginning on
November 6, 2015, effective upon a change in control of our Company, if the executive is employed by us or an affiliate of ours immediately
prior to the date of such change in control and is subsequently terminated within
12
months following the date of such change in control,
the shares of restricted stock will fully vest and the restrictions imposed upon the restricted stock will be immediately deemed to have
lapsed. For awards of restricted stock units granted beginning on March 10, 2016, effective upon a change in control of our Company,
if the executive is employed by us or an affiliate of ours immediately prior to the date of such change in control and is subsequently
terminated within
12
months following the date of such change in control, the restricted stock units will fully vest and the restrictions
imposed upon the restricted stock units will be immediately deemed to have lapsed. The Company primarily grants restricted stock and
restricted stock units to its employees. A restricted stock unit is equivalent to
one
share of the Company’s common stock and is
payable only in common stock of the Company issued under the ISAP.
269
The
Compensation Committee administers the ISAP and may designate any of the following as a participant under the ISAP: any officer or other
employee of the Company or its affiliates or individuals engaged to become an officer or employee, consultants, or other independent
contractors who provide services to the Company or its affiliates, and non-employee directors of the Company. On August 31, 2025, the
Company’s stockholders at the 2025 Annual Meeting of Stockholders approved amendments to the ISAP to, among other things, increase
the number of shares of the Company’s common stock that are reserved for issuance by
400,000
shares and to permit the issuance
of
175,000
shares of the Company’s preferred stock. As of December 31, 2025, there were
337,245
shares of the Company’s common
stock and
170,320
shares of the Company’s preferred stock available for future issuance under the ISAP.
All
share issuances related to stock compensation plans are issued from the aforementioned stock available for future issuance under stockholder
approved compensation plan.
During
the year 2025, the Company granted
48,688
restricted stock units subject to performance vesting conditions for the year ended December
31, 2025. In addition, the Company granted
8,918
time-vested restricted stock units to a certain employee that were not subject to performance
conditions. The RSUs vest on the first anniversary of the grant date, with each RSU representing the right to receive one share of common
stock upon settlement. Additionally,
66,171
time-vested restricted stock units were granted to the Global Chief Executive Officer at
Hudson Talent Solutions. During 2024, the Company granted
47,647
restricted stock units subject to performance vesting conditions and
granted
12,540
of discretionary time-vested restricted stock units to certain employees that were not subject to performance conditions.
Additionally,
70,373
time-vested restricted stock units were granted to the Global Chief Executive Officer at Hudson RPO in 2024. In
connection with the merger on August 22, 2025, the Company converted the unvested restricted stock unit awards previously granted under
SOC’s equity incentive plans at the exchange ratio of
0.23
shares to 1. As of the merger date, these assumed awards consisted of
22,717
performance-based restricted stock units and
6,046
time-based restricted stock units. The assumed awards continue to be subject
to their original vesting terms and conditions, and are recognized as part of the Company’s ongoing stock-based compensation expense.
A
summary of the quantity and vesting conditions for stock-based units granted to the Company’s employees for the year ended December
31, 2025 was as follows:
Vesting conditions
Number of Restricted Stock Units Granted
Performance and service conditions - Type 1
(1) (2)
13,296
Performance and service conditions - Type 2
(1) (2)
35,392
Service conditions only - Type 1 and Type 3
(2) (3)
75,089
Total shares of stock award granted
123,777
(1)
The performance conditions with respect to restricted stock units may be satisfied as follows:
(a) For grants to Corporate office employees subject to 2025 performance conditions,
100
% of the restricted stock units may be earned on the basis of performance as measured by a “group adjusted EBITDA”.
(2)
To
the extent restricted stock units are earned, such restricted stock units will vest on the basis of
service as follows:
(a)
33
% and
66.6
% for Type 1 and Type 2, respectively, of the restricted stock units will vest
on the first anniversary of the grant date;
(b)
33
% and
16.7
% for Type 1 and Type 2, respectively, of the restricted stock units will vest
on the second anniversary of the grant date; and
(c)
34
% and
16.7
% for Type 1 and Type 2, respectively, of the restricted stock units will vest
on the third anniversary of the grant date; provided that, in each case, the employee remains
employed by the Company from the grant date through the applicable service vesting date.
270
(3)
To
the extent restricted stock units are earned, such restricted stock units will vest on the basis of
service as follows:
(a)
100
% for Type 3 of the restricted stock units will vest on the first anniversary of the grant date.
The
Company also maintains the Director Deferred Share Plan (the “Director Plan”) as part of the ISAP pursuant to which it can
issue restricted stock units to its non-employee directors. A restricted stock unit is equivalent to one share of the Company’s
common stock, and prior to the acquisition of SOC were payable in common stock issued under the ISAP upon a director ceasing service
as a member of the Company’s Board. Restricted stock units granted to directors vest over one year. Restricted stock units issued
under the Director Plan contain the right to a dividend equivalent award in the form of additional restricted stock units. The dividend
equivalent award is calculated using the same rate as the cash dividend paid on a share of the Company’s common stock, and then
divided by the closing price of the Company’s common stock on the date the dividend is paid to determine the number of additional
restricted stock units to grant. Dividend equivalent awards have the same vesting terms as the underlying awards. During the years ended
December 31, 2025 and 2024, the Company granted
54,241
and
20,284
restricted stock units to its non-employee directors pursuant to the
Director Plan, respectively.
As
of December 31, 2025,
12,169
restricted stock units are deferred under the Company’s ISAP.
For
the years ended December 31, 2025 and 2024, the Company’s stock-based compensation expense related to restricted stock units and
restricted shares of common stock, which are included in the accompanying Consolidated Statements of Operations, were as follows:
For
The Year Ended December 31,
2025
2024
Restricted
stock units
$
1,497
$
1,173
Restricted
stock units-cash settled liabilities
-
107
Total
$
1,497
$
1,280
As
of December 31, 2025 and 2024, the Company’s unrecognized compensation expense and the weighted average periods over which the
compensation expense is expected to be recognized relating to the unvested portion of the Company’s restricted stock unit awards,
were as follows:
As
of December 31,
2025
2024
Unrecognized
Expense
Weighted
Average Period in Years
Unrecognized
Expense
Weighted
Average Period in Years
Restricted
stock units
$
1,182
0.9
$
1,445
0.9
271
Restricted
Stock Units
Changes
in the Company’s restricted stock units arising from grants to certain employees and non-employee directors for the years ended
December 31, 2025 and 2024 were as follows:
Year
Ended December 31, 2025
Performance-based
Time-based/Director
Total
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Unvested
restricted stock units at January 1
55,591
$
17.58
128,474
$
14.96
184,065
$
15.75
Granted
48,688
$
13.15
129,330
$
9.74
178,018
$
10.67
SOC
Grants assumed
22,717
$
15.17
6,046
$
14.07
28,763
$
14.94
Vested
(
16,419
)
$
24.05
(
63,101
)
$
13.90
(
79,520
)
$
16.00
Forfeited
(
48,311
)
$
14.87
(
3,264
)
$
20.97
(
51,575
)
$
15.26
Unvested
restricted stock units at December 31
62,266
$
13.64
197,485
$
11.75
259,751
$
12.20
(a)
The number of shares earned above target are based on the performance target established by the Compensation Committee at the initial
grant date.
Year
Ended December 31, 2024
Performance-based
Time-based/Director
Total
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Unvested
restricted stock units at January 1
95,264
$
23.49
80,422
$
16.50
175,686
$
20.29
Granted
47,647
$
14.51
103,197
$
15.03
150,844
$
14.87
Vested
(
58,479
)
$
22.40
(
54,465
)
$
17.21
(
112,944
)
$
19.90
Forfeited
(
28,841
)
$
22.27
(
680
)
$
27.16
(
29,521
)
$
22.38
Unvested
restricted stock units at December 31
55,591
$
17.58
128,474
$
14.96
184,065
$
15.75
(a)
The number of shares earned above target are based on the performance target established by the Compensation Committee at the initial
grant date.
(a)
The number of shares earned above target are based on the performance targets established by the Compensation Committee at the initial
grant date.
The
total fair value of restricted stock units vested during the years ended December 31, 2025 and 2024 were as follows:
For
The Year Ended December 31,
2025
2024
Fair
value of restricted stock units vested
$
1,112
$
1,693
272
NOTE
7 -
INCOME TAXES
Income
Tax Provision
The
domestic and foreign components of net income before provision for income taxes is as follows:
Year
ended December 31,
2025
2024
Domestic
$
(
3,725
)
$
(
31,531
)
Foreign
(
131
)
28,061
(Loss)
income before provision for income taxes
$
(
3,856
)
$
(
3,470
)
The
components of the provision for (benefit from) income taxes are as follows:
Year ended December 31,
2025
2024
Current tax provision (benefit):
U.S. Federal
$
-
$
-
State and local
31
(
15
)
Foreign
1,088
783
Total current provision for (benefit from) income taxes
1,119
768
Deferred tax provision (benefit):
U.S. Federal
-
-
State and local
-
-
Foreign
942
532
Total deferred provision (benefit) from income taxes
942
532
Total provision for income taxes
$
2,061
$
1,300
Year
ended December 31,
2025
Income
taxes paid:
U.S.
Federal
$
95
State
and local
163
Foreign
Australia
1,233
U.K.
233
India
134
Other
37
Total
Foreign
1,637
Total
income taxes paid
$
1,895
Tax
Rate Reconciliation
The
effective tax rate (“ETR”) for the year ended December 31, 2025 was negative
53.4
%, compared to negative
37.5
% for 2024.
For the year ended December 31, 2025, the effective tax rates differed from the U.S. federal statutory rate of 21% primarily due to pre-tax
losses for which no tax benefit can be recognized, changes in valuation allowances in the U.S. and certain foreign jurisdictions that
reduce or eliminate the ETR on current year profits or losses, foreign tax rate differences, and non-deductible expenses. For the year
ended December 31, 2024, the effective tax rates differed from the U.S. federal statutory rate of 21% primarily due to pre-tax losses
for which no tax benefit can be recognized, changes in valuation allowances in the U.S., China, and certain foreign jurisdictions that
reduce or eliminate the ETR on current year profits or losses, foreign tax rate differences, and non-deductible expenses. The current
year ETR differs significantly from the prior year ETR primarily due to the interaction of similar rate reconciliation items, including
change in valuation allowance, combined with a shift in the geographic mix of earnings toward higher-tax jurisdictions, including Australia.
273
The
following is a reconciliation of the effective tax rate for the year ended December 31, 2025 to the U.S. federal statutory rate of
21
%:
Year
ended December 31, 2025
Amount
Percent
US
federal statutory income tax rate
$
(
810
)
21.0
%
Domestic
federal
Nontaxable
and nondeductible items
Nondeductible
employee compensation
151
(
3.9
)%
Nondeductible
professional fees
471
(
12.2
)%
Nondeductible
share based compensation
376
(
9.7
)%
Other
149
(
3.9
)%
Changes
in valuation allowance
(
9,188
)
238.2
%
Operating
losses expired
8,833
(
229.0
)%
Domestic
state and local income taxes, net of federal effect
1
32
(
0.8
)%
Foreign
tax effects
United
Arab Emirates
Changes
in valuation allowance
329
(
8.5
)%
Australia
Statutory
income tax rate differential
385
(
10.0
)%
Noncreditable
withholding tax
41
(
1.1
)%
United
Kingdom
Deferred
investment impairment true-up and NOL carryback
1,111
(
28.8
)%
Other
13
(
0.3
)%
Other
foreign jurisdictions
162
(
4.2
)%
Worldwide
changes in unrecognized tax benefits
6
(
0.2
)%
Provision
for income taxes
$
2,061
(
53.4
)%
1.
State and local
income taxes in Pennsylvania and Texas comprise the majority of the domestic state and local income taxes, net of federal effect category.
The
following is a reconciliation of the effective tax rate for the year ended December 31, 2024 to the U.S. federal statutory rate of 21%:
Year
ended December 31,
2024
Provision
at federal statutory rates
$
(
729
)
State
income taxes, net of federal benefit
1,133
Change
in valuation allowance
6,817
Taxes
related to foreign income
(
1,506
)
Non-deductible
expenses
(
4,943
)
Uncertain
tax positions
6
Prior
period adjustments
395
Permanent
differences and other
127
Provision
for income taxes
$
1,300
274
Deferred
Taxes Assets (Liabilities)
Deferred
income taxes are provided for the tax effect of temporary differences between the financial reporting basis and the tax basis of assets
and liabilities. Net deferred tax assets have been reported as non-current in the accompanying Consolidated Balance Sheets. Significant
temporary differences at December 31, 2025 and 2024 are as follows:
As
of December 31,
2025
2024
Deferred
tax assets (liabilities):
Allowance
for expected credit losses
$
89
$
108
Property
and equipment
(
7,383
)
(
170
)
Goodwill
and intangibles
4,863
714
Accrued
compensation
1,417
1,786
Accrued
liabilities and other
4,607
29
Loss
carryforwards
65,855
73,672
Deferred
tax assets before valuation allowance
69,448
76,139
Valuation
allowance
(
67,537
)
(
73,491
)
Deferred
tax assets, net of valuation allowance
$
1,911
$
2,648
As
a result of the enactment of the Tax Act, the Company has provided tax on GILTI, and therefore, future repatriations of previously unremitted
foreign earnings are expected to either be exempt from U.S. taxation or offset by net operating losses (“NOLs”). The Company
has not provided any withholding tax with respect to unremitted foreign earnings at December 31, 2025 and December 31, 2024.
On
July 4, 2025, the One Big Beautiful Bill (OBBB) Act, which includes a broad range of tax reform provisions, was signed into law in the
United States. The OBBB Act did not have a material impact on our annual effective tax rate in 2025 and we do not expect it to have a
material impact in 2026.
Net
Operating Losses (“NOLs”), Capital Losses, and Valuation Allowance
At
December 31, 2025, the Company had losses for U.S. federal and state tax purposes of approximately $
239,961
consisting of U.S. federal
and state NOLs incurred through December 31, 2025 of $
215,405
and U.S. federal and state capital losses of $
24,556
as a result of the
HEBV liquidation. U.S. federal NOLs incurred through December 31, 2017 expire at various dates through 2037 with $
22,867
scheduled to
expire during 2025. U.S. federal and State NOLs incurred in or after 2018 have an indefinite carryforward period, which can be offset
by 80% of future taxable income in any given year. U.S. federal and state capital losses incurred in 2024 will expire after
five years
during 2029.
The
Company’s utilization of U.S. NOLs is subject to an annual limitation imposed by Section 382 of the Internal Revenue Code (“IRC”),
which may limit our ability to utilize all the existing NOLs before the expiration dates.
Based
upon IRC Section 382 studies prepared by the Company, Section 382 ownership changes have occurred that will result in $
224,124
of the
Company’s federal and state NOLs generated through December 2006 and recognized built-in losses during the
five-year period after
December 2006 being subject to IRC Section 382 limitations. As a result of IRC Section 382 limitations, $
22,131
of the $
224,124
NOLs
that are limited are expected to expire prior to utilization specifically as a result of the IRC Section 382 cumulative annual limitations.
In
addition, based upon an IRC Section 382 study prepared by Star Operating Companies Inc (SOC), a Section 382 ownership change occurred
due to the merger which will result in $
82,338
of SOC’s federal and State NOLs generated through August 2025 and recognized built-in
losses during the
five-year period after August 2025 being subject to IRC Section 382 limitations. As a result of IRC Section 382 limitations,
$
68,350
of the $
82,338
that are limited are expected to expire prior to utilization specifically as a result of the IRC Section 382 cumulative
annual limitations.
Accordingly,
the U.S. federal and state NOLs of $
239,961
, as indicated above, excluded the $
90,481
of tax losses expected to expire prior to utilization
due to IRC Section 382 cumulative annual limitations and the deferred tax asset for loss carryforwards of $
61,759
also excluded $
23,428
of related tax benefits.
As
of December 31, 2025, certain international subsidiaries had NOLs for local tax purposes of $
19,588
. With the exception of $
14,504
of
NOLs with an indefinite carry forward period as of December 31, 2025, these losses will expire at various dates through 2026 to 2045,
with $
4
scheduled to expire during 2026. The deferred tax recognized for NOLs are presented net of unrecognized tax benefits, where applicable.
275
ASC
740-10-30-5 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax
asset will not be realized. In making this assessment, management considers the level of historical taxable income, scheduled reversals
of deferred tax liabilities, tax planning strategies, and projected future taxable income. As of December 31, 2025, $
63,090
of the valuation
allowance relates to the deferred tax asset was comprised of NOLs for U.S. capital losses of $
5,984
, U.S. federal and state NOLs of $
55,775
,
and foreign NOLs of $
1,331
, that management has determined will more likely than not expire prior to realization. The remaining valuation
allowance of $
4,447
relates to deferred tax assets on U.S. and foreign temporary differences that management estimates will not be realized
due to the Company’s U.S. and foreign tax losses.
Uncertain
Tax Positions
A
reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties is as follows:
2025
2024
Balance,
beginning of year
$
60
$
60
Additions
for tax positions of current years
-
-
Additions
for tax positions of prior years
-
-
Reductions
for tax positions of prior years
-
-
Expiration
of applicable statutes of limitations
-
-
Balance,
end of year
$
60
$
60
The
total amount of state and local and foreign unrecognized tax benefits that, if recognized, would affect the effective tax rate was $
60
as of both December 31, 2025 and December 31, 2024, exclusive of interest and penalties.
The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. As
of December 31, 2025 and December 31, 2024, the Company had $
39
and $
33
, respectively, of accrued interest and penalties associated with
unrecognized tax benefits.
In
many cases, the Company’s unrecognized tax benefits are related to tax years that remain subject to examination by the relevant
tax authorities. Tax years with NOLs remain open until such losses expire or the statutes of limitations for those years when the NOLs
are used or expire. As of December 31, 2025, the Company’s open tax years which remain subject to examination by the relevant tax
authorities, are between 2015 and 2025, depending on the jurisdiction.
The
Company believes that its unrecognized tax benefits as of December 31, 2025 are appropriately recorded for all years subject to examination
above.
NOTE
8 -
ACCOUNTS RECEIVABLE, NET
Accounts
receivable balances are composed of trade and unbilled receivables. Unbilled accounts receivable represent revenue recorded in advance
of processing formal invoices pursuant to the completion of contract provisions and, generally, become billable at contractually specified
dates. Unbilled receivables of $
6,960
and $
5,925
as of December 31, 2025 and 2024, respectively, are expected to be invoiced and collected
within one year. The Company records accounts receivable when its right to consideration becomes unconditional. Contract assets primarily
relate to our rights to consideration for services provided that they are conditioned on satisfaction of future performance obligations.
Accounts receivable, net, are stated at the amount the Company expects to collect, which is net of estimated losses resulting from the
inability of its customers to make required payments.
The
Company generally establishes customer credit limits and estimates the allowance for credit losses on a country or geographic basis.
Customer credit limits are based upon an initial evaluation of the customer’s credit quality, and we adjust that limit accordingly
based upon ongoing credit assessments of the customer, including payment history and changes in credit quality. Consistent with our adoption
of ASU 2016-13, effective January 1, 2023 (refer to Note 2 - Summary of Significant Accounting Policies), the allowance for expected
credit losses is determined based on an assessment of past collection experience as well as consideration of current and future economic
conditions and changes in our customer collection trends.
276
The
following table summarizes the components of “Accounts receivable, net” as presented on the Consolidated Balance Sheets:
As
of December 31,
Accounts
Receivable:
2025
2024
Billed
receivables
$
28,535
$
14,559
Unbilled
receivables
6,960
5,925
Accounts
Receivable, Gross
$
35,495
$
20,484
Allowance
for expected credit losses
(
275
)
(
391
)
Accounts
Receivable, Net
$
35,220
$
20,093
The
following table summarizes the total provision for expected credit losses and write-offs:
For
The Year Ended December 31,
2025
2024
Beginning
balance
$
391
$
378
Provision
for expected credit losses
103
24
Write-offs
and other
(
317
)
(
11
)
Allowance
for expected credit losses, assumed from the acquisition of Star Operating Companies
98
-
Ending
Balance
$
275
$
391
NOTE
9 –
DEBT
A
summary of debt outstanding as of December 31, 2025 is as follows:
December
31, 2025
Amount
Weighted-Average
Interest Rate
Revolving
Credit Facility - Premier EBGL
$
3,969
7.25
%
Revolving
Credit Facility - Austin ADT
1,205
9.25
%
Revolving
Credit Facility - NAB
1,385
7.36
%
Total
Short-term Revolving Credit Facilities
6,559
7.64
%
Austin
- ADT Term Loan
160
9.25
%
Term
Loan Secured by Mortgage
354
7.50
%
Bridgewater
- TT Term Loan
1,400
7.85
%
Total
Short-term Debt
8,473
7.70
%
Austin
- ADT Term Loan, net of current portion
359
9.25
%
Term
Loan Secured by Mortgage, net of current portion
2,320
7.50
%
Bridgewater
- TT Term Loan, net of current portion
3,377
7.85
%
Long
Term Debt, net of current portion
6,056
7.80
%
Total
Debt
$
14,529
7.74
%
Austin
Loan Agreement
On
March 3, 2025, ADT entered into a Loan and Security Agreement (the “Austin Loan Agreement”) with Austin Financial Services,
Inc. (“Austin” or “AFS”) providing ADT with a working capital line of credit of up to $
3,000
and a term loan
originally proposed of up to $
800
, subject to the conditions and procedures set forth in the Austin Loan Agreement. Availability under
the Austin Loan Agreement is based on a formula tied to ADT’s eligible accounts receivable, inventory, and equipment, and borrowings
bear interest at the prime rate plus
1.75
%, with interest payable monthly and the outstanding principal balance payable March 3, 2028
(the “Maturity Date”). Based on AFS’s appraisal of ADT’s machinery and equipment, AFS reduced the term loan commitment
to $
638
. The Austin Loan Agreement also provides for certain fees payable to Austin during its term. The term loan payment is approximately
$
13
per month. The loan is secured by substantially all of the assets of ADT and is subject to certain covenants. Under the terms of
the AFS loan agreement, ADT is required to provide various financial and collateral reports to the lender on a regular basis. These reports
include weekly availability and cash activity summaries, monthly accounts receivable and accounts payable aging, inventory reports, balance
sheets, and income statements, as well as annual financial statements reviewed by an independent CPA, if requested. ADT must also provide
any additional financial or operational information upon the lender’s request.
277
There
are no specific financial covenants related to ratios, thresholds, or performance metrics under the AFS facility. However, failure to
timely submit the required financial reports constitutes an event of default under the loan agreement.
Premier
Facility
On
August 16, 2023, EdgeBuilder and Glenbrook (referred to herein as the “EBGL Borrowers”), entered into a Revolving Credit
Loan Agreement with Premier Bank (“Premier”), which was subsequently amended on December 5, 2023 to provide the EBGL Borrowers
with a working capital line of credit of up to $
6,000
(the “Premier Loan Agreement”). Availability under the Premier Loan
Agreement is based on a formula tied to the EBGL Borrowers’ eligible accounts receivable, inventory, and equipment. Borrowings
under the Premier Loan Agreement bear interest at the Wall Street Journal Prime rate plus
0.50
% (and a minimum interest rate of
6.75
%),
with interest payable monthly and the outstanding principal balance payable upon expiration of the term of the Premier Loan Agreement.
The Premier Loan Agreement also provides for certain fees payable to Premier during its term. The initial term of the Premier Loan Agreement
expired on December 05, 2024 but may be extended from time to time at the request of the EBGL Borrowers, subject to approval by Premier.
The term of the Premier Loan Agreement has been extended to December 05, 2026. The EBGL Borrowers’ obligations under the Premier
Loan Agreement are guaranteed by the Company and secured by all of their inventory, equipment, accounts receivable, and other intangibles.
As of December 31, 2025, availability under the Premier Loan Agreement was approximately $
1,813
. Premier holds $
600
of the Company’s
restricted cash associated with the Premier Facility.
Financial
covenants associated with the Premier Loan Agreement require that the EBGL Borrowers annually maintain (a) a debt service coverage ratio
for any calendar year of greater than
1.25
; (b) a debt-to-equity ratio at the end of each calendar year less than
1.65
; (c) a fixed charge
coverage ratio at the end of each calendar year of greater than
1.10
; (d) working capital of at least $
2
million; and (e) a current ratio
of at least
1.50
. As of December 31, 2025 the EBGL Borrowers were in compliance with all Premier Loan Agreement covenants except the
debt-to-equity covenant, which was impacted by the August 22, 2025 Merger Agreement.
KeyBank
Facility
On
April 24, 2024, KBS entered into a Loan and Security Agreement (the “KeyBank Loan Agreement”) with KeyBank National Association
(“KeyBank”) providing KBS with a working capital line of credit of up to $
4.0
million, subject to the conditions and procedures
set forth in the KeyBank Loan Agreement. All borrowings under the KeyBank Loan Agreement bear interest at the Adjusted Daily SOFR Rate
(as defined in the KeyBank Loan Agreement) plus
3
%, with interest payable monthly and the outstanding principal balance payable on April
30, 2025 (the “Maturity Date”). The KeyBank Loan Agreement expires on the Maturity Date but may be extended from time to
time at the request of KBS, subject to approval by KeyBank. SOC signed an extension on July 29, 2025 extending the Maturity Date to July
29, 2026. The KeyBank Loan Agreement also provides for certain fees payable to KeyBank. KBS’ obligations under the KeyBank Loan
Agreement are guaranteed by SOC and secured by all of KBS’ inventory, equipment, accounts and other intangibles, if applicable,
and all proceeds of the foregoing. Simultaneous with the execution of the KeyBank Loan Agreement, SOC entered into that certain Guaranty,
dated April 24, 2024 (the “Guaranty”), pursuant to which SOC agreed to guarantee all amounts borrowed by KBS under the KeyBank
Loan Agreement.
A
financial covenant associated with KeyBank Loan Agreement requires that KBS maintains a ratio of its Operating Cash Flow to its Total
Fixed Charges of at least
1.25
to 1.00 measured quarterly (the “FCCR Covenant”). As of December 31, 2025, KBS was in compliance
with the FCCR covenant. The balance outstanding under the line was $
0
as of December 31, 2025.
Term
Loan Secured by Mortgage
On
June 28, 2024, in connection with SOC’s acquisition of substantially all of the assets used in the business of Timber Technologies,
Inc. which closed on May 17, 2024, Timber Properties, LLC (“Timber Properties”), an affiliate of the Seller, sold to 106
Bremer, LLC, a wholly owned subsidiary of the Company (“106 Bremer”), all of Timber Properties’ Owned Real Property
pursuant to a Real Estate Sales Agreement for $
3,000
plus closing costs.
278
In
connection with the purchase of the Owned Real Property, on June 28, 2024, 106 Bremer issued a Promissory Note in the principal amount
of $
3,000
(the “TT Property Note”) secured by a Mortgage (the “TT Property Mortgage”) on the Owned Real Property
to Timber Properties. All borrowings under the TT Property Note bear interest at
7.50
%, with interest payable quarterly and the outstanding
principal balance payable on June 29, 2034.
Bridgewater
Facility
In
connection with the completion of the TT Acquisition, on May 17, 2024, Timber Technologies Solutions, Inc., a wholly owned subsidiary
of SOC, (the “Borrower”), entered into a Loan Agreement (the “Bridgewater Loan Agreement”) with Bridgewater Bank
(“Bridgewater”) and issued a Term Promissory Note to Bridgewater in the amount of $
7,000
thereunder (the “Facility”).
All borrowings under the Facility bear interest at
7.85
%, with interest payable monthly and the outstanding principal balance payable
on May 20, 2029 (the “Maturity Date”). The Bridgewater Loan Agreement also provides for certain fees payable to Bridgewater
during its term. The Borrower’s obligations under the Facility are guaranteed by the Company and secured by all of the Borrower’s
inventory, equipment, accounts receivable, and other intangibles.
In
connection with the Bridgewater Loan agreement, an amount of $
1,000
was required to be deposited with Bridgewater and be under the sole
dominion and control of Bridgewater, and SOC shall not have any control over the use of, or any right to withdraw any amount of the restricted
deposit. In the event that SOC maintains compliance with all of the financial covenants set forth in the Bridgewater Loan Agreement for
four consecutive measurement dates, Bridgewater shall release a portion of the deposit. As of December 31, 2025 Bridgewater released
$
500
. The remaining $
500
deposit is recorded in Restricted cash-non current in the Consolidated Balance Sheets.
Financial
covenants require that TT maintain (i) a ratio of Cash Flow to Total Fixed Charges of not less than
1.30
to 1.00 as measured on each
applicable Measurement Date on a trailing twelve (12) month basis; (ii) maintain a ratio of Senior Funded Debt to trailing twelve (12)
month Adjusted EBITDA not to exceed
3.00
to 1.00 as measured on each applicable Measurement Date for a Measurement Period; (iii) maintain
a ratio of Total Funded Debt to trailing twelve (12) month adjusted EBITDA not to exceed
4.00
to 1.00 as measured on each applicable
Measurement Date for a Measurement Period. TT was in compliance with its covenants as of December 31, 2025.
Invoice
Finance Credit Facility
On
April 8, 2019, the Business Services segment’s Australian subsidiary (“Australian Borrower”) entered into an invoice
finance credit facility agreement (the “NAB Facility Agreement”) with National Australia Bank Limited (“NAB”).
The NAB Facility Agreement provides the Australian Borrower with the ability to borrow funds based on a percentage of eligible trade
receivables up to a maximum of
4
million Australian dollars. No receivables have terms greater than 90 days, and any risk of loss is
retained by the Australian Borrower. The interest rate is calculated as the variable receivable finance indicator rate, plus a margin
of
1.60
% per annum. Borrowings under this facility are secured by substantially all of the assets of the Australian Borrower. The NAB
Facility Agreement does not have a stated maturity date and can be terminated by either the Australian Borrower or NAB upon
90
days written
notice. As of December 31, 2025, there were
no
amounts outstanding under the NAB Facility Agreement. Interest expense and fees incurred
on the NAB Facility Agreement were $
32
and $
17
for the years ended December 31, 2025 and 2024, respectively.
The
NAB Facility Agreement contains various restrictions and covenants for the Australian Borrower including (1) that EBITDA must be at least
two
times total interest paid on debt on a 12-month rolling basis; (2) minimum tangible net worth must be at least
2.5
million Australian
dollars and be equal to at least
25
% of total tangible assets on June 30 and December 31 (as defined in the NAB Facility Agreement);
and (3) additional periodic reporting requirements to NAB. The Australian Borrower was in compliance with all financial covenants under
the NAB Facility Agreement as of December 31, 2025.
Amounts
borrowed from the NAB Facility may be large, contain short maturities and have quick turnovers. Amounts borrowed and repaid are presented
on a net basis on the Consolidated Statements of Cash Flows.
On
May 25, 2022, Hudson Global Resources (Singapore) Pte. Ltd. (“Singapore Borrower”), which the Company acquired on October
31, 2023, and the Hong Kong and Shanghai Banking Corporation Limited (“HSBC”), entered into an invoice finance credit facility
agreement (the “HSBC Facility Agreement”). The HSBC Facility Agreement allows the Singapore Borrower to borrow funds up to
a maximum of
1
million Singapore dollars, based on a percentage of eligible trade receivables. All receivables have a term of no more
than
60
days, and any risk of loss is borne by the Singapore Borrower. The interest rate is calculated as the bank’s external cost
of capital, plus a margin of
3.5
% per annum. The Company ended the HSBC Facility Agreement in May 2024. As a result, no interest expense
or fees were incurred during the year ended December 31, 2025. Interest expense and fees incurred on the HSBC Facility Agreement were
$6 for the year ended December 31, 2024.
279
NOTE
10-
GOODWILL AND INTANGIBLE ASSETS
Goodwill
For
the years ended December 31, 2025 and 2024, the changes in carrying amount of goodwill were as follows:
Carrying
Value
2025
2024
Goodwill,
January 1
$
5,703
$
5,749
Acquisition
242
-
Currency
translation
(
1
)
(
46
)
Goodwill,
December 31
$
5,944
$
5,703
On
October 1, 2025, the Company applied ASC 350, and performed quantitative assessments to determine whether it was more likely than
not that the fair value of its reporting units was less than their carrying values. To estimate the fair value of these reporting units,
the Company used both an income approach and a market approach. The income approach required management to make significant estimates
and judgments regarding future cash flows that were based on a number of factors including actual operating results, forecasted revenue
and expenses, discount rate assumptions, and long-term growth rate assumptions. The market approach required the use of multiples based
on financial metrics for both acquisitions and peer group companies. The Company did not recognize any impairment of goodwill related
to these acquisitions. At the conclusion of its assessment, the Company determined the fair value of the reporting units exceeded their
carrying values. As such, the Company determined that
no
impairment of goodwill had taken place as of December 31, 2025.
Intangible
Assets
For
the years ended December 31, 2025 and 2024, the Company’s intangible assets consisted of the following components:
2025
Weighted
Average Remaining Amortization Useful Lives
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Non-compete
agreements
2.7
$
147
$
(
133
)
$
14
Trade
name
5.4
1,662
(
933
)
729
Customer
lists
1.8
4,017
(
3,072
)
945
Developed
technology
-
657
(
657
)
-
$
6,483
$
(
4,795
)
$
1,688
2024
Weighted
Average Remaining Amortization Useful Lives
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Non-compete
agreements
2.9
$
145
$
(
116
)
$
29
Trade
name
6.1
1,634
(
731
)
903
Customer
lists
2.6
3,952
(
2,399
)
1,553
Developed
technology
1.0
657
(
651
)
6
$
6,388
$
(
3,897
)
$
2,491
280
Amortization
expense for the years ended December 31, 2025 and 2024 was $
901
and $
1,126
, respectively. Intangible assets are amortized on a straight-line
basis over their estimated useful lives.
No
impairment in the value of amortizable intangible assets was recognized during the years
ended December 31, 2025 or 2024.
Estimated
future amortization expense for intangible assets for the remainder of the fiscal year ending December 31, 2025, and for each of the
next fiscal years are as follows:
2026
$
680
2027
575
2028
131
2029
110
2030
110
Thereafter
82
$
1,688
The
change in the book value of amortizable intangible assets is as follows:
January
1, 2025
Beginning
Balance
Acquisition
Amortization
Translation
and Other
December
31, 2025
Ending
Balance
Non-compete
agreements
$
29
$
2
$
(
18
)
$
1
$
14
Trade
name
903
27
(
203
)
2
729
Customer
lists
1,553
66
(
674
)
-
945
Developed
technology
6
-
(
6
)
-
-
$
2,491
$
95
$
(
901
)
$
3
$
1,688
January
1, 2024
Beginning
Balance
Acquisition
Amortization
Translation
and Other
December
31, 2024
Ending
Balance
Non-compete
agreements
$
49
$
-
$
(
18
)
$
(
2
)
$
29
Trade
name
1,123
-
(
216
)
(
4
)
903
Customer
lists
2,267
-
(
709
)
(
5
)
1,553
Developed
technology
189
-
(
183
)
-
6
$
3,628
$
-
$
(
1,126
)
$
(
11
)
$
2,491
NOTE
11 -
LEASES
Lessee
We
have operating and finance leases for corporate offices, vehicles, and certain equipment. Our leases have remaining lease terms of
1
year to
20
years. Some of the leases include options to extend the leases and some include options to terminate the lease within
1
year.
Operating leases and finance leases are included separately in the Consolidated Balance Sheets.
The
components of lease expense are as follows:
Year Ended December 31,
2025
2024
Operating
lease cost
$
1,531
$
1,303
Finance
lease cost:
Amortization
of finance lease assets
$
19
$
-
Total
finance lease cost
$
19
$
-
281
Supplemental
cash flow information related to leases was as follows:
Year Ended December 31,
2025
2024
Cash
paid for amounts included in the measurement of lease liabilities
Operating
cash flows from operating leases
$
1,144
$
809
Financing
cash flows from finance leases
$
8
N/A
Right-of-use
assets obtained in exchange for lease obligations
Operating
leases
$
3,112
$
416
Supplemental
balance sheet information related to leases was as follows:
December
31, 2025
December
31, 2024
Weighted
average remaining lease term (in years)
Operating
leases
13.8
2.5
Finance
leases
0.9
N/A
Weighted
average discount rate
Operating
leases
12.80
%
8.50
%
Finance
leases
5.76
%
N/A
We
are committed to making future cash payments on non-cancelable operating leases and finance leases (including interest). The future minimum
lease payments due under both non-cancelable operating leases and finance leases having initial or remaining lease terms in excess of
one year as of December 31, 2025 were as follows:
Operating
Leases
Finance
Leases
2026
$
2,041
$
16
2027
2,058
2
2028
1,797
-
2029
1,799
-
2030
and thereafter
20,296
-
Total
future minimum lease payments
27,991
18
Less
amounts representing interest
(
16,118
)
(
1
)
Present
value of lease obligations
$
11,873
$
17
NOTE
12 -
FAIR VALUE MEASUREMENTS
The
Financial Accounting Standards Board’s authoritative guidance for fair value measurements establishes a three-level hierarchy based
upon the inputs to the valuation model of an asset or liability. Assets and liabilities presented at fair value in our Consolidated Balance
Sheets are generally categorized as follows:
Level
1:Quoted prices in active markets for identical assets or liabilities.
Level
2:Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
Level
3:Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities. Such assets and liabilities may have values determined using pricing models, discounted cash flow methodologies, or similar
techniques, and include instruments for which the determination of fair value requires significant management judgment or estimation.
282
Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Our assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation
of assets and liabilities and their placement within the fair value hierarchy levels. The following table sets forth by level within
the fair value hierarchy our assets and liabilities that were recorded at fair value as of December 31, 2025:
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
Fair
Value as of December 31, 2025
Level
1
Level
2
Level
3
Total
Assets
(Liabilities):
Equity
securities
$
3,767
$
-
$
-
$
3,767
Total
$
3,767
$
-
$
-
$
3,767
The
table below presents a reconciliation for Level 3 liabilities for the period ended December 31, 2025. The Level 3 liabilities consist
of an earnout liability associated with SOC’s acquisition of Big Lake Lumber (“BLL”) in 2023. The change in the Level
3 liability during the period was primarily due to payments made on accruals. These changes are included in “Purchases, issuances,
and settlements (net)” in the Level 3 rollforward below.
2025
Acquisition
value at August 22, 2025
$
201
Net
reductions (payments)
(
201
)
Balance
as at December 31, 2025
$
-
Assets
and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain
assets acquired and liabilities assumed in connection with the SOC acquisition were measured at fair value on a nonrecurring basis as
of the acquisition date.
Additional
information regarding the valuation methodologies and assumptions used in determining these fair values is included in Note 5 - Acquisitions,
which presents the allocation of purchase consideration and related fair value measurements required under ASC 805, Business Combinations.
No
other assets or liabilities were measured at fair value on a nonrecurring basis during the period
Equity
Securities
The
investment in equity securities consists of common stock of publicly traded companies. The fair value of these securities is based on
the closing prices observed on December 31, 2025, and is recorded in “Investments in equity securities” in the Consolidated
Balance Sheet.
Gains
and losses from investments in equity securities are recorded in other income (expense) in the Consolidated Statements of Operations
and included the following for the period ended December 31, 2025.
Year
Ended December 31,
2025
Unrealized
loss on equity securities
$
(
390
)
Unrealized
gain on equity securities
241
Realized
gain on equity securities
11
Total
loss on equity securities
$
(
138
)
283
Lumber
Derivative Contracts
We
may enter into lumber derivative contracts in order to protect our gross profit margins from fluctuations caused by lumber price volatility.
Such contracts, which are generally entered into to protect the gross margins on our wall panel contracts at EdgeBuilder and Glenbrook
Building Supply, Inc. (“Glenbrook” and referred to jointly with EdgeBuilder as “EBGL”), are recorded within current
assets or liabilities in the Consolidated Balance Sheets. As of December 31, 2025, we did not have any lumber derivatives contracts open.
Gains
and losses from lumber derivative contracts are recorded in the cost of revenues in the Consolidated Statements of Operations and included
the following for the period ended December 31, 2025:
Year
Ended December 31,
2025
Realized
loss on lumber derivatives
$
(
68
)
Total
loss on lumber derivatives
$
(
68
)
NOTE
13 -
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
A
reconciliation of the numerators and denominators of the basic and diluted loss per share calculations were as follows:
For
The Year Ended December 31,
2025
2024
Loss
per share attributable to common shareholders (“EPS”):
Basic
$
(
2.08
)
$
(
1.59
)
Diluted
$
(
2.08
)
$
(
1.59
)
EPS
numerator - basic and diluted:
Net
loss attributable to common shareholders
$
(
6,657
)
$
(
4,770
)
EPS
denominator (in thousands):
Weighted
average common stock outstanding - basic
3,198
3,000
Common
stock equivalents: stock options and restricted stock units
(a)
-
(a)
-
Weighted
average number of common stock outstanding - diluted
3,198
3,000
(a)
The
diluted weighted average number of shares of common stock outstanding did not differ from
the basic weighted average number of shares of common stock outstanding because the effects
of any potential common stock equivalents (see Note 7 to the Consolidated Financial Statements
for further details on unvested restricted stock units) were anti-dilutive and therefore
not included in the calculation of the denominator of dilutive earnings per share.
NOTE
14 -
STOCKHOLDERS’ EQUITY
Common
Stock
On
August 8, 2023, the Company’s Board of Directors authorized a share repurchase program for up to $
5,000
of the Company’s
outstanding common stock. The Company continues to view share repurchases as an attractive use of capital and may repurchase shares from
time to time, as market conditions warrant, through open market purchases, privately negotiated transactions, block trades, or other
methods, in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934 (the “Exchange
Act”). This authorization does not expire.
During
the year ended December 31, 2025, the Company completed its $
5,000
share repurchase program authorized on August 8, 2023. On September
10, 2025, the Board of Directors authorized a new common stock repurchase program under which the Company may repurchase up to $
3,000
of its outstanding common stock. During the year ended December 31, 2025, the Company repurchased a total of
280,886
shares of its common
stock for an aggregate cost of $
2,638
under these authorizations. Of this total,
261,052
shares were repurchased on September 25, 2025,
in connection with a transaction with a certain shareholder totaling $
2,441
, and the remaining
19,834
shares were repurchased on the
open market for a cost of $
197
. As of December 31, 2025, under the July 30, 2015, August 8, 2023 and September 10, 2025 authorizations
combined, the Company had repurchased an aggregate of
948,382
shares for a total cost of $
15,520
, completing the August 8, 2023 authorization
and leaving $
2,481
available for purchase under the September 10, 2025 authorization. During the year ended December 31, 2024 the Company
repurchased a total of
154,084
shares of its common stock for a cost of $
2,495
under this authorization. Of these shares,
44,250
shares
were repurchased on January 29, 2024 in connection with a transaction with a certain shareholder totaling $
655
that excludes tax withholdings.
The Company also repurchased
69,567
shares during the second quarter in connection with transactions with certain shareholders totaling
$
1,181
, as well as
40,267
shares of its common stock on the open market for a cost of $
659
.
284
The
Company cannot predict when or if it will repurchase any shares of common stock as such stock repurchase program will depend on a number
of factors, including constraints specified in any Rule 10b5-1 trading plans, price, general business and market conditions, and alternative
investment opportunities. Information regarding share repurchases will be available in the Company’s periodic reports on Form 10-Q
and 10-K filed with the Securities and Exchange Commission as required by the applicable rules of the Exchange Act.
Warrants
As
a result of the Merger, outstanding warrants of SOC were converted to rights to receive common shares of the Company, in accordance with
Section 3(d) of the Form of 2022 SOC Warrant Certificate. As of December 31, 2025, there were
10.9
million warrants outstanding,
none
of which are prefunded, which represents
0.5
million shares of common stock equivalents, at an exercise price of $
32.61
. For every 1
warrant,
0.046
of a common share shall be issued. These warrants will expire in January 2027.
As
of December 31, 2025, there were
10,925,000
warrants outstanding, which represents
502,550
shares of common stock equivalents.
NOTE
15 -
PERPETUAL PREFERRED STOCK
Upon
the Effective Time of the Merger, pursuant to the terms of the Merger Agreement, we issued
2,690,637
shares of our Series A Preferred
Stock. Holders of shares of our Series A Preferred Stock are entitled to receive, when, as, and if, authorized by the Company’s
board of directors (or a duly authorized committee of the Company’s board of directors) and declared by the Company out of funds
legally available for the payment of dividends, preferential cumulative cash dividends at the rate of
10
% per annum of the liquidation
preference of $
10
per share. Dividends are payable quarterly, in arrears, by the last calendar day of March, June, September and December
to holders of record at the close of business on the first day of each payment month. The Series A Preferred Stock is not convertible
and does not have any voting rights, except when dividends are in arrears for
6
or more consecutive quarters, then the holders of those
shares together with holders of all other series of preferred stock equal in rank would be entitled to vote separately as a class for
the election of 2 additional directors to board of directors, until all dividends accumulated on such shares of Series A Preferred Stock
for the past dividend periods and the dividend for the current dividend period shall have been fully paid or declared and a sum sufficient
for the payment thereof set apart for payment. The Series A Preferred Stock is not subject to redemption by the Company.
On
August 22, 2025, we announced that our board of directors declared a cash dividend to holders of our Series A Preferred Stock of $
0.025
per share for an aggregate amount of approximately $
67
. The record date for this dividend was September 1, 2025, and the payment date
was September 10, 2025. On November 14, 2025, we announced that our board of directors declared a cash dividend to holders of our Series
A Preferred Stock of $
0.25
per share for an aggregate amount of approximately $
673
. The record date for this dividend was December 1,
2025, and the payment date was December 10, 2025. As of December 31, 2025, we are current on our preferred dividend payments.
On
February 13, 2026, Star announced that its Board of Directors declared a cash dividend to holders of the Company’s Preferred Stock
of $
0.25
per share, which represents a subsequent event occurring after the balance sheet date and is not reflected as a liability as
of December 31, 2025. The record date for this dividend is March 1, 2026, and the payment date is March 10, 2026.
NOTE
16 -
STOCKHOLDER RIGHTS PLAN
On
October 15, 2018, the Company’s Board of Directors declared a dividend to the Company’s stockholders of record as of the
close of business on October 25, 2018 (the “Record Date”), for each outstanding share of the Company’s common stock,
of one right (a “Right”) to purchase one one-hundredth of a share of a new series of participating preferred stock of the
Company. The terms of the Rights are set forth in the Rights Agreement, dated as of October 15, 2018 (as amended, the “Rights Agreement”),
by and between the Company and Computershare Trust Company, N.A., as rights agent (the “Rights Agent”). The Company’s
stockholders approved the Rights Agreement at the Company’s 2019 Annual Meeting of Stockholders held on May 6, 2019. On September
28, 2021, the Company and the Rights Agent entered into a First Amendment to Rights Agreement (the “Amendment”) that amended
the Rights Agreement to extend its term through October 15, 2024. The amendment was approved by the Board on September 28, 2021, subject
to stockholder approval, and the Company’s stockholders approved the Amendment at the Company’s 2022 Annual Meeting of Stockholders
held on May 17, 2022. The Board of Directors has taken further action to amend the Original Rights Agreement, as amended by the First
Amendment, to extend the expiration of the Rights Agreement to October 15, 2027, as contemplated in the Second Amendment to Rights Agreement
(the “Second Amendment”). The Second Amendment was approved by the Board on June 13, 2024, subject to stockholder approval,
and the Company’s stockholders approved the Amendment at the Company’s 2024 Annual Meeting of Stockholders held on July 31,
2024.
285
Each
Right allows its holder to purchase from the Company one one-hundredth of a share of the Company’s Series B Junior Participating
Preferred Stock (“Series B Preferred Stock”) for a purchase price of $
3.50
. Each fractional share of Series B Preferred Stock
would give the stockholder approximately the same dividend, voting and liquidation rights as does
one
share of common stock. Prior to
exercise, however, a Right does not give its holder any dividend, voting or liquidation rights.
The
Board entered into the Rights Agreement in an effort to preserve the value of the Company’s significant U.S. NOLs and other tax
benefits. The Company’s ability to utilize its NOLs may be substantially limited if the Company experiences an “ownership
change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general,
an “ownership change” would occur if the percentage of the Company’s ownership by one or more “5-percent shareholders”
(as defined in the Code) increases by more than 50 percent over the lowest percentage owned by such stockholders at any time during the
prior three years. The Rights Agreement is designed to preserve the Company’s tax benefits by deterring transfers of common stock
that could result in an “ownership change” under Section 382 of the Code.
In
general terms, the Rights Agreement imposes a significant penalty upon any person or group that acquires beneficial ownership (as defined
under the Rights Agreement) of
4.99
% or more of the outstanding common stock without the prior approval of the Board (an “Acquiring
Person”). Any Rights held by an Acquiring Person are void and may not be exercised.
The
Rights will not be exercisable until the earlier of (i)
10
days after a public announcement by the Company that a person or group has
become an Acquiring Person; and (ii)
10
business days (or a later date determined by the Board) after a person or group begins a tender
or an exchange offer that, if completed, would result in that person or group becoming an Acquiring Person.
Until
the date that the Rights become exercisable (the “Distribution Date”), common stock certificates will also evidence the Rights
and will contain a notation to that effect. Any transfer of shares of common stock prior to the Distribution Date will constitute a transfer
of the associated Rights. After the Distribution Date, the Rights will separate from the common stock and be evidenced by Right certificates,
which the Company will mail to all holders of Rights that have not become void. After the Distribution Date, if a person or group already
is or becomes an Acquiring Person, all holders of Rights, except the Acquiring Person, may exercise their Rights upon payment of the
purchase price to purchase shares of common stock (or other securities or assets as determined by the Board) with a market value of
two
times the purchase price (a “Flip-in Event”). After the Distribution Date, if a Flip-in Event has already occurred and the
Company is acquired in a merger or similar transaction, all holders of Rights, except the Acquiring Person, may exercise their Rights
upon payment of the purchase price, to purchase shares of the acquiring or other appropriate entity with a market value of
two
times
the purchase price of the Rights. Rights may be exercised to purchase Series B Preferred Stock only after the Distribution Date occurs
and prior to the occurrence of a Flip-in Event as described above. A Distribution Date resulting from the commencement of a tender offer
or an exchange offer as described in the second bullet point above could precede the occurrence of a Flip-in Event, in which case the
Rights could be exercised to purchase Series B Preferred Stock. A Distribution Date resulting from any occurrence described in the first
bullet point above would necessarily follow the occurrence of a Flip-in Event, in which case the Rights could be exercised to purchase
shares of common stock (or other securities or assets) as described above.
The
Rights will expire on the earliest of (i) the close of business on October 15, 2027, or such earlier date as of which the Board determines
that this Agreement is no longer necessary for the preservation of Tax Benefits, (ii) the time at which the Rights are redeemed as provided
in Section 23, (iii) the time at which all exercisable Rights are exchanged as provided in Section 24, (iv) the close of business on
the effective date of the repeal of Section 382 of the Code or any successor or replacement provision if the Board determines that this
Agreement is no longer necessary for the preservation of Tax Benefits, and (v) the close of business on the first day of a taxable year
of the Company to which the Board determines that no Tax Benefits may be carried forward.
The
Board may redeem all (but not less than all) of the Rights for a redemption price of $
0.001
per Right at any time before the later of
the Distribution Date and the date of the first public announcement or disclosure by the Company that a person or group has become an
Acquiring Person. Once the Rights are redeemed, the right to exercise the Rights will terminate, and the only right of the holders of
such Rights will be to receive the redemption price.
The
Board may adjust the purchase price of the Series B Preferred Stock, the number of shares of Series B Preferred Stock issuable and the
number of outstanding Rights to prevent dilution that may occur as a result of certain events, including, among others, a stock dividend,
a stock split or a reclassification of the Series B Preferred Stock or common stock.
Before
the time the Rights cease to be redeemable, the Board may amend or supplement the Rights Agreement without the consent of the holders
of the Rights, except that no amendment may decrease the redemption price below $
0.001
per Right.
The
Company also has a provision in its Amended and Restated Certificate of Incorporation which generally prohibits transfers of its common
stock that could result in an ownership change.
286
NOTE
17 -
SEGMENT AND GEOGRAPHIC DATA
Segment
Reporting
Corporate
expenses are reported separately for the
four
reportable segments and pertain to certain functions, such as executive management, corporate
governance, investor relations, legal, accounting, tax, and treasury. A portion of these expenses are attributed to the reportable segments
for providing the above services to them, and have been allocated to the segments as management service expenses, and are included in
the segments’ non-operating other income (expense). We have disclosed for each reportable segment the significant expense that
is reviewed by CODM in the tables below with no additional significant expenses beyond those presented. Segment information is presented
in accordance with ASC 280, “Segment Reporting.” This standard is based on a management approach that requires segmentation
based upon the Company’s internal organization and disclosure of revenue and certain expenses based upon internal accounting methods.
The Company’s financial reporting systems present various data for management to run the business, including internal profit and
loss statements prepared on a basis not consistent with U.S. GAAP. Accounts receivable and long-lived assets are the only significant
assets separated by segment for internal reporting purposes.
Our
reportable segments are based upon our internal organizational structure, the manner in which our operations are managed, the criteria
used by our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), to evaluate segment performance,
the availability of separate financial information, and overall materiality considerations. Effective as of the acquisition of SOC on
August 21, 2025, our businesses are organized into the following four reportable segments, reflecting the manner in which our CODM assesses
performance and allocates resources:
1.Building
Solutions
2.Business
Services
3.Energy
Services
4.Investments
Our
reporting segments have been determined based on the nature of the products and services offered to customers or the nature of their
function in the organization. We evaluate performance based on gross profit and operating income (loss). The Company also evaluates the
performance of its reportable segments using a Non-GAAP EBITDA metric, which is defined as earnings before interest, income taxes, depreciation,
and amortization. In addition, certain corporate-related costs are not allocated to the segments. Our operating costs included in our
shared service functions primarily consist of senior executive officers, finance, human resources, legal, and information technology.
Star Equity shared service corporate costs have been separated from the reportable segments. Prior period amounts have been reclassified
to conform to current year presentation.
287
Segment
information for the year ended December 31, 2025 and 2024, respectively, is as follows:
Building
Solutions
Business
Services
Energy
Services
Investments
Corporate
and Intersegment Eliminations
Total
For
the Year Ended December 31, 2025
Revenues
$
27,578
$
139,652
$
4,929
$
212
$
(
212
)
$
172,159
Cost
of revenues
21,303
67,879
3,001
107
-
92,290
Gross
profit
(a)
6,275
71,773
1,928
105
(
212
)
79,869
Salaries
and related
(
2,494
)
(
57,995
)
(
879
)
-
(
2,177
)
(
63,545
)
Office
and general
(
1,592
)
(
6,917
)
(
579
)
(
119
)
(
5,636
)
(
14,843
)
Marketing
and promotion
(
26
)
(
3,905
)
(
13
)
-
(
13
)
(
3,957
)
Operating
expenses depreciation and amortization
(
135
)
(
1,028
)
(
27
)
-
(
22
)
(
1,212
)
Operating
income (loss)
$
2,028
$
1,928
$
430
$
(
14
)
$
(
8,060
)
$
(
3,688
)
EBITDA
(loss), unaudited
(b)
$
2,439
$
1,385
$
1,016
$
(
16
)
$
(
6,862
)
$
(
2,038
)
Total
depreciation and amortization
(
361
)
(
1,028
)
(
560
)
(
107
)
(
22
)
(
2,078
)
Interest
income (expense), net
(
212
)
(
510
)
(
99
)
283
798
260
Provision
for income tax
-
(
1,999
)
-
-
(
62
)
(
2,061
)
Net
income (loss)
$
1,866
$
(
2,152
)
$
357
$
160
$
(
6,148
)
$
(
5,917
)
As
of December 31, 2025
Accounts
receivable, net
$
8,671
$
22,398
$
4,045
$
-
$
106
$
35,220
Long-lived
assets, net of accumulated depreciation and amortization
(c)
$
4,320
$
7,934
$
7,235
$
6,586
$
167
$
26,242
Total
assets
$
34,105
$
43,418
$
12,526
$
21,689
$
1,493
$
113,231
288
Business
Services
Corporate
and Intersegment Eliminations
Total
For
the Year Ended December 31, 2024
Revenues
$
140,056
$
-
$
140,056
Cost
of revenues
69,904
-
69,904
Gross
profit
(a)
70,152
-
70,152
Salaries
and related
(
56,943
)
(
1,366
)
(
58,309
)
Office
and general
(
7,295
)
(
3,408
)
(
10,703
)
Marketing
and promotion
(
3,584
)
(
4
)
(
3,588
)
Operating
expenses depreciation and amortization
(
1,350
)
(
11
)
(
1,361
)
Operating
income (loss)
$
980
$
(
4,789
)
$
(
3,809
)
EBITDA
(loss)
(b)
$
1,119
$
(
3,588
)
$
(
2,469
)
Total
depreciation and amortization
(
1,350
)
(
11
)
(
1,361
)
Interest
income (expense), net
(
520
)
880
360
Provision
for incomes taxes
(
1,242
)
(
58
)
(
1,300
)
Net
loss
$
(
1,993
)
$
(
2,777
)
$
(
4,770
)
As
of December 31, 2024
Accounts
receivable, net
$
20,093
$
-
$
20,093
Long-lived
assets, net of accumulated depreciation and amortization
(c)
$
8,410
$
26
$
8,436
Total
assets
$
45,273
$
7,310
$
52,583
(a)
Gross
profit in the Business Services segment includes the direct staffing costs of salaries, payroll
taxes, employee benefits, travel expenses, and insurance costs for the Company’s contractors
and reimbursed out-of-pocket expenses and other direct costs. The region where services are
provided, the mix of RPO and contracting, and the functional nature of the staffing services
provided can affect operating income and EBITDA. The salaries, commissions, payroll taxes,
and employee benefits related to recruitment professionals are included under the caption
“Salaries and related” in the Consolidated Statements of Operations.
(b)
SEC
Regulation S-K Item 229.10(e)1(ii)(A) defines EBITDA as earnings before interest, taxes,
depreciation and amortization. EBITDA is presented to provide additional information to investors
about the Company’s operations on a basis consistent with the measures that the Company
uses to manage its operations and evaluate its performance. Management also uses this measurement
to evaluate working capital requirements. EBITDA should not be considered in isolation or
as a substitute for operating income and net income prepared in accordance with U.S. GAAP
or as a measure of the Company’s profitability.
(c)
Comprised
of property and equipment, intangible assets and goodwill, net of accumulated depreciation
and amortization.
289
Geographic
Data Reporting
A
summary of revenues for the year ended December 31, 2025 and 2024 and net assets by geographic area as of December 31, 2025 and 2024,
were as follows:
Australia
United
States
United
Kingdom
Other
Total
For the Year Ended December 31, 2025
Revenue
(a)
$
68,839
$
60,504
$
21,100
$
21,716
$
172,159
For the Year Ended December 31, 2024
Revenue
(a)
$
70,674
$
26,577
$
22,900
$
19,905
$
140,056
As of December 31, 2025
Long-lived assets, net of accumulated depreciation and amortization
(b)
$
32
$
24,160
$
35
$
2,015
$
26,242
Net assets
$
3,855
$
47,524
$
1,475
$
12,853
$
65,707
As of December 31, 2024
Long-lived assets, net of accumulated depreciation and amortization
(b)
$
20
$
6,667
$
16
$
1,733
$
8,436
Net assets
$
7,788
$
17,066
$
3,076
$
12,498
$
40,428
(a)
Revenue
by geographic region disclosed above is net of any inter-segment revenue and, therefore,
represents only revenue from external customers according to the location of the operating
subsidiary.
(b)
Comprised
of property and equipment, intangible assets and goodwill, net of accumulated depreciation
and amortization.
290
NOTE
18 -
SUPPLEMENTARY BALANCE SHEET INFORMATION
Inventories
The
components of inventories are as follows:
December
31, 2025
Raw
materials
$
4,122
Work-in-process
536
Finished
goods
2,330
Total
inventories, net
$
6,988
ADT’s
inventory, amounting to $
1,129
as of December 31, 2025, consists of component equipment, parts and supplies which are classified as raw
materials using the weighted average cost method.
Property
and Equipment
Property
and equipment consists of the following:
December
31, 2025
Land
$
1,134
Buildings
and leasehold improvements
9,070
Transportation
2,023
Machinery
and equipment
12,750
Gross
property and equipment
24,977
Accumulated
depreciation
(
6,367
)
Total
property and equipment, net
$
18,610
Depreciation
expense for the year ended December 31, 2025 was $
1,177
and $
232
for the year ended December 31, 2024.
As
of December 31, 2025, we held non-operating land and a building in Oxford, Maine for investment and potential future use which had a
carrying value of $
1,781
and was included within property and equipment on the Consolidated Balance Sheets.
Included
in machinery and equipment in the above table is rental equipment with a net book value of approximately $
4,909
as of December 31, 2025,
related to our Energy Services segment.
Warranty
Reserves
Within
our Building Solutions segment, KBS provides a limited assurance warranty on its residential homes that covers substantial defects in
materials or workmanship for a period of
12
months after delivery to the owner. EdgeBuilder provides a limited warranty on the sale of
its wood foundation products that covers leaks resulting from defects in workmanship for a period of
twenty-five years. TT provides a
fifty-year limited warranty to the original buyer of its products, qualified by the original buyer’s obligation to ensure that
the products are properly handled, stored, and installed. Historical losses related to the Timber Technologies warranty have been insignificant
and therefore no reserve has been established. Estimated future warranty costs are accrued and charged to cost of goods sold in the period
that the related revenue is recognized. Within our Energy Services segment, we do not provide warranties on our products.
Notes
Receivable
Notes
receivable consists of the following principal and interest balances as of December 31, 2025:
December
31, 2025
Principal
and interest
Catalyst
Note
$
8,257
MDOS
Note
596
KBS
Customer Note
32
Total
note receivable
8,885
Less
current portion
256
Note
receivable, net of current portion
$
8,629
As
a part of the sale of Digirad Health in May 2023, SOC entered into a $
7,000
promissory note (the “Catalyst Note”) which represents
an unsecured note receivable on our balance sheet. The note has a maturity date of May 3, 2029 with payment-in-kind (non-cash) interest
on the outstanding principal balance hereof to accrue at the Interest Rate. The full balance is scheduled to be paid at the maturity
date. The Interest Rate is defined as (i) during the period from the date of issuance of the note through the third anniversary of the
date of issuance of the note, a per annum rate equal to the sum of (x)
5.0
% per annum plus (y) the greater of
5.0
% per annum and the
weighted average term SOFR-based interest rate of outstanding loans under the Senior Loan Agreement (as defined in the Purchase Agreement)
during such period, and (ii) during the period following the third anniversary of the date of issuance of the note, a per annum rate
equal to the sum of (x)
5.0
% per annum plus (y) the greater of
7.0
% per annum and the weighted average term SOFR-based interest rate
of outstanding loans under the Senior Loan Agreement during such period. The Catalyst Note was adjusted to its fair value as part of
the Company’s acquisition of SOC.
In
2021, SOC completed the sale of MD Office Solutions in exchange for a secured promissory note (the “MDOS Note”). This note,
the principal of which is approximately $
596
at December 31, 2025, is included in “Notes receivable, current portion” and
“Notes receivable” in our Consolidated Balance Sheet at December 31, 2025 for $
223
and $
373
, respectively. The MDOS Note
requires quarterly installments of $
74
and incurs interest at a fixed rate of
5
% through maturity in 2028.
In
2023, KBS issued a promissory note to a customer, incurring
12
% interest per annum (the “KBS Customer Note”). The KBS Customer
Note is included in “Notes receivable, current portion” in the Consolidated Balance Sheets at December 31, 2025.
The
Company evaluates its notes receivable portfolio under the Current Expected Credit Loss (“CECL”) model.
291
Long
Term Investments
Below
are the components of our Long Term Investments as of December 31, 2025:
Method
of Accounting
December
31, 2025
Investment
in Catalyst
Cost
Method
$
953
Total
$
953
Investment
in Catalyst
As
a part of the sale of Digirad Health, SOC received common equity of Catalyst Parent, which is held in our Investments segment at a fair
value of $
953
at December 31, 2025. We have elected the measurement alternative under ASC 321,
Investments-Equity Securities
.
The measurement alternative election allows for equity securities that do not have readily determinable fair values to be recorded at
cost, with adjustments for impairment and certain observable price changes reflected in earnings. Such securities are adjusted to fair
value when an observable price change occurs or impairment is identified.
Investment
in Enservco
On
August 9, 2024, SOC entered into an investment in Enservco pursuant to a Share Exchange Agreement in which SOC agreed to issue to Enservco
250,000
shares of
10
% Series A Cumulative Perpetual Preferred Stock representing $
2,600
of value in exchange for
9,023,035
Enservco Common
Shares, representing
19.9
% of the equity interests of Enservco, and
3.5
million Enservco Preferred Shares and certain options included
in the Share Exchange Agreement. We also issued a $
1,000
note to Enservco to facilitate Enservco’s acquisition of Buckshot Trucking,
LLC. The investment in Enservco had a value of zero at December 31, 2025.
Accrued
Expenses and Other Liabilities
As
of December 31, 2025 and 2024, the Company’s accrued expenses and other current liabilities consisted of the following:
December
31,
2025
2024
Sales,
use, payroll taxes and income taxes
$
2,927
$
2,596
Fees
for professional services
1,931
882
Other
accruals
2,049
897
Total
accrued expenses and other current liabilities
$
6,907
$
4,375
NOTE
19 -
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
A
summary of the Company’s restricted cash included in the accompanying Consolidated Balance Sheets as of December 31, 2025 and 2024
was as follows:
As
of December 31,
2025
2024
Cash
and cash equivalents
$
10,269
$
17,011
Restricted
cash, current
1,819
476
Restricted
cash, non-current
1,322
180
Total
cash, cash equivalents, and restricted cash
$
13,410
$
17,667
Restricted
cash primarily includes lease and collateral deposits, as well as bank guarantees for licensing.
NOTE
20 -
COMMITMENTS AND CONTINGENCIES
Litigation
and Complaints
The
Company is subject, from time to time, to various claims, lawsuits, contract disputes, and other proceedings arising in the ordinary
course of business. These matters may include claims by clients, candidates, suppliers, landlords, current or former employees, and governmental
or tax authorities, and may relate to regulatory compliance, employment practices (including wage and hour matters), customer or commercial
disputes, product or professional liability, licensure issues, warranty matters, or intellectual property.
The
Company monitors all such matters and records reserves for legal, regulatory, and other contingent liabilities when a loss is considered
probable and the amount can be reasonably estimated. The Company had $
0.2
million and $
0.0
million of legal reserves as of December 31,
2025 and 2024, respectively.
292
Litigation
and administrative proceedings are inherently uncertain, and the ultimate outcome or potential range of loss may be difficult to predict.
These uncertainties may involve, among other factors, the interpretation of laws and facts by courts, the outcome of negotiations or
appeals, and the performance of contractual indemnification or insurance obligations. While responding to such matters may be costly
and disruptive, management currently believes that the resolution of pending or threatened proceedings will not have a material adverse
effect on the Company’s financial condition, results of operations, or liquidity. However, actual outcomes could differ from current
estimates due to known and unknown risks and uncertainties.
NOTE
21 -
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated
other comprehensive loss, net of tax, consisted of the following:
December
31,
2025
2024
Foreign
currency translation adjustments
$
(
1,364
)
$
(
2,717
)
Accumulated
other comprehensive loss
$
(
1,364
)
$
(
2,717
)
NOTE
22 -
VALUATION RESERVES
The
following table summarizes the activity in our valuation accounts during the fiscal years ended December 31, 2025 and 2024.
Balance
at
Charged
to
Balance
at
Beginning
Costs
and
Deductions
End
(in
thousands)
of
Period
Expenses
and
Other
of
Period
Year
Ended December 31, 2025
Allowance
for Expected Credit Losses
$
391
$
103
$
(
219
)
$
275
Deferred
tax assets-valuation allowance
$
73,491
$
463
$
(
6,417
)
$
67,537
Year
Ended December 31, 2024
Allowance
for Expected Credit Losses
$
378
$
24
$
(
11
)
$
391
Deferred
tax assets-valuation allowance
$
183,453
$
456
$
(
110,418
)
$
73,491
NOTE
23 -
SUBSEQUENT EVENTS
On
February 27, 2026, the Company completed a sale-leaseback transaction for its facility located at 101-107 Pasture Drive, Evanston, Wyoming
(the “ADT Wyoming Property”). The property was sold to Custom Capital Strategies, Inc. (“Custom Capital”) for
net cash proceeds of approximately $
1.6
million after closing costs, withholding taxes, and security deposits. Following the closing,
Custom Capital assigned its rights to acquire the property to its affiliate, Pasture Drive Holdings, LLC (the “ADT Wyoming Buyer”).
In
connection with the transaction, ADT, the Company’s wholly owned subsidiary, entered into a single-tenant triple-net lease with
the ADT Wyoming Buyer for the ADT Wyoming Property with an initial term of
20
years, with options to extend for up to
four
additional
five-year periods. The lease provides for an initial monthly base rent of $
12
, with ADT responsible for property taxes, insurance, utilities,
and other operating costs.
As
of December 31, 2025, the ADT Wyoming Property had a carrying value of approximately $
1.5
million. The Company expects to recognize a
gain on the sale of approximately $
0.1
million during the first quarter of 2026, which will be recorded in the consolidated statement
of operations in that period. Additional information regarding this transaction is included in the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 3, 2026.
293
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations (
“
MD&A
”
) should
be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto, included in Part I of this Form 10-Q.
The reader should also refer to the Condensed Consolidated Financial Statements and notes of Star Equity Holdings, Inc. and its subsidiaries
filed in its Annual Report on Form 10-K for the year ended December 31, 2025. This MD&A contains forward-looking statements. Please
see
“
FORWARD-LOOKING STATEMENTS
”
for a discussion of the uncertainties, risks and assumptions associated with
these statements. This MD&A also uses the non-generally accepted accounting principle measure of earnings before interest, taxes,
depreciation, and amortization (
“
EBITDA
”
). See Note 17 to the Condensed Consolidated Financial Statements in
Part I, Item 1 of this Form 10-Q for EBITDA segment reconciliation information. The tables and information in this MD&A were derived
from exact numbers and may have immaterial rounding differences. All defined terms included in this MD&A for the three and six
months ended June 30, 2026, shall be as defined in this discussion.
This
MD&A includes the following sections:
●
Executive
Overview
●
Results
of Operations
●
Liquidity
and Capital Resources
●
Contingencies
●
Recent
Accounting Pronouncements
●
Critical
Accounting Estimates
●
Forward-Looking
Statements
Executive
Overview
Star
Equity Holdings, Inc. (“Star,” the “Company,” “we,” “our”, formerly known as Hudson Global,
Inc. (“Hudson”)) is a diversified multi-industry holding company with four segments. Our Building Solutions segment operates
in the construction industry. Our Business Services segment delivers Recruitment Process Outsourcing (“RPO”) services consisting
of recruitment and contracting solutions tailored to the individual needs of primarily mid-to-large multinational companies. Our Energy
Services segment consists of Alliance Drilling Tools, Inc. (“ADT’). In addition, we have an Investments segment, which holds
and manages certain of our corporate-owned real estate, and manages internally funded, concentrated minority investments in a small number
of public companies.
Amendment
to Certificate of Incorporation
On
September 4, 2025, Star filed a certificate of amendment (the “Amendment”) to the Company’s Amended and Restated Certificate
of Incorporation, as Amended (the “Charter”), to change the name of the Company from Hudson Global, Inc. to Star Equity Holdings,
Inc. (the “Name Change”). The Name Change was approved by the Company’s Board of Directors (the “Board”)
on September 2, 2025, and became effective at 12:01 a.m. (Eastern Time) on September 5, 2025.
Star-Hudson
Merger
On
August 22, 2025, Star completed its previously announced acquisition of Star Operating Companies, Inc. (“SOC” or “Star
Operating Companies”, formerly known as Star Equity Holdings, Inc.) pursuant to the Agreement and Plan of Merger, dated as of May
21, 2025 (the “Merger Agreement”), by and among Star, SOC and HSON Merger Sub, Inc., a wholly owned subsidiary of Star (“Merger
Sub”). Upon the terms and subject to the conditions of the Merger Agreement, on August 22, 2025, at the effective time of the Merger
(the “Effective Time”), Merger Sub merged with and into SOC, with SOC continuing as the surviving corporation of the Merger
under the name “Star Operating Companies, Inc.” as a wholly owned subsidiary of Star. Capitalized terms used herein but not
defined have the meanings set forth in the Merger Agreement.
294
Pursuant
to the terms of the Merger Agreement, at the Effective Time, (i) each share of common stock of SOC issued and outstanding immediately
prior to the Effective Time (other than certain shares as set forth in the Merger Agreement) were automatically converted into the right
to receive 0.23 shares of Star common stock and (ii) each share of preferred stock of SOC issued and outstanding immediately prior to
the Effective Time (other than certain shares set forth in the Merger Agreement) were automatically converted into the right to receive
one (1) share of Star 10% Series A Cumulative Perpetual preferred stock (“Preferred Stock”). As a result of the Merger, former
SOC common stockholders received approximately 744,291 shares of Star common stock for their SOC common shares and former SOC preferred
stockholders received approximately 2,690,637 shares of Star Preferred Stock. No fractional shares of Star common stock were issued in
the Merger, and SOC stockholders became entitled to receive cash in lieu of fractional shares in accordance with the Merger Agreement.
In
addition, pursuant to the terms of the Merger Agreement, at the Effective Time, each award of SOC restricted stock units (“RSUs”)
outstanding immediately prior to the Effective Time was converted into Star RSUs issued under the Hudson Global, Inc. 2009 Incentive
Stock and Awards Plan, as amended (the “Plan”), in accordance with the Merger Agreement.
Segments
Our
Building Solutions segment is currently made up of the following operating businesses: KBS Builders, Inc. (“KBS”); EdgeBuilder,
Inc. (“EdgeBuilder”), and Glenbrook Building Supply, Inc. (“Glenbrook”), with the latter two managed together
and referred to jointly as “EBGL,” and Timber Technologies Solutions, Inc. (“TT”). KBS is based in Maine and
manufactures modular buildings, typically in the single and multi-family residential segments, servicing principally the New England
market. EBGL is based in the Minneapolis-Saint Paul area and principally serves the Upper Midwest region. Together, the EBGL businesses
manufacture and deliver structural wall panels and other engineered wood-based products. EBGL also distributes building materials from
two lumberyard locations primarily focused on professional builder customers. TT is based outside the Minneapolis-St. Paul area and manufactures
glue-laminated timber products (“glulam”) for various end markets and applications, including agriculture, industrial, infrastructure,
and building construction (commercial and residential).
Our
Business Services segment delivers Recruitment Process Outsourcing (“RPO”) services consisting of recruitment and contracting
solutions tailored to the individual needs of primarily mid-to-large multinational companies. The Company operates directly in eighteen
countries with three reportable geographic business segments: the Americas, Asia Pacific, and Europe, Middle East, and Africa (“EMEA”).
The Company’s RPO delivery teams utilize recruitment process methodologies and project management expertise to meet clients’
ongoing business needs. The Company’s RPO services include complete recruitment outsourcing, project-based outsourcing, contingent
workforce solutions, and recruitment consulting for clients’ permanent staff hires. RPO services leverage the Company’s consultants,
supported by the Company’s specialists, in the delivery of its proprietary methods to identify, select, and engage the best-fit
talent for critical client roles. In addition, RPO clients receive a range of outsourced professional contract staffing services and
managed service provider services offered sometimes on a standalone basis and sometimes as part of a blended total talent solution. These
services draw upon a combination of specialized recruiting and project management competencies to deliver a wide range of solutions.
Hudson RPO-employed professionals - either individually or as a team - are placed with client organizations for a defined period of time
based on specific business needs of the client. With direct operations in eighteen countries and relationships with specialized professionals
and organizations around the globe, Business Services brings a strong ability to match talent with opportunities by assessing, recruiting,
developing, and engaging highly successful people for client support.
Our
Energy Services segment currently consists of ADT, a Wyoming and Texas based provider of drilling tools and services to the Energy industry,
a key sector of the economy. ADT is a full-service downhole drilling tool company which provides sale and rental tools in the Oil &
Gas, Geothermal, Mining, and Waterwells sectors. ADT is strategically located near premier oilfields in the Rockies, a geothermal and
mining hub, and in Midland, TX within the Permian Basin. ADT’s business model allows for the majority of costs, such as freight,
repairs, and damages, to be passed directly to customers.
Our
Investments segment holds and manages certain of our corporate-owned real estate, including a manufacturing facility in Maine that is
leased to KBS and a manufacturing facility in Wisconsin that is leased to TT. The Investments segment manages internally funded, concentrated
minority investments in a small number of public companies. It also holds and manages a promissory note and a private equity stake in
Catalyst. SOC acquired these interests in May 2023 as a result of the sale of Digirad Health. Our Investments segment also holds an investment
in Enservco Corporation consisting of an investment in Enservco Common Stock, an investment in Enservco Preferred Stock, and an investment
in a call option, all of which were acquired in the third quarter of 2024 and are discussed in Note 18,
Supplementary Balance Sheet
Information
to the notes to our accompanying condensed consolidated financial statements.
295
We
continue to explore all strategic alternatives to maximize value for the Company’s stockholders, including without limitation,
improving the market position and profitability of our services in the marketplace, and enhancing our valuation. We may pursue our goals
through organic growth, strategic initiatives, or other alternatives. Additionally, we will continue to monitor capital markets for opportunities
to repurchase shares, and consider other actions designed to enhance value to our stockholders, as well as review information regarding
potential acquisitions or combinations, and provide information to third parties regarding potential dispositions of assets or business
lines, from time to time. On August 14, 2026, the Company, HH Merger Sub, and Harte Hanks entered into the HH Merger Agreement providing
for the HH Merger. See Note 21, Subsequent Events, within the notes to our Condensed Consolidated Financial Statements for a summary
of the HH Merger Agreement.
This
MD&A discusses the results of the Company’s business for the three and six months ended June 30, 2026 and 2025.
Strategy
Star
Equity Holdings, Inc.
We
believe our diversified multi-industry holding company structure allows Star management to focus on capital allocation, strategic leadership,
mergers and acquisitions, capital markets, and investor relations, as well as management of our Investments segment. Our structure frees
up our operating company management teams to focus on their respective businesses, look for organic and bolt-on growth opportunities,
and improve operations with less distraction and administrative burden associated with running a public company.
We
continue to explore strategic alternatives to improve our market position and the profitability of our product offerings, generate additional
liquidity, and enhance our common stock valuation. We may pursue our goals through organic growth and through strategic alternatives,
such as selective acquisitions of businesses, divestitures of assets or businesses, equity offerings, debt financings, or corporate restructuring.
Operating
Business
We
believe that our operating companies are well positioned for growth in large addressable markets. The key elements of our growth strategy
include the following:
●
Organic
growth from our core businesses.
We believe that we operate in markets and geographies
that will allow us to continue to grow our core businesses, allowing us to benefit from our
scale and strengths. We plan to focus our efforts on markets in which we already have a presence
in order to leverage the personnel, infrastructure, and brand recognition we have in these
areas.
●
Introduction
of new services.
In the Building Solutions segment, we will consider opportunities
to augment our service offerings to better serve our customer base. We have done this in
the New England market with our entry into the commercial multi-family segment. Other areas
might include logistics, on-site installation, and manufacturing of sub-components.
●
Acquisition
of complementary businesses.
We plan to continue to look at complementary businesses
that meet our acquisition growth criteria. We believe there are many potential small public
and private targets that can be acquired over time and integrated into our platform. We will
also look at larger, more transformational mergers and acquisitions if we believe the appropriate
mix of value, risk, and return is present for our stockholders. The timing of these potential
transactions will always depend on market conditions, available capital, and valuation. In
general, we want to be “value” buyers, and will not pursue any transaction unless
we believe the post-transaction potential value is high for stockholders.
Current
Market Conditions and Trends
The
target customers for our Building Solutions segment include professional home builders, general contractors, project owners, developers,
and design firms. Despite a higher interest rate environment, we continue to experience meaningful demand for our products; however,
certain projects have been delayed as customers secure and finalize financing. We have benefited from implementing both price increases
and margin protection language in our contracts, and these changes have had a positive effect on our profitability. Although we have
experienced slower business activity and lower revenues this quarter, we believe this slowdown is temporary. Our sales pipelines continue
to indicate strong potential demand for our services, but we can give no assurances as to our ability to compete for these opportunities,
or the periods during which successfully negotiated projects will be completed.
The
Modular Building Institute has estimated that permanent modular construction increased as a percentage of the construction industry from
2.14% in 2015 to 6.64% as of the end of 2023. In turn, in our Building Solutions segment, we continue to see a greater acceptance of
offsite or prefab construction in single-family and multi-family residential building projects in our target markets. Our modular units
and structural wall panels offer builders a number of benefits over traditional onsite or “stick built” construction. These
include shorter time to market, higher quality, reduced waste, and potential cost savings. Additionally, technological advancements including
3D modeling software and developments in engineered wood products offer greater design flexibility for higher-end applications. The need
for more affordable housing solutions also presents opportunities for the continued growth of factory-built housing.
296
In
our Business Services segment, our clients’ demands for RPO and contracting services largely depend on the market conditions and
the strength of the labor markets in the countries where we operate. In the first six months of 2026, the market conditions remained
challenging due to persistent inflation, market uncertainty related to trade disruptions, and decreased demand for labor in certain markets.
We anticipate that these challenging market conditions will continue into the second half of 2026.
In
our Energy Services segment, demand for our products is closely tied to oil prices, as customer drilling activity and capital spending
are influenced by prevailing market conditions. Higher and stable oil prices generally support increased drilling and tool utilization,
while lower or volatile prices may reduce activity and negatively impact our revenues and operating results. The demand for our Energy
Services offerings is tied in part to oil and gas prices, drilling activity, and capital expenditures by E&P companies. In June 2025,
Baker Hughes reported that the total U.S. rig count was down 4% year-over-year. During the first six months of 2026, improved oil prices
contributed to increased customer activity, and the segment delivered strong performance.
Economic
conditions in many of the world’s major markets remained uncertain throughout 2026. While inflationary pressures moderated in certain
regions, elevated interest rates and tighter credit conditions continued to impact market activity. These conditions contributed to wage
pressures, higher operating costs, staffing challenges, fluctuating consumer confidence, and constrained access to capital markets, each
of which affected our business. In connection with this environment, some customers reduced demand for our services, and certain others
temporarily deferred or permanently discontinued engagements. Ongoing macroeconomic uncertainty, including the potential for renewed
inflationary pressures or changes in interest rate policy, could have material adverse effects on various aspects of our business in
future periods.
Risks
arising from global economic instability and conflicts, wars, and health crises could impact our business. In addition, the inflation
caused by such events may impact demand for our products and services and our cost to provide products and services. Economic uncertainty
has also continued to contribute to volatility in global currency markets. Fluctuations in foreign exchange rates relative to the U.S.
dollar during reporting periods impact the translation of our foreign operations’ results into U.S. dollars and may affect comparability
of reported results.
We
continue to explore all strategic alternatives to maximize value for the Company’s stockholders, including without limitation,
improving the market position and profitability of our services in the marketplace, and enhancing our valuation. We may pursue our goals
through organic growth, strategic initiatives, or other alternatives. Additionally, we will continue to monitor capital markets for opportunities
to repurchase shares, and consider other actions designed to enhance value to our stockholders, as well as review information regarding
potential acquisitions or combinations, and provide information to third parties regarding potential dispositions of assets or business
lines, from time to time.
Summary
of Financial Performance Highlights For The Three Months Ended June 30, 2026
●
Revenue
was $54.9 million for the three months ended June 30, 2026, compared to $35.5 million for
the same period in 2025, an increase of $19.4 million, or 54.6%. The increase in revenue
was principally driven by the inclusion of revenues from the Star Operating Companies acquisition,
which contributed 52 percentage points to the revenue growth.
●
Gross
profit was $22.8 million for the three months ended June 30, 2026, compared to $18.6 million
for the same period in 2025, an increase of $4.2 million, or 22.3%. The increase in gross
profit was driven by the acquisition of Star Operating Companies, which increased gross profit
growth by 27 percentage points.
●
Selling,
general and administrative expenses (including salaries and related expenses) and other non-operating
income (expense) (“SG&A and Non-Op”) was $24.0 million for the three months
ended June 30, 2026, compared to $18.8 million for the same period in 2025, an increase of
$5.3 million, or 28.0%. The acquisitions of our Building Solutions, Energy Services, and
Investments segments collectively contributed 25 percentage points to the increase in SG&A
and Non-Op.
●
Net
loss was $1.8 million for the three months ended June 30, 2026, compared to net loss of $0.7
million for the same period in 2025, an increase in net loss of $1.2 million.
●
EBITDA
loss was $0.6 million for the three months ended June 30, 2026, compared to EBITDA loss of
$0.2 million for the same period in 2025, an increase in EBITDA loss of $0.5 million.
297
Summary
of Financial Performance Highlights For The Six Months Ended June 30, 2026
●
Revenue
was $105.0 million for the six months ended June 30, 2026, compared to $67.4 million for the same period in 2025, an increase of $37.6
million, or 55.8%. The increase in revenue was principally driven by the inclusion of revenues from the Star Operating Companies acquisition,
which contributed 50 percentage points to the revenue growth.
●
Gross
profit was $43.4 million for the six months ended June 30, 2026, compared to $35.0 million for the same period in 2025, an increase
of $8.3 million, or 23.7%. The increase in gross profit was driven by the acquisition of Star Operating Companies, which increased
gross profit growth by 23 percentage points.
●
Selling,
general and administrative expenses (including salaries and related expenses) and other non-operating income (expense) (“SG&A
and Non-Op”) was $48.3 million for the six months ended June 30, 2026, compared to $36.7 million for the same period in 2025,
an increase of $11.6 million, or 31.7%. The acquisitions of our Building Solutions, Energy Services, and Investments segments collectively
contributed 25 percentage points to the increase in SG&A and Non-Op.
●
Net
loss was $5.6 million for the six months ended June 30, 2026, compared to net loss of $2.4 million for the same period in 2025, an
increase in net loss of $3.2 million.
●
EBITDA
loss was $3.7 million for the six months ended June 30, 2026, compared to EBITDA loss of $1.7 million for the same period in 2025,
an increase in EBITDA loss of $2.1 million.
Use
of EBITDA (Non-GAAP Financial Measure)
Management
believes EBITDA is a meaningful indicator of the Company’s performance that provides useful information to investors regarding
the Company’s financial condition and results of operations. Management considers EBITDA to be the best indicator of operating
performance and most comparable measure across the regions in which the Company operates. Management uses this measure to evaluate capital
needs and working capital requirements. EBITDA should not be considered in isolation or as a substitute for operating income, or net
income prepared in accordance with U.S. GAAP or as a measure of the Company’s profitability. EBITDA is derived from net income
adjusted for the provision for (benefit from) income taxes, interest expense (income), and depreciation and amortization.
The
reconciliation of EBITDA to the most directly comparable GAAP financial measure is provided in the table below:
Three Months Ended
Six Months Ended
June 30,
June 30,
$ in thousands
2026
2025
2026
2025
Net loss attributable to common shareholders
$
(2,451
)
$
(688
)
$
(6,836
)
$
(2,444
)
Dividends on Series A perpetual preferred stock
603
-
1,195
-
Net loss
(1,848
)
(688
)
$
(5,641
)
$
(2,444
)
Adjustments to Net loss
Provision for income taxes
270
345
4
377
Interest (expense) income, net
-
(54
)
13
(125
)
Depreciation and amortization expense-within cost of revenues
610
-
1,241
-
Depreciation and amortization expense -within selling, general and administrative expense
324
245
635
528
Total adjustments from net loss to EBITDA
1,204
536
1,893
780
EBITDA (loss)
$
(644
)
$
(152
)
$
(3,748
)
$
(1,664
)
298
Results
of Operations
Building
Solutions
Revenue
- Building Solutions
Three Months Ended June 30,
Six Months Ended June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Building Solutions
Revenue
$
14.6
$
-
$
14.6
N/A
$
26.2
-
$
26.2
N/A
For
the three months ended June 30, 2026, Building Solutions contributed $14.6 million to the Company’s revenue. The segment faced
several headwinds during the quarter that constrained revenue generation. Project timing delays affected certain large projects, as revenue
recognition shifted into subsequent quarters. Additionally, challenging macroeconomic conditions weighed on customer demand, resulting
in extended sales cycles and delayed capital spending decisions.
For
the six months ended June 30, 2026, Building Solutions contributed $26.2 million to the Company’s revenue. The drivers of the revenue
performance for the six months ended June 30, 2026 were the same factors noted for the three months ended June 30, 2026 above.
Gross
Profit - Building Solutions
Three
Months Ended June 30,
Six Months Ended June 30,
2026
As
2025
As
Change
in
Change
2026
As
2025
As
Change
in
Change
$
in millions
reported
reported
amount
in
%
reported
reported
amount
in
%
Building Solutions
Gross profit
$
3.2
$
-
$
3.2
N/A
$
4.8
$
-
$
4.8
N/A
For
the three months ended June 30, 2026, Building Solutions contributed $3.2 million to the Company’s gross profit. Margins were pressured
by rising input costs outpacing pricing actions in a competitive environment, along with lower volumes.
For
the six months ended June 30, 2026, Building Solutions contributed $4.8 million to the Company’s gross profit. Margin for the first
half of the year was affected largely by the same dynamics that pressured the three months ended June 30, 2026, with the earlier part
of the year also seeing volume impacted by weather-related project delivery disruptions.
SG&A
and Non-Op - Building Solutions
Three Months Ended June 30,
Six Months Ended June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Building Solutions
SG&A and Non-Op
$
3.3
$
-
$
3.3
N/A
$
6.5
$
-
$
6.5
N/A
SG&A and Non-Op as a percentage of revenue
23
%
N/A
N/A
N/A
25
%
N/A
N/A
N/A
299
For
the three months ended June 30, 2026, Building Solutions SG&A and Non-OP expenses were $3.3 million or 23% of revenue. The segment
demonstrated effective cost management during the quarter, controlling discretionary spending and maintaining operational efficiency
despite the challenging revenue environment. The focus on expense discipline helped partially offset the impact of lower sales volumes
on overall profitability.
For
the six months ended June 30, 2026, Building Solutions SG&A and Non-OP expenses were $6.5 million or 25% of revenue. The segment
kept a disciplined approach to spending through the first half of the year, working to preserve operating flexibility as it navigates
a competitive pricing environment and softer demand.
Operating
(Loss) Income and EBITDA - Building Solutions
Three Months Ended June 30,
Six Months Ended June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Building Solutions
Operating income (loss)
$
0.2
$
-
$
0.2
N/A
$
(1.0
)
$
-
$
(1.0
)
N/A
EBITDA (loss)
$
-
$
-
$
-
N/A
$
(1.3
)
$
-
$
(1.3
)
N/A
EBITDA (loss) as a percentage of revenue
-
%
N/A
N/A
N/A
(5
)%
N/A
N/A
N/A
For
the three months ended June 30, 2026, Building Solutions generated operating income of $0.2 million and EBITDA of $0.02 million or 0.2%
of revenue. Profitability for the quarter was primarily impacted by lower volume and margin pressure resulting from the competitive environment.
While the segment maintained effective cost management and expense discipline on the SG&A side, the revenue shortfall and resulting
margin pressure were the primary drivers of the near-breakeven EBITDA performance.
For
the six months ended June 30, 2026, Building Solutions generated operating loss of $1.0 million and EBITDA loss of $1.3 million or 5%
of revenue. The segment maintained effective cost management on the SG&A side; however, lower volume and margin pressure from the
competitive environment remained a challenge through the first half of the year.
Business
Services
Revenue
- Business Services
Three Months Ended June 30,
Six Months Ended June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Business Services
Revenue
$
36.4
$
35.5
$
0.8
2
%
$
71.4
$
67.4
$
4.0
6
%
For
the three months ended June 30, 2026, RPO revenue decreased $0.3 million, or 2%, while contracting revenue increased $1.2 million, or
7% compared to 2025.
In
the Americas, revenue increased $0.6 million, or 8%, for the three months ended June 30, 2026, compared to the same period in 2025. The
increase was primarily driven by RPO revenue, which increased $0.9 million, or 14%, driven by higher demand from existing clients, while
contracting revenue decreased $0.3 million, or 30%, due to reduced demand from existing clients.
300
In
Asia Pacific, revenue increased $1.0 million, or 5%, for the three months ended June 30, 2026, compared to the same period in 2025. Contracting
revenue increased $1.8 million, or 13%, due to higher demand from existing clients, partly offset by a decline in RPO revenue of $0.8
million, or 10%, due to a reduction in demand from existing clients.
In
EMEA, revenue decreased $0.7 million, or 11%, for the three months ended June 30, 2026, compared to the same period in 2025, driven by
a decline in contracting revenue of $0.3 million, or 9%, and a decline in RPO revenue of $0.4 million, or 13%.
For
the six months ended June 30, 2026, RPO revenue increased $0.7 million, or 2%, while contracting revenue increased $3.3 million, or 9%
compared to 2025.
In
the Americas, revenue increased $1.6 million, or 11%, for the six months ended June 30, 2026, compared to the same period in 2025. The
increase was primarily driven by RPO revenue, which increased $2.4 million, or 20%, driven by higher demand from existing clients, while
contracting revenue decreased $0.8 million, or 41%, due to reduced demand from existing clients.
In
Asia Pacific, revenue increased $3.5 million, or 9%, for the six months ended June 30, 2026, compared to the same period in 2025. Contracting
revenue increased $5.0 million, or 19%, due to higher demand from existing clients, partly offset by a decline in RPO revenue of $1.5
million, or 10%, due to a reduction in demand from existing clients.
In
EMEA, revenue decreased $1.1 million, or 8%, for the six months ended June 30, 2026, compared to the same period in 2025, driven by a
decline in contracting revenue of $0.9 million, or 15%, and a decline in RPO revenue of $0.2 million, or 3%.
Gross
Profit - Business Services
Three Months Ended June 30,
Six Months Ended June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Business Services
Gross Profit
$
17.8
$
18.6
$
(0.8
)
(4
)%
$
35.3
$
35.0
$
0.2
1
%
For
the three months ended June 30, 2026, gross profit decreased $0.8 million, or 4%, driven by a decrease in RPO gross profit of $0.5 million,
compared to the same period in 2025.
In
Americas, gross profit increased by $0.7 million, or 10%, for the three months ended June 30, 2026, compared to the same period in 2025.
The growth was primarily driven by an increase of $0.8 million, or 13%, in RPO gross profit, partially offset by a decrease in contracting
gross profit of $0.1 million, or 79%, compared to 2025.
In
Asia Pacific, gross profit decreased by $1.1 million, or 13%, for the three months ended June 30, 2026, compared to the s
ame
period in 2025, driven by lower RPO gross profit of
$0.9 million
, coupled with lower contracting
gross profit of
$0.2 million
.
In
EMEA, gross profit decreased by $0.3 million, or 10%, for the three months ended June 30, 2026, compared to the same period in 2025,
driven by primarily by lower RPO gross profit of $0.4 million.
For
the six months ended June 30, 2026, gross profit increased $0.2 million, or 1%, driven by an increase in RPO gross profit of $0.7 million,
partly offset by a decrease in contracting gross profit of $0.5 million, compared to the same period in 2025.
In
Americas, gross profit increased by $1.9 million, or 16%, for the six months ended June 30, 2026, compared to the same period in 2025.
The growth was primarily driven by an increase of $2.3 million, or 19%, in RPO gross profit, partially offset by a decrease in contracting
gross profit of $0.4 million, or 85%, compared to 2025.
301
In
Asia Pacific, gross profit decreased by $1.7 million, or 11%, for the six months ended June 30, 2026, compared to the s
ame
period in 2025, driven by lower RPO gross profit of
$1.5 million
, coupled with lower contracting
gross profit of
$0.2 million
.
In
EMEA, gross profit increased slightly, or 0.1%, for the six months ended June 30, 2026, compared to the same period in 2025, driven by
primarily by higher RPO gross profit of $0.05 million.
SG&A
and Non-Op - Business Services
Three Months Ended June 30,
Six Months Ended  June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Business Services
SG&A and Non-Op
$
17.7
$
17.7
$
0.1
-
%
$
36.2
$
34.6
$
1.6
5
%
SG&A and Non-Op as a percentage of revenue
49
%
50
%
N/A
N/A
51
%
51
%
N/A
N/A
For
the three months ended June 30, 2026, SG&A and Non-Op increased $0.1 million compared to the same period in 2025, while SG&A
and Non-Op as a percentage of revenue decreased from 50% in the prior year to 49% in the current year. The increase in SG&A and Non-Op
was primarily due to higher compensation costs.
For
the six months ended June 30, 2026, SG&A and Non-Op increased $1.6 million or 5%, compared to the same period in 2025, while SG&A
and Non-Op as a percentage of revenue was even with the prior year.
Operating
Income and EBITDA - Business Services
Three Months Ended June 30,
Six Months Ended  June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Business Services
Operating income (loss)
$
0.2
$
1.3
$
(1.1
)
(83
)%
$
(0.6
)
$
1.0
$
(1.6
)
(166
)%
EBITDA (loss)
$
0.1
$
1.0
$
(0.9
)
(93
)%
$
(0.9
)
$
0.5
$
(1.4
)
(306
)%
EBITDA (loss) as a percentage of revenue
-
%
3
%
N/A
N/A
(1
)%
1
%
N/A
N/A
For
the three months ended June 30, 2026, operating income was $0.2 million, compared to operating income of $1.3 million in 2025, and EBITDA
was $0.1 million, or 0.2% of revenue, compared to EBITDA of $1.0 million, or 3% of revenue, in 2025.
For
the six months ended June 30, 2026, operating loss was $0.6 million, compared to operating income of $1.0 million in 2025, and EBITDA
loss was $0.9 million, or 1% of revenue, compared to EBITDA of $0.5 million, or 1% of revenue, in 2025.
302
Energy
Services
Revenue
- Energy Services
Three Months Ended June 30,
Six Months Ended  June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Energy Services
Revenue
$
3.9
$
-
$
3.9
N/A
7.4
-
$
7.4
N/A
For
the three months ended June 30, 2026, Energy Services contributed $3.9 million in revenue. The segment demonstrated positive momentum
during the quarter, particularly in the geothermal markets, where activity levels accelerated as the segment continued to capture market
share through strong customer relationships and new customer wins.
For
the six months ended June 30, 2026, Energy Services contributed $7.4 million in revenue. Activity remained strong across both the Permian
and Rockies regions through the first half of the year, driving momentum across markets.
Gross
Profit - Energy Services
Three Months Ended June 30,
Six Months Ended  June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Energy Services
Gross Profit
$
1.9
$
-
$
1.9
N/A
$
3.4
$
-
$
3.4
N/A
For
the three months ended June 30, 2026, the contribution of Energy Services to the Company’s Gross Profit was $1.9 million. The segment
delivered strong margin performance during the quarter. The combination of increased activity levels and improved cost absorption supported
profitability as the segment executed on opportunities across both traditional energy markets and diversified non-oil-and-gas applications.
For
the six months ended June 30, 2026, the contribution of Energy Services to the Company’s Gross Profit was $3.4 million. The drivers
of the margin performance for the six months ended June 30, 2026 were the same factors noted for the three months ended June 30, 2026
above.
SG&A
and Non-Op - Energy Services
Three Months Ended June 30,
Six Months Ended  June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Energy Services
SG&A and Non-Op
$
1.2
$
-
$
1.2
N/A
$
2.2
$
-
$
2.2
N/M
SG&A and Non-Op as a percentage of revenue
29
%
N/A
N/A
N/A
30
%
N/A
N/A
N/A
N/M
= not meaningful
For
the three months ended June 30, 2026, Energy Services’ SG&A and non-operating expenses totaled $1.2 million or 29% of revenue.
Expenses were generally in line with normal operating levels, with a slight increase in sales commissions reflecting efforts to expand
market share during the period.
303
For
the six months ended June 30, 2026, Energy Services’ SG&A and non-operating expenses totaled $2.2 million or 30% of revenue.
Spend levels tracked the segment’s normal operating range for the first half of the year, with sales commissions representing a
modest share of the total as the segment worked to grow its customer base.
Operating
Income and EBITDA - Energy Services
Three Months Ended June 30,
Six Months Ended  June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Energy Services
Operating income (loss)
$
0.8
$
-
$
0.8
N/M
$
1.2
$
-
$
1.2
N/M
EBITDA (loss)
$
1.1
$
-
$
1.1
N/M
$
2.0
$
-
$
2.0
N/M
EBITDA (loss) as a percentage of revenue
28
%
N/A
N/A
N/A
26
%
N/A
N/A
N/A
N/M
= not meaningful
For
the three months ended June 30, 2026, Energy Services reported an operating income of $0.8 million and an EBITDA gain of $1.1 million
or 28% of revenue. The segment’s profitability reflects the positive momentum established during the quarter, with strong margin
performance and increased activity levels driving EBITDA generation.
For
the six months ended June 30, 2026, Energy Services reported an operating income of $1.2 million and an EBITDA gain of $2.0 million or
26% of revenue. Results for the first half of the year were underpinned by sustained activity across the Permian and Rockies regions
and continued strength in geothermal markets, translating into solid EBITDA generation for the segment.
Investments
Revenue-Investments
Three Months Ended June 30,
Six Months Ended  June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Investments
Revenue
$
0.2
$
-
$
0.2
N/A
$
0.3
$
-
$
0.3
N/A
For
the three and six months ended June 30, 2026, Investments contributed $0.2 million and $0.3 million, respectively, to the Company’s
revenue, reflecting rental income from owned properties.
304
Gross
Profit - Investments
Three Months Ended June 30,
Six Months Ended  June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Investments
Gross profit
$
0.1
$
-
$
0.1
N/A
$
0.2
$
-
$
0.2
N/A
For
the three and six months ended June 30, 2026, Investments contributed $0.1 million and $0.2 million, respectively, to the Company’s
gross profit, reflecting rental income after accounting for property depreciation.
SG&A
and Non-Op - Investments
Three Months Ended June 30,
Six Months Ended June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Investments
SG&A and Non-Op
$
0.2
$
-
$
0.2
N/A
$
0.3
$
-
$
0.3
N/A
SG&A and Non-Op as a percentage of revenue
136
%
N/A
N/A
N/A
103
%
N/A
N/A
N/A
For
the three and six months ended June 30, 2026, Investments SG&A and Non-Op was $0.2 million and $0.3 million, respectively.
Operating
(Loss) Income and EBITDA - Investments
Three Months Ended June 30,
Six Months Ended June 30,
2026
As
2025
As
Change in
Change
2026
As
2025
As
Change in
Change
$ in millions
reported
reported
amount
in %
reported
reported
amount
in %
Investments
Operating income (loss)
$
(0.1
)
$
-
$
(0.1
)
N/A
$
(0.1
)
$
-
$
(0.1
)
N/A
EBITDA (loss)
$
(0.1
)
$
-
$
(0.1
)
N/A
$
-
$
-
$
-
N/A
EBITDA (loss) as a percentage of revenue
(35
)%
N/A
N/A
N/A
(3
)%
N/A
N/A
N/A
Investments
operating loss was $0.1 million for three and six months ended June 30, 2026, with EBITDA loss of $0.1 million, or 35% of revenue for
the three months ended June 30, 2026 and $0.01 million, or 3% of revenue for the six months ended June 30, 2026.
Corporate
Expenses, Net of Corporate Management Expense Allocations
Corporate
expenses were $1.8 million for the three months ended June 30, 2026 as compared to $1.1 million for the same period in 2025, representing
an increase of $0.7 million. The increase in corporate expenses was primarily driven by higher compensation costs, reflecting increased
salaries and related expenses associated with the acquisition of Star Operating Companies.
305
For
the six months ended June 30, 2026, corporate expenses were $3.4 million compared to $2.1 million for the same period in 2025, representing
an increase of $1.3 million. The increase in corporate expenses was primarily driven by the same reason noted above.
Depreciation
and Amortization Expense
Depreciation
and amortization expense included in operating expenses was $0.3 million and $0.6 million for the three and six months ended June 30,
2026, compared to $0.2 million and $0.5 million for the same periods in 2025. Depreciation and amortization expense included in cost
of revenues was $0.6 million and $1.2 million for the three and six months ended June 30, 2026.
Interest
(expense) income, Net
Interest
expense, net was $0.0 million and $0.0 million for the three and six months ended June 30, 2026, compared to net interest income of $0.1
million for each of the same periods in 2025.
Other
Income (expense), Net
Net
other expense was $0.2 million for the three and six months ended June 30, 2026, compared to net other expense of $0.2 million and $0.3
million for the same periods in 2025.
Provision
for Income Taxes
The
provision for income taxes for the six months ended June 30, 2026 was $0.0 million on $5.6 million of pre-tax loss, compared to a provision
for income tax of $0.4 million on $2.1 million of pre-tax loss for the same period in 2025. The effective tax rates for the six months
ended June 30, 2026 and 2025 were negative 0.08% and negative 18%, respectively. For the six months ended June 30, 2026, the effective
tax rates differed from the U.S. Federal statutory rate of 21% primarily due to pretax losses for which no tax benefit can be recognized,
foreign tax rate differences, and non-deductible expenses. For the six months ended June 30, 2025, the effective tax rates differed from
the U.S. Federal statutory rate of 21% primarily due to pretax losses for which no tax benefit can be recognized, foreign tax rate differences,
and non-deductible expenses. The current year-to-date effective tax rate differs significantly from the prior period effective tax rate
primarily due to the interaction of rate reconciliation items, including changes in valuation allowance.
Net
Loss
Net
loss attributable to common shareholders was $2.5 million for the three months ended June 30, 2026, compared to net loss of $0.7 million
for the three months ended June 30, 2025, an increase in net loss of $1.8 million. Basic and diluted loss per share were both $0.66 for
the three months ended June 30, 2026, compared to basic and diluted loss per share of $0.23 for the same period in 2025.
Net
loss attributable to common shareholders was $6.8 million for the six months ended June 30, 2026, compared to net loss of $2.4 million
for the six months ended June 30, 2025, an increase in net loss of $4.4 million. Basic and diluted loss per share were both $1.84 for
the six months ended June 30, 2026, compared to basic and diluted loss per share of $0.82 for the same period in 2025.
306
Liquidity
and Capital Resources
As
of June 30, 2026, cash and cash equivalents and restricted cash totaled $8.9 million, compared to $13.4 million as of December 31, 2025.
The following table summarizes the Company’s cash flow activities for the six months ended June 30, 2026 and 2025:
For the Six Months Ended June 30,
$ in millions
2026*
2025
Net cash used in operating activities
$
(3.1
)
$
(0.7
)
Net cash provided by investing activities
0.6
-
Net cash used in financing activities
(1.8
)
-
Effect of exchange rates on cash, cash equivalents, and restricted cash
(0.1
)
0.6
Net decrease in cash, cash equivalents, and restricted cash*
$
(4.5
)
$
(0.1
)
*2026
does not sum due to rounding
Cash
Flows from Operating Activities
For
the six months ended June 30, 2026, net cash used in operating activities was $3.1 million, compared to $0.7 million during the same
period in 2025, resulting in a $2.5 million increase in net cash used. The decline was primarily driven by the Company’s higher
net loss in 2026 compared to 2025.
Cash
Flows from Investing Activities
For
the six months ended June 30, 2026, net cash provided by investing activities was $0.6 million compared to $0.0 million of net cash used
in investing activities in 2025. Investing activities in 2026 primarily reflects $3.2 million of proceeds from a sale-leaseback of real
estate, $1.1 million from sales of equity securities, $0.4 million from the sale of lost-in-hole equipment, and $0.2 million from note
receivable repayments, partially offset by $2.8 million of capital expenditures and $1.6 million of equity security purchases.
Cash
Flows from Financing Activities
For
the six months ended June 30, 2026, net cash used in financing activities was $1.8 million, compared to net cash used in financing activities
of $0.0 million in 2025. Net cash used in 2026 primarily reflects preferred stock dividends paid of $1.2 million in the current year,
treasury stock repurchases of $0.9 million, and net debt repayments of $0.5 million, partially offset by $0.8 million of proceeds from
the issuance of preferred stock under the Company’s at-the-market program.
Credit
Facilities
See
Note 9, Debt, in the accompanying notes to the condensed consolidated financial statements for further details.
Liquidity
and Capital Resources Outlook
As
of June 30, 2026, the Company had cash and cash equivalents on hand of $6.8 million, as well as our lines of credit and other debt instruments.
During the three months ended June 30, 2026, the Company raised $790 in net proceeds through sales of shares of its 10% Series A Cumulative
Perpetual Preferred Stock under an At Market Issuance Sales Agreement entered into in May 2026. Other than as described above, the Company
has no financial guarantees, outstanding debt or other lease agreements or arrangements that could trigger a requirement for an early
payment or that could change the value of our assets. The Company believes that it has sufficient liquidity to satisfy its needs through
at least the next 12 months, based on the Company’s financial position as of June 30, 2026. The Company’s near-term cash
requirements during 2026 are primarily related to the funding of the Company’s operations.
As
of June 30, 2026, $2.1 million of the Company’s cash and cash equivalents noted above were held in the U.S. and the remainder were
held outside the U.S., primarily in the U.K. ($1.3 million), Singapore ($1.0 million), Hong Kong ($0.6 million), the Philippines ($0.4
million), and China ($0.3 million). The majority of the Company’s offshore cash is available to it as a source of funds, net of
any tax obligations or assessments.
Off-Balance
Sheet Arrangements
As
of June 30, 2026, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
307
Contingencies
From
time to time in the ordinary course of business, the Company is subject to compliance audits by U.S. federal, state, local, and foreign
government regulatory, tax, and other authorities relating to a variety of regulations, including wage and hour laws, unemployment taxes,
workers’ compensation, immigration, and income, value-added, and sales taxes. The Company is also subject to, from time to time
in the ordinary course of business, various claims, lawsuits, and other complaints from, for example, clients, candidates, suppliers,
landlords for both leased and subleased properties, former and current employees, and regulators or tax authorities. Periodic events
and management actions such as business reorganization initiatives can change the number and types of audits, claims, lawsuits, contract
disputes, or complaints asserted against the Company. Such events can also change the likelihood of assertion and the behavior of third
parties to reach resolution regarding such matters.
The
economic conditions in the recent past have given rise to many news reports and bulletins from clients, tax authorities, and other parties
about changes in their procedures for audits, payment, plans to challenge existing contracts, and other such matters aimed at being more
aggressive in the resolution of such matters in their own favor. The Company believes that it has appropriate procedures in place for
identifying and communicating any matters of this type, whether asserted or likely to be asserted, and it evaluates its liabilities in
light of the prevailing circumstances. Changes in the behavior of third parties could cause the Company to change its view of the likelihood
of a claim and what might constitute a trend. Employment laws vary in the markets in which we operate, and in some cases, employees and
former employees have extended periods during which they may bring claims against the Company.
For
matters that reach the threshold of probable and estimable, the Company establishes reserves for legal, regulatory, and other contingent
liabilities. The Company had $0.2 million of legal reserves as of both June 30, 2026 and December 31, 2025. Although the outcome of these
matters cannot be determined, the Company believes that none of the currently pending matters, individually or in the aggregate, will
have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
Recent
Accounting Pronouncements
See
Note 3 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a full description of relevant accounting
pronouncements, including the respective expected dates of adoption.
Critical
Accounting Policies and Estimates
See
“Critical Accounting Estimates” under Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2025 filed with the SEC on March 20, 2026 and incorporated by reference herein. There were no changes to the Company’s
critical accounting policies or estimates during the six months ended June 30, 2026.
FORWARD-LOOKING
STATEMENTS
This
Form 10-Q contains statements that the Company believes to be “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Form 10-Q, including statements
regarding the Company’s future financial condition, results of operations, business operations and business prospects, are forward-looking
statements. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,”
“plan,” “predict,” “believe,” and similar words, expressions, and variations of these words and expressions
are intended to identify forward-looking statements. All forward-looking statements are subject to important factors, risks, uncertainties,
and assumptions, including industry and economic conditions that could cause actual results to differ materially from those described
in the forward-looking statements. Such factors, risks, uncertainties, and assumptions include, but are not limited to, (1) global economic
fluctuations, (2) changes in the cost and availability of commodities, materials, and equipment, (3) risks related to providing uninterrupted
service to clients, (4) the ability of clients to terminate their relationship with the Company at any time, (5) risks associated with
real estate ownership, (6) the Company’s ability to successfully achieve its strategic initiatives, (7) risks related to fluctuations
in the Company’s operating results from quarter to quarter, (8) risks related to potential acquisitions or dispositions of businesses
by the Company, (9) our profitability and growth being tied to the success of our operating businesses, (10) risks associated with our
financial investments in other businesses, (11) our ability to improve existing products and services and develop, introduce, and market
new products and services successfully, (12) the loss of or material reduction in our business with any of the Company’s largest
customers, (13) competition in the Company’s markets, (14) risks related to potential decreases in demand for products, (15) our
ability to maintain costs at an acceptable level, (16) the negative cash flows and operating losses that may recur in the future, (17)
risks related to international operations, including foreign currency fluctuations, political events, trade wars, natural disasters or
health crises, including the Russia-Ukraine war and conflict in the Middle East, (18) risks relating to how future credit facilities
may affect or restrict our operating flexibility, (19) our ability to generate or borrow sufficient cash to make payments on our indebtedness,
(20) risks related to indebtedness, (21) risks associated with the Company’s investment strategy, (22) the Company’s dependence
on key management personnel, (23) the Company’s ability to attract and retain highly skilled professionals, management, and advisors,
(24) the Company’s ability to collect accounts receivable, (25) the Company’s exposure to legal proceedings, investigations
and disputes, and limits on related insurance coverage, (26) the Company’s ability to utilize net operating loss carryforwards,
(27) the potential for goodwill impairment, (28) volatility of the Company’s stock price, (29) risks related to our historically
low trading volume, (30) risks related to securities or industry analysts, (31) the Company’s ability to declare dividends, (32)
risks associated with failure to pay dividends on our Series A Preferred Stock, (33) our history of annual net losses, (34) risks related
to our international operations, (35) risks related to compliance with federal and state laws, regulations, and other rules, (36) our
exposure to employment-related claims, legal liability, and costs from clients, employees, and regulatory authorities, (37) risks related
to the imposition of licensing or tax requirements or new regulations, (38) the effect of Anti-takeover provisions in our organizational
documents, (39) the effect of the protective amendment contained in our Restated Certificate of Incorporation, (40) the impact of our
stockholder rights plan, or “poison pill,” on stockholder decision making, (41) risks related to our scaled disclosure requirements
as a smaller reporting company, (42) the Company’s heavy reliance on information systems and the impact of potentially losing or
failing to develop technology, (43) the adverse impacts of cybersecurity threats and attacks, and (44) risks related to the use of new
and evolving technologies. The foregoing list should not be construed to be exhaustive. Actual results could differ materially from the
forward-looking statements contained in this Form 10-Q. In view of these uncertainties, you should not place undue reliance on any forward-looking
statements, which are based on our current expectations. These forward-looking statements speak only as of the date of this Form 10-Q.
The Company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result
of new information, future events or otherwise.
308
Star
Equity Holdings, Inc.
Index
to Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2026 and 2025
310
Condensed Consolidated Statements of Other Comprehensive Income (Loss) - Three and Six Months Ended June 30, 2026 and 2025
311
Condensed Consolidated Balance Sheets – June 30, 2026 and December 31, 2025
312
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2026 and 2025
313
Condensed Consolidated Statements of Stockholders’ Equity – Three and Six Months Ended June 30, 2026 and 2025
314
Notes to Condensed Consolidated Financial Statements
315
309
STAR
EQUITY HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2026
2025
2026
2025
Revenues:
Building Solutions
$
14,612
$
-
$
26,210
$
-
Business Services
36,385
35,541
71,390
67,407
Energy Services
3,944
-
7,402
-
Investments
-
-
-
-
Total revenues
54,941
35,541
105,002
67,407
Cost of revenues:
Building Solutions
11,454
-
21,411
-
Business Services
18,570
16,906
36,129
32,374
Energy Services
2,048
-
3,963
-
Investments
74
-
149
-
Total cost of revenues
32,146
16,906
61,652
32,374
Gross profit
22,795
18,635
43,350
35,033
Operating expenses:
Salaries and related
17,967
14,837
36,707
29,182
Office and general
4,873
2,793
9,470
5,357
Marketing and promotion
1,001
971
1,923
1,901
Depreciation and amortization
324
245
635
528
Total operating expenses
24,165
18,846
48,735
36,968
Operating loss
(
1,370
)
(
211
)
(
5,385
)
(
1,935
)
Non-operating income (expense):
Interest income (expense), net
-
54
(
13
)
125
Other (expense) income, net
(
208
)
(
186
)
(
239
)
(
257
)
Loss before income taxes
(
1,578
)
(
343
)
(
5,637
)
(
2,067
)
Provision for income taxes
270
345
4
377
Net loss
(
1,848
)
(
688
)
(
5,641
)
(
2,444
)
Dividend on Series A Perpetual preferred stock
(
603
)
-
(
1,195
)
-
Net loss attributable to common shareholders
$
(
2,451
)
$
(
688
)
$
(
6,836
)
$
(
2,444
)
Loss per share:
Basic
$
(
0.50
)
$
(
0.23
)
$
(
1.51
)
$
(
0.82
)
Diluted
$
(
0.50
)
$
(
0.23
)
$
(
1.51
)
$
(
0.82
)
Loss per share attributable to common shareholders:
Basic
$
(
0.66
)
$
(
0.23
)
$
(
1.84
)
$
(
0.82
)
Diluted
$
(
0.66
)
$
(
0.23
)
$
(
1.84
)
$
(
0.82
)
Weighted-average shares outstanding:
Basic
3,704
2,995
3,724
2,990
Diluted
3,704
2,995
3,724
2,990
Dividends declared per share of Series A Perpetual preferred stock
$
0.25
$
-
$
0.50
$
-
See
accompanying notes to Condensed Consolidated Financial Statements.
310
STAR
EQUITY HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF
OTHER
COMPREHENSIVE (LOSS) INCOME
(in
thousands, except per share amounts)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2026
2025
2026
2025
Comprehensive loss:
Net loss
$
(
1,848
)
$
(
688
)
$
(
5,641
)
$
(
2,444
)
Other comprehensive (loss) income:
Foreign currency translation adjustment, net of income taxes
(
81
)
1,124
(
164
)
1,548
Total other comprehensive (loss) income, net of income taxes
(
81
)
1,124
(
164
)
1,548
Comprehensive (loss) income
$
(
1,929
)
$
436
$
(
5,805
)
$
(
896
)
See
accompanying notes to Condensed Consolidated Financial Statements.
311
STAR
EQUITY HOLDINGS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except per share amounts)
(unaudited)
June 30,
2026
December 31,
2025
ASSETS
Current assets:
Cash and cash equivalents
$
6,834
$
10,269
Restricted cash, current
1,540
1,819
Investments in equity securities
4,262
3,767
Accounts receivable, less allowance for expected credit losses of $
289
and $
275
, respectively
34,940
35,220
Inventories, net
6,954
6,988
Note receivable, current portion
236
256
Prepaid and other
3,059
4,168
Total current assets
57,825
62,487
Property and equipment, net of accumulated depreciation of $
7,632
and $
6,367
, respectively
16,598
18,610
Operating lease right-of-use assets
13,718
11,675
Goodwill
5,899
5,944
Intangible assets, net of accumulated amortization of $
5,117
and $
4,795
, respectively
1,355
1,688
Long-term investments
953
953
Notes receivable, net of current portion
8,948
8,629
Deferred tax assets, net
2,374
1,911
Restricted cash, non-current
551
1,322
Other assets
15
12
Total assets
$
108,236
$
113,231
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
5,352
$
4,769
Accrued salaries, commissions, and benefits
7,734
7,526
Accrued expenses and other current liabilities
5,237
6,907
Short-term debt
8,962
8,473
Deferred revenue
1,442
1,496
Operating and finance lease obligations, current
729
655
Total current liabilities
29,456
29,826
Income tax payable
101
99
Operating lease obligations
13,383
11,235
Long-term debt, net of current portion
5,123
6,056
Other liabilities
376
308
Total liabilities
48,439
47,524
Commitments and contingencies
Stockholders’ equity:
Series A preferred stock, $
0.001
par value;
10,000
shares authorized:
2,776
and
2,691
shares issued;
2,455
and
2,370
shares outstanding, respectively
3
3
Common stock, $
0.001
par value,
20,000
shares authorized;
5,398
and
5,366
shares issued;
3,699
and
3,755
shares outstanding, respectively
5
5
Additional paid-in capital
530,922
530,136
Accumulated deficit
(
441,575
)
(
435,934
)
Accumulated other comprehensive loss, net of applicable tax
(
1,528
)
(
1,364
)
Treasury stock, at cost:
1,699
and
1,611
common shares, respectively, and
321
preferred shares for both periods
(
28,030
)
(
27,139
)
Total stockholders’ equity
59,797
65,707
Total liabilities and stockholders’ equity
$
108,236
$
113,231
See
accompanying notes to Condensed Consolidated Financial Statements.
312
STAR
EQUITY HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(unaudited)
Six Months Ended
June 30,
2026
2025
Cash flows from operating activities:
Net loss
$
(
5,641
)
$
(
2,444
)
Adjustments to reconcile net loss to net cash used by operating activities:
Total depreciation and amortization
1,876
528
Provision for expected credit losses
209
19
Benefit from deferred income taxes
(
494
)
(
166
)
Stock-based compensation
1,191
629
Non-cash interest income
(
468
)
-
Gain on sale-leaseback of real estate
(
37
)
-
Realized gain on sale of investments
(
496
)
-
Unrealized loss on equity securities
376
-
Gross profit from sale of lost-in-hole equipment
(
364
)
-
Changes in operating assets and liabilities, net of effect of dispositions:
Accounts receivable
262
(
2,340
)
Inventories
34
-
Prepaid and other assets
1,409
332
Deferred revenue
(
54
)
-
Accounts payable, accrued expenses, and other liabilities
(
925
)
2,779
Net cash used in operating activities
(
3,122
)
(
663
)
Cash flows from investing activities:
Capital expenditures
(
2,798
)
(
43
)
Proceeds from sale-leaseback of real estate
3,211
-
Proceeds from sale of lost-in-hole equipment
394
-
Proceeds from sale of property and equipment
30
-
Purchases of equity securities
(
1,591
)
-
Proceeds from sales of equity securities
1,138
-
Repayment of note receivable
169
-
Net cash provided by (used in) investing activities
553
(
43
)
Cash flows from financing activities:
Proceeds from borrowings
22,999
-
Repayment of debt
(
23,529
)
-
Net borrowings under invoice finance credit facility
44
-
Preferred stock dividends paid
(
1,195
)
-
Proceeds from issuance of preferred stock
790
-
Purchase of treasury stock (including payment of tax withholdings)
(
869
)
-
Cash paid for net settlement of employee restricted stock units
(
22
)
(
31
)
Net cash used in financing activities
(
1,782
)
(
31
)
Effect of exchange rates on cash, cash equivalents, and restricted cash
(
134
)
593
Net decrease in cash, cash equivalents, and restricted cash
(
4,485
)
(
144
)
Cash, cash equivalents, and restricted cash, beginning of the period
13,410
17,667
Cash, cash equivalents, and restricted cash, end of the period
$
8,925
$
17,523
Supplemental disclosures of cash flow information:
Cash paid during the period for interest
$
519
$
-
Cash received during the period for interest
$
38
$
97
Net cash payments during the period for income taxes
$
581
$
543
Cash paid for amounts included in operating lease liabilities
$
1,077
$
402
Supplemental non-cash disclosures:
Right-of-use assets obtained in exchange for operating lease liabilities
$
2,494
$
361
See
accompanying notes to Condensed Consolidated Financial Statements.
313
STAR
EQUITY HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in
thousands)
(unaudited)
Preferred Stock
Common stock
Additional
paid-in
Accumulated
Accumulated
Other Comprehensive
Treasury Stock
Total
stockholders’
Shares
Amount
Shares
Amount
capital
deficit
income (loss)
Shares
Amount
equity
Balance at December 31, 2025
2,691
$
3
5,366
$
5
$
530,136
$
(
435,934
)
$
(
1,364
)
(
1,611
)
$
(
27,139
)
$
65,707
Stock-based compensation
-
-
23
-
484
-
-
-
-
484
Purchase of treasury stock (including payment of tax withholdings)
-
-
-
-
-
-
-
(
70
)
(
712
)
(
712
)
Purchase of net settled restricted stock
-
-
-
-
-
-
-
(
1
)
(
9
)
(
9
)
Accumulated other comprehensive loss
-
-
-
-
-
-
(
83
)
-
-
(
83
)
Dividends to holders of preferred stock ($
0.250
per share)
-
-
-
-
(
592
)
-
-
-
-
(
592
)
Net loss
-
-
-
-
-
(
3,793
)
-
-
-
(
3,793
)
Balance at March 31, 2026
2,691
$
3
5,389
$
5
$
530,028
$
(
439,727
)
$
(
1,447
)
(
1,682
)
$
(
27,860
)
$
61,002
Stock-based compensation
2
-
9
-
707
-
-
-
-
707
Issuance of preferred stock
83
-
-
-
790
-
-
-
-
790
Purchase of treasury stock (including payment of tax withholdings)
-
-
-
-
-
-
-
(
16
)
(
157
)
(
157
)
Purchase of net settled restricted stock
-
-
-
-
-
-
-
(
1
)
(
13
)
(
13
)
Accumulated other comprehensive loss
-
-
-
-
-
-
(
81
)
-
-
(
81
)
Dividends to holders of preferred stock ($
0.250
per share)
-
-
-
-
(
603
)
-
-
-
-
(
603
)
Net loss
-
-
-
-
-
(
1,848
)
-
-
-
(
1,848
)
Balance at June 30, 2026
2,776
$
3
5,398
$
5
$
530,922
$
(
441,575
)
$
(
1,528
)
(
1,699
)
$
(
28,030
)
$
59,797
Additional
Accumulated Other
Total
Preferred Stock
Common stock
paid-in
Accumulated
Comprehensive
Treasury Stock
stockholders
’
Shares
Amount
Shares
Amount
capital
deficit
income (loss)
Shares
Amount
equity
Balance at December 31, 2024
-
$
-
4,033
$
4
$
494,209
$
(
430,017
)
$
(
2,717
)
(
1,283
)
$
(
21,051
)
$
40,428
Stock-based compensation
-
-
2
-
386
-
-
-
-
386
Purchase of net settled restricted stock
-
-
-
-
-
-
-
(
1
)
(
8
)
(
8
)
Accumulated other comprehensive income
-
-
-
-
-
-
424
-
-
424
Net loss -
-
-
-
-
(
1,756
)
-
-
-
(
1,756
)
Balance at March 31, 2025
-
$
-
4,035
$
4
$
494,595
$
(
431,773
)
$
(
2,293
)
(
1,284
)
$
(
21,059
)
$
39,474
Stock-based compensation
-
-
7
-
243
-
-
-
-
243
Purchase of net settled restricted stock
-
-
-
-
-
-
-
(
3
)
(
23
)
(
23
)
Accumulated other comprehensive income
-
-
-
-
-
-
1,124
-
-
1,124
Net loss
-
-
-
-
-
(
688
)
-
-
-
(
688
)
Balance at June 30, 2025
-
$
-
4,042
$
4
$
494,838
$
(
432,461
)
$
(
1,169
)
(
1,287
)
$
(
21,082
)
$
40,130
See
accompanying notes to Condensed Consolidated Financial Statements.
314
STAR
EQUITY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
(unaudited)
NOTE
1 -
BASIS OF PRESENTATION
These
interim unaudited condensed consolidated financial statements have been prepared in accordance with United States of America (“U.S.”)
generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form
10-Q and Article 8 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting
and should be read in conjunction with the consolidated financial statements and related notes of Star Equity Holdings, Inc. and its
subsidiaries (the “Company”) filed in their respective Annual Reports on Form 10-K for the year ended December 31, 2025.
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of operating
revenues and expenses. These estimates are based on management’s knowledge and judgments. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position,
results of operations, and cash flows at the dates and for the periods presented have been included. The results of operations for interim
periods are not necessarily indicative of the results of operations for the full year. The condensed consolidated financial statements
include the accounts of the Company and all of its wholly owned subsidiaries. Intra-entity balances and transactions between and among
the Company and its subsidiaries have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform
to the current year presentation with no material impact on the condensed consolidated financial statements. For more information, see
Note 2 to the Condensed Consolidated Financial Statements.
NOTE
2 -
DESCRIPTION OF BUSINESS
Star
Equity Holdings, Inc. is a multi-industry diversified holding company with
four
segments: Building Solutions, Business Services, Energy Services, and Investments.
Our common stock and Series A preferred stock are listed on the NASDAQ Global Market exchange as “STRR” and “STRRP,”
respectively.
AMENDMENT
TO CERTIFICATE OF INCORPORATION
On
September 4, 2025, Star Equity filed a certificate of amendment (the “Amendment”) to the Company’s Amended and Restated
Certificate of Incorporation, as Amended (the “Charter”), to change the name of the Company from Hudson Global, Inc. to Star
Equity Holdings, Inc. (the “Name Change”). The Name Change was approved by the Company’s Board of Directors (the “Board”)
on September 2, 2025, and became effective at 12:01 a.m. (Eastern Time) on September 5, 2025.
STAR-HUDSON
MERGER
On
August 22, 2025, Star Equity Holdings, Inc. (“Star”, formerly known as Hudson Global, Inc. (“Hudson”)), completed
its previously announced acquisition of Star Operating Companies, Inc. (“SOC” or “Star Operating Companies”,
formerly known as Star Equity Holdings, Inc.) pursuant to the Agreement and Plan of Merger, dated as of May 21, 2025 (the “Merger
Agreement”), by and among Star, SOC, and HSON Merger Sub, Inc., a wholly owned subsidiary of Star (“Merger Sub”). Upon
the terms and subject to the conditions of the Merger Agreement, on August 22, 2025, at the effective time of the Merger (the “Effective
Time”), Merger Sub merged with and into SOC, with SOC continuing as the surviving corporation of the Merger under the name “Star
Operating Companies, Inc.” as a wholly owned subsidiary of Star.
Pursuant
to the terms of the Merger Agreement, at the Effective Time, (i) each share of common stock of SOC issued and outstanding immediately
prior to the Effective Time (other than certain shares as set forth in the Merger Agreement) was automatically converted into the right
to receive
0.23
shares of Star common stock (the “exchange ratio”) and (ii) each share of preferred stock of SOC issued and
outstanding immediately prior to the Effective Time (other than certain shares set forth in the Merger Agreement) was automatically converted
into the right to receive one (
1
) share of Star
10
% Series A Cumulative Perpetual preferred stock (“Preferred Stock”). As
a result of the Merger, former SOC common stockholders received approximately
744,291
shares of Star common stock for their SOC common
shares and former SOC preferred stockholders received approximately
2,690,637
shares of Star Preferred Stock.
No
fractional shares of
Star common stock were issued in the Merger, and SOC stockholders became entitled to receive cash in lieu of fractional shares in accordance
with the Merger Agreement.
315
In
addition, pursuant to the terms of the Merger Agreement, at the Effective Time, each award of SOC restricted stock units (“RSUs”)
outstanding immediately prior to the Effective Time was converted into Star RSUs issued under the Hudson Global, Inc. 2009 Incentive
Stock and Awards Plan, as amended (the “Plan”), in accordance with the Merger Agreement.
The
accompanying condensed consolidated financial statements include the financial results of SOC beginning on August 22, 2025 and reflect
the post-merger results of the Building Solutions, Energy Services, and Investments segments for the period from January 1, 2026 through
June 30, 2026. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. All significant
intercompany accounts and transactions have been eliminated in consolidation.
SEGMENTS
Our
Building Solutions segment is currently made up of the following operating businesses: KBS Builders, Inc. (“KBS”); EdgeBuilder,
Inc. (“EdgeBuilder”), and Glenbrook Building Supply, Inc. (“Glenbrook”), with the latter two managed together
and referred to jointly as “EBGL,” and Timber Technologies Solutions, Inc. (“TT”). KBS is based in Maine and
manufactures modular buildings, typically in the single and multi-family residential segments, servicing principally the New England
market. EBGL is based in the Minneapolis-Saint Paul area and principally serves the Upper Midwest region. EBGL manufactures and delivers
structural wall panels for single and multi-family residential buildings, and other engineered wood-based products. EBGL also distributes
building materials from
two
lumberyard locations primarily focused on professional builder customers. TT is based outside the Minneapolis-St.
Paul area and manufactures glue-laminated timber products (“glulam”) for various end markets and applications, including
agriculture, industrial, infrastructure, and building construction (commercial and residential).
Our
Business Services segment delivers Recruitment Process Outsourcing (“RPO”) services consisting of recruitment and contracting
solutions tailored to the individual needs of primarily mid-to-large multinational companies. The Company operates directly in
eighteen
countries organized into
three
geographic regions: the Americas, Asia Pacific, and Europe, Middle East, and Africa (“EMEA”).
The Company’s RPO delivery teams utilize recruitment process methodologies and project management expertise to meet clients’
ongoing business needs. The Company’s RPO services include complete recruitment outsourcing, project-based outsourcing, contingent
workforce solutions, and recruitment consulting for clients’ permanent staff hires. RPO services leverage the Company’s consultants,
supported by the Company’s specialists, in the delivery of its proprietary methods to identify, select, and engage the best-fit
talent for critical client roles. In addition, the Company provides RPO clients with a range of outsourced professional contract staffing
services and managed service provider services offered sometimes on a standalone basis and sometimes as part of a blended total talent
solution. These services draw upon a combination of specialized recruiting and project management competencies to deliver a wide range
of solutions. Hudson RPO-employed professionals - either individually or as a team - are placed with client organizations for a defined
period of time based on specific business needs of the client.
Our
Energy Services segment currently consists of Alliance Drilling Tools, Inc. (“ADT”), a Wyoming and Texas based provider of
drilling tools and services to the Energy industry, a key sector of the economy. ADT is a full-service downhole drilling tool company
which provides sale and rental tools in the Oil & Gas, Geothermal, Mining, and Waterwells sectors. ADT is strategically located near
premier oilfields in the Rockies, a geothermal and mining hub, and in Midland, TX within the Permian Basin. ADT’s business model
allows for the majority of costs, such as freight, repairs, and damages, to be passed directly to customers.
Our
Investments segment holds and manages certain of our corporate-owned real estate, including a manufacturing facility in Maine that is
leased to KBS and a manufacturing facility in Wisconsin that is leased to TT. The Investments segment manages internally funded, concentrated
minority investments in a small number of public companies. It also holds and manages a promissory note and a private equity stake in
Catalyst MedTech LLC (“Catalyst”), a provider of medical imaging equipment and services. SOC acquired these interests in
May 2023 as a result of the sale of Digirad Health. Our Investments segment also holds an investment in Enservco Corporation consisting
of an investment in Enservco Common Stock, an investment in Enservco Preferred Stock, and an investment in a call option, all of which
currently have a carrying value of
zero
.
See
Note 17 to the Condensed Consolidated Financial Statements for further details regarding the Company’s reportable segments: Building
Solutions, Business Services, Energy Services and Investments.
316
ADOPTION
OF ACCOUNTING POLICIES PURSUANT TO MERGER
The
accounting policies of SOC have been conformed to those of the Company where necessary. No significant differences in accounting policies
were identified. As a result of the acquisition, the Company adopted the following accounting policies that were not previously applicable
to its operations:
Fair
Value of Financial Instruments
The
authoritative guidance for fair value measurements defines fair value for accounting purposes, establishes a framework for measuring
fair value, and provides disclosure requirements regarding fair value measurements. The guidance defines fair value as an exit price,
which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between
market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally
correlates to the level of pricing observability. Financial instruments primarily consist of cash equivalents, equity securities, accounts
receivable, other current assets, restricted cash, and accounts payable. The carrying amount of short-term and long-term debt and notes
payable approximates fair value because of the relative short maturity of these instruments and interest rates we could currently obtain.
The
Company occasionally enters into derivative financial instruments to manage certain market risks. These derivative instruments are not
designated as hedging instruments and accordingly, are recorded at fair value in the Condensed Consolidated Balance Sheets with changes
in fair value recognized in cost of revenues in the Condensed Consolidated Statements of Operations.
Equity
Securities
Securities
consist of investments in equity securities that are publicly traded. These equity securities are measured at fair value on a trade date
basis and changes in fair value are recognized in net income in other income (expense). Investments that are strategic in nature, with
the intent to hold the investment over a several year period, are classified as long-term investments.
Long-Term
Investments
As
a part of the sale of Digirad Health, Star Operating Companies received common equity in Insignia TTG Parent LLC (“Catalyst Parent”),
the parent entity of Catalyst formerly known as TTG Imaging Solutions, LLC. In accounting for this investment, we have elected the measurement
alternative under ASC 321 “Accounting for Investments in Equity Securities”. The measurement alternative election allows
for equity securities that do not have readily determinable fair values to be recorded at cost, with adjustments for impairment and certain
observable price changes reflected in earnings. Such securities are adjusted to fair value when an observable price change occurs or
impairment is identified. Each reporting period, we perform a qualitative and quantitative assessment considering impairment indicators
to evaluate whether the investment is impaired. Impairment indicators include, but are not limited to, significant deterioration in earnings
performance, significant adverse changes in the regulatory or economic environment, and working capital deficiencies. If an investment
is determined to be impaired, we include an impairment loss as a component of other income (expense) equal to the difference between
the fair value of the investment and its carrying amount. During the period ended June 30, 2026, we recognized no impairment loss on
this investment
.
On
August 9, 2024, SOC completed an investment in Enservco Corporation (“Enservco”) (“Investment in Enservco”),
which consisted of Enservco Common Stock, Enservco Preferred Stock, and certain other options reflected in the Share Exchange Agreement,
and the Enservco Note Receivable (See Note 18,
Supplementary Balance Sheet Information
). The Investment in Enservco is required
to be accounted for using the equity method of accounting under ASC 323, “Equity Method Investments and Joint Venture
s”
,
as we are deemed to have significant influence over Enservco based upon GAAP rules. Pursuant to the guidance in ASC 323, we elected the
fair value option pursuant to ASC 825-10-15, wherein the financial instrument is initially measured at estimated fair value as of the
transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date, with
changes in the estimated fair value recognized as other income (expense) in the statement of operations. Enservco Common Stock is publicly
traded, and the fair value is determined based on Enservco’s common stock close price as of the reporting date. The fair value
of the Enservco Preferred Stock was based on the consideration of a number of objective and subjective factors, including third-party
valuations and a company-specific economic outlook. To determine the fair value of the call option, the Company used the Black-Scholes
option pricing model. The fair value of the Enservco Note was determined using a discounted cash flow model. Fair value assumptions are
further described in Note 12,
Fair Value Measurements
. The Enservco Note was determined to be uncollectible as of December 31,
2024 and the value was reduced to $0. As described further in Note 18,
Supplementary Balance Sheet Information
, the value of the
Enservco Note was fully collateralized and SOC called the collateral once it was determined that the note was in default.
317
Inventory
Inventories
are valued using first-in, first-out, or the weighted-average inventory method; stated at the lower of cost or net realizable value.
Finished goods and work-in-process inventory values include the cost of raw materials, labor, and manufacturing overhead. Inventory,
when written down to net realizable value, establishes a new cost basis and its value is not subsequently increased based upon changes
in underlying facts and circumstances. We also make adjustments to reduce the carrying amount of inventories for estimated excess or
obsolete inventories. Factors influencing these adjustments include inventory on-hand compared with historical and estimated future sales
and usage for new and existing products and assumptions about the likelihood of obsolescence.
Debt
Issuance Costs
We
incur debt issuance costs in connection with debt financings. Debt issuance costs for line of credit are presented in other assets and
are amortized over the term of the revolving debt agreements using the straight-line method. Debt issuance costs for term debt are netted
against the debt and are amortized over the term of the loan using the effective interest method. Amortization of debt issuance costs
are included in interest expense. As of June 30, 2026, we have
no
unamortized debt issuance costs.
Shipping
and Handling Fees and Costs
We
record all shipping and handling costs billed to customers as revenue earned for the goods provided. Shipping and handling costs related
to continuing operations are included in cost of revenues and totaled $
808
and $
1,622
for the three and six months ended June 30, 2026,
respectively.
Warranties
Within
our Building Solutions segment, KBS provides a limited assurance warranty on its residential homes that covers substantial defects in
materials or workmanship for a period of 12 months after delivery to the owner. EBGL provides a limited warranty on the sale of its wood
foundation products that covers leaks resulting from defects in workmanship for a period of 25 years. TT provides a limited warranty
on glulam products for a period of 50 years. Estimated warranty costs are accrued in the period that the related revenue is recognized.
See Note 18,
Supplementary Balance Sheet Information
, for further information.
Advertising
and Marketing Costs
Advertising
and marketing costs are expensed as incurred. Total advertising and marketing costs for the three and six months ended June 30, 2026
were $
1,001
and $
1,923
, respectively, and $
971
and $
1,901
for the three and six months ended June 30, 2025, respectively.
NOTE
3 -
ACCOUNTING PRONOUNCEMENTS
Adoption
of New Accounting Pronouncements
In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): “Improvements to Income Tax Disclosures”, which enhances
annual income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid. The standard is effective
for the Company for annual periods beginning after January 1, 2025, and the Company adopted the guidance on a prospective basis, with
prior periods not revised. The adoption of ASU 2023-09 did not have an impact on the Company’s income tax recognition or measurement,
and only affects the Company’s annual income tax footnote disclosure.
In
July 2025, the FASB issued Accounting Standards Update (“ASU”) 2025-05, Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses for Accounts Receivable and Contract Assets. The ASU provides an optional practical expedient for estimating
expected credit losses on current accounts receivable and contract assets arising from revenue transactions accounted for under ASC 606.
The Company adopted ASU 2025-05 on January 1, 2026, the beginning of its 2026 fiscal year, and elected the practical expedient for in-scope
current accounts receivable and contract assets. The adoption of ASU 2025-05, including the election of the practical expedient, did
not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
318
Recent
Accounting Standards Not Yet Adopted
In
September 2025, the FASB issued ASU 2025-06, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted
Improvements to the Accounting for Internal-Use Software”, ASU 2025-06 updates the accounting for internal-use software by removing
the previous “project stage” model and requiring capitalization only when management authorizes and commits to funding a
project that is probable of completion. The ASU also adds guidance on assessing development uncertainty, incorporates website development
into Subtopic 350-40, and aligns presentation and disclosure requirements with ASC 360. The amendments are effective for annual periods
beginning after December 15, 2027, and interim periods within those years, with early adoption permitted. Entities may apply the standard
prospectively, modified-prospectively, or retrospectively. The Company is currently evaluating the impact of this guidance and does not
expect the adoption to have a material effect on its consolidated financial statements.
In
December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements”. The amendments clarify
the scope of ASC 270, Interim Reporting, by specifying when an entity is subject to ASC 270 and by addressing the form and content of
interim financial statements and related disclosure requirements. The ASU also consolidates into ASC 270 a list of interim disclosures
required by other Topics and emphasizes that interim disclosures should focus on events and changes since the most recent annual reporting
period that have a material effect on the entity. The amendments are effective for the Company for interim reporting periods within annual
reporting periods beginning after December 15, 2027, and may be applied prospectively or retrospectively to any or all prior interim
periods presented, with early adoption permitted. The Company is currently evaluating the impact of this guidance and does not expect
the adoption to have a material effect on its consolidated financial statements.
In
December 2025, the FASB issued ASU 2025-12, “Codification Improvements”, which makes technical corrections, clarifications,
and other minor improvements to various Topics in the Codification, including guidance related to earnings per share, treasury stock,
income taxes, and other areas. The amendments are intended to improve the consistency and clarity of U.S. GAAP without creating new substantive
requirements. The amendments are effective for the Company for annual reporting periods beginning after December 15, 2026, and interim
periods within those annual reporting periods, with early adoption permitted in both interim and annual periods. The Company is currently
evaluating the impact of this guidance and does not expect the adoption to have a material effect on its consolidated financial statements.
In
November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures”
(Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public entities to provide additional detail on specific
expense categories in the notes to the financial statements on both an interim and annual basis. In January 2025, the FASB issued ASU
2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective
Date, to clarify the effective date of the new guidance. The guidance is effective for the Company for fiscal years beginning after December
15, 2026, and for interim periods within annual reporting periods beginning after December 15, 2027, and may be applied on either a retrospective
or prospective basis, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its financial
statement disclosures.
NOTE
4 -
REVENUE RECOGNITION
Building
Solutions Revenue Recognition.
Within the Building Solutions segment, we service residential and commercial construction projects
by manufacturing modular housing units and other products, supplying general contractors with building materials, and providing glue-laminated
timber products (“glulam”) to distributors and end users. KBS manufactures modular buildings for both single-family residential
homes and larger, commercial building projects. EdgeBuilder manufactures structural wall panels, permanent wood foundation systems, and
other engineered wood products, and Glenbrook is a retail supplier of lumber and other building supplies. Retail sales at Glenbrook are
recognized at the point of sale. TT manufactures glulam for various end markets and applications, including agriculture, industrial,
infrastructure, and building construction (commercial and residential). For bill and hold sales, we determine when the customer obtains
control of the product on a case-by-case basis to determine the amount of revenue to recognize each period. Revenue is generally recognized
at point in time upon delivery of product or over time by measuring progress towards completion. There are no contracts as of June 30,
2026 that are subject to over time recognition.
Business
Services Revenue Recognition.
We account for a contract when both parties to the contract have approved the contract, the rights
of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration
is probable. Revenues are recognized over time or as services are delivered to customers, using an input or output method, as the control
of the promised services is transferred to the client in an amount that reflects the consideration we expect to be entitled to in exchange
for those services. The majority of our contracts are short-term in nature as they include termination clauses that allow either party
to cancel within a short termination period, without cause. Revenue includes billable travel and other reimbursable costs and is reported
net of sales or use taxes collected from clients and remitted to taxing authorities.
319
We
generally determine standalone selling prices based on the prices included in our client contracts, using expected cost plus profit,
or other observable prices. The price as specified in our client contracts is generally considered the standalone selling price as it
is an observable input that depicts the price as if sold to a similar client in similar circumstances. Certain client contracts have
variable consideration, including usage-based fees that increase the transaction price and volume rebates or other similar items that
generally reduce the transaction price. We estimate variable consideration using the expected value method based on the terms of the
client contract and historical evidence. These amounts may be constrained and are only included in revenue to the extent we do not expect
a significant reversal when the uncertainty associated with the variable consideration is resolved. Other than bonuses to be paid to
contractors, on behalf of our clients, our estimated amounts of variable consideration subject to constraints are not material, and we
do not believe that there will be significant changes to our estimates. Certain contract employees are entitled to performance bonuses
at the sole discretion of the client and are constrained until approved.
No
bonuses were approved and paid to our contract employees
in the three and six months ended June 30, 2026 and 2025.
We
record accounts receivable when our right to consideration becomes unconditional. Contract assets primarily relate to our rights to consideration
for services provided that such rights to consideration are conditional on satisfaction of future performance obligations. A contract
liability for deferred revenue is recorded when consideration is received, or is unconditionally due, from a client prior to transferring
control of services to the client under the terms of a contract. Deferred revenue balances typically result from advance payments received
from clients prior to transferring control of services. Other than deferred revenue, we do not have any material contract assets or liabilities
as of and for the six months ended June 30, 2026 and 2025.
Payment
terms vary by client and the services being provided to the client. We consider payment terms that exceed one year to be extended payment
terms. Substantially all of the Company’s contracts include payment terms of 90 days or less, and we do not extend payment terms
beyond one year.
We
primarily record revenue on a gross basis in the Condensed Consolidated Statements of Operations and Comprehensive Income based upon
the following key factors:
●
We maintain the direct contractual
relationship with the client and are responsible for fulfilling the service promised to the client.
●
We maintain control over our contractors while the
services to the client are being performed, including our contractors’ billing rates, and are ultimately responsible for paying
them.
RPO.
We provide complete recruitment outsourcing, project-based outsourcing, and recruitment consulting services for clients’ permanent
staff hires. We recognize revenue for our RPO over time in an amount that reflects the consideration we expect to be entitled to and
have an enforceable right to payment in exchange for our services. The client simultaneously receives and consumes the benefits of the
services as they are provided. The transaction prices contain both fixed fees and variable consideration. Variable consideration is constrained
by candidates accepting offers of permanent employment. We recognize revenue on fixed fees as the performance obligations are satisfied
and variable fees as the constraint is lifted. We do not incur incremental costs to obtain our RPO contracts. The costs to fulfill these
contracts are expensed as incurred.
We
recognize permanent placement revenue when employment candidates accept offers of permanent employment. We have a substantial history
of estimating the financial impact of permanent placement candidates who do not remain with our clients through a guarantee period. Fees
to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement
services are charged to employment candidates.
Contracting.
We provide clients with a range of outsourced professional contract staffing services and managed service provider services, sometimes
offered on a standalone basis and sometimes offered as part of a blended total talent solution. We recognize revenue for our contracting
services over time as services are performed in an amount that reflects the consideration we expect to be entitled to and have an enforceable
right to payment in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill
rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur incremental
costs to obtain our contracts for outsourced professional contract staffing services and managed service provider services. The costs
incurred to fulfill these contracts are expensed as incurred.
Unsatisfied
performance obligations.
As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts
with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have
the right to invoice for services performed.
320
Energy
Services Revenue Recognition.
ADT is principally engaged in the business of renting drilling tools. We also sell new drilling
tools, drilling parts, supplies, and used rental tools. In addition, ADT offers repair services to support its customers. Tools purchased
for sale are recorded as inventory. Tools intended for rental are recorded as part of fixed assets. Equipment rental revenue is recognized
on a straight-line basis over the length of the rental contract. New tools, parts, and supplies sales are recognized as revenue upon
transfer of control, which generally occurs when products are picked up by or delivered to the customer. Repair services revenues are
recognized in the period the services are provided. Upon the sale of other rental tools from fixed assets, we recognize a gain or loss
on the sale in other (expense) income, net.
ADT’s
equipment rental agreements generally contain provisions whereby should the rented tools or components provided to a customer be deemed
to be irretrievably lost during drilling operations, commonly referred to as “lost-in-hole,” the Company has the right to
receive reimbursement for such losses. Amounts billed to customers are at an agreed upon price relative to the specific piece of equipment,
the revenue of which is recognized at the time the loss of the equipment is confirmed. The gross profit recognized from lost-in-hole
transactions is normally calculated as the difference between the amounts billed to the customer and the net book value of the lost equipment.
This gross profit is presented as a separate line item in the statement of cash flows under operating activities, and the cash received
in connection with these activities is presented as an offset to cash purchases of property and equipment in the investing section of
the statement of cash flows, to the extent it does not exceed the cash used for the purchases of the replacement equipment. Revenue recognized
for the period ended June 30, 2026, totaled $
172
. No significant lost-in-hole reimbursements were outstanding or contingent as of the
end of the second quarter.
Billings
in excess of costs and estimated profit.
We recognize billings in excess of costs and estimated profit on uncompleted contracts
within current liabilities. Such amounts relate to fixed-price contracts recognized over time, and represents payments in advance of
performing the related contract work. Billings in excess of costs and estimated profit on uncompleted contracts are not considered to
be a significant financing component because they are generally used to meet working capital demands that can be higher in the early
stages of a contract. Contract liabilities are reduced when the associated revenue from the contract is recognized, which is generally
within one year. There are no liabilities associated with billings in excess of costs at June 30, 2026.
Contract
Costs
.
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those
costs to be longer than one year. The Company applies a practical expedient to expense costs as incurred for these costs when the amortization
period is one year or less. These costs primarily consist of internal sales commissions; under the terms of these programs these are
generally earned and the costs are recognized at the time the associated revenue is recognized. As of June 30, 2026, there were no contract
costs recognized.
Deferred
Revenue.
Deferred revenue represents customer deposits and advanced payments for contracts that are subject to point-in-time
recognition, or payments received prior to transferring control of services to customers. We have determined our contracts do not include
a significant financing component.
Changes
in deferred revenue for the six months ended June 30, 2026 are as follows:
Balance at December 31, 2025
$
1,496
Revenue recognized that was included in balance at beginning of the year
(
1,271
)
Deferred revenue, net, related to contracts entered into during the year
1,217
Balance at June 30, 2026
$
1,442
321
Disaggregation
of Revenue
The
following tables present our revenue disaggregated by major source for the three and six months ended June 30, 2026 and 2025, respectively:
Three Months Ended
June 30, 2026
Building
Solutions
Business
Services
Energy
Services
Total
Major Goods/Service Lines
Revenue from RPO Customers
$
-
$
17,079
$
-
$
17,079
Revenue from Contracting Customers
-
19,306
-
19,306
Revenue from Other Contracts with Customers
14,612
-
3,944
18,556
Total Revenues
$
14,612
$
36,385
$
3,944
$
54,941
Timing of Revenue Recognition
Services and goods transferred over time
$
-
$
25,375
$
2,395
$
27,770
Services and goods transferred at a point in time
14,612
11,010
1,549
27,171
Total Revenues
$
14,612
$
36,385
$
3,944
$
54,941
Six Months Ended June 30, 2026
Building
Solutions
Business
Services
Energy
Services
Total
Major Goods/Service Lines
Revenue from RPO Customers
$
-
$
33,903
$
-
$
33,903
Revenue from Contracting Customers
-
37,487
-
37,487
Revenue from Other Contracts with Customers
26,210
-
7,402
33,612
Total Revenues
$
26,210
$
71,390
$
7,402
$
105,002
Timing of Revenue Recognition
Services and goods transferred over time
$
-
$
49,678
$
5,079
$
54,757
Services and goods transferred at a point in time
26,210
21,712
2,323
50,245
Total Revenues
$
26,210
$
71,390
$
7,402
$
105,002
Three Months Ended June 30, 2025
Business Services
Major Goods/Service Lines
Revenue from RPO Customers
$
17,428
Revenue from Contracting Customers
18,113
Total Revenues
$
35,541
Timing of Revenue Recognition
Services and goods transferred over time
$
25,535
Services and goods transferred at a point in time
10,006
Total Revenues
$
35,541
Six Months Ended June 30, 2025
Business Services
Major Goods/Service Lines
Revenue from RPO Customers
$
33,170
Revenue from Contracting Customers
34,237
Total Revenues
$
67,407
Timing of Revenue Recognition
Services and goods transferred over time
$
48,655
Services and goods transferred at a point in time
18,752
Total Revenues
$
67,407
NOTE
5 -
ACQUISITIONS
Star
Operating Companies
On
August 22, 2025, the Company completed its previously announced acquisition of SOC pursuant to the Agreement and Plan of Merger, dated
as of May 21, 2025 (the “Merger Agreement”). This resulted in a business combination pursuant to ASC 805,
Business Combinations
.
The
terms of the Merger Agreement determined consideration for the purchase as follows: at the Effective Time, (i) each share of common stock
of SOC issued and outstanding immediately prior to the Effective Time (other than certain shares as set forth in the Merger Agreement)
were automatically converted into the right to receive
0.23
shares of Company common stock and (ii) each share of preferred stock of
SOC issued and outstanding immediately prior to the Effective Time (other than certain shares set forth in the Merger Agreement) were
automatically converted into the right to receive one (
1
) share of Star
10
% Series A Cumulative Perpetual preferred stock (“Preferred
Stock”). As a result of the Merger, former SOC common stockholders received approximately
744,291
shares of Star common stock for
their SOC common shares and former SOC preferred stockholders received approximately
2,690,637
shares of Star Preferred Stock. No fractional
shares of Star common stock were issued in the Merger, and SOC stockholders became entitled to receive cash in lieu of fractional shares
in accordance with the Merger Agreement. The total consideration paid for SOC, which represents the fair value of the common and preferred
stock, totaled approximately $
32,174
. Prior to the completion of the Merger Agreement, the Company determined that the Merger Agreement
was in the best interests of the Company and for each of the Star and the SOC stockholders.
322
In accordance with ASC 805, Business
Combinations, the Company accounted for this transaction as a business combination and recorded the acquired assets and assumed liabilities
of SOC at their respective fair values as of the acquisition date. As of June 30, 2026, the purchase price allocation has been finalized,
including the valuation of property and equipment, intangible assets, inventory, income taxes, and goodwill, among other items. The fair
values of assets acquired and liabilities assumed were determined using valuation techniques consistent with ASC 820, Fair Value Measurement.
These fair value measurements are considered nonrecurring and were determined as of the acquisition date. As noted in Note 2, Description
of Business, SOC is reported as part of our Building Solutions, Energy Services, and Investments segments. The Company incurred transaction
costs related to the SOC Acquisition of $
1,600
that were expensed as part of “Office and general”.
The
following table sets forth the purchase price allocation of SOC to the estimated fair value of assets acquired as of the acquisition
date:
Fair
Value
Assets
Acquired:
Cash
and cash equivalents
$
4,641
Restricted
cash, current
597
Investments
in equity securities
2,561
Accounts
receivable
11,463
Inventories,
net
9,101
Note
receivable, current portion
269
Prepaid
and other
1,246
Property
and equipment, net
17,959
Operating
lease right-of-use assets
8,608
Long
term investments
953
Notes
receivable, net of current portion
8,473
Restricted
cash, non-current
1,729
Assets
Acquired
$
67,600
Liabilities
Assumed:
Current
payables
3,203
Accrued
salaries, commissions and benefits
2,165
Accrued
expenses and other current liabilities
5,162
Short-term
debt
6,042
Deferred
revenue
3,609
Operating
lease liabilities, current portion
228
Long-term
debt, net of current portion
6,630
Operating
lease liabilities, net of current portion
8,387
Liabilities
Assumed
$
35,426
Fair
value of consideration transferred
$
32,174
The
Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2026, included revenue of $
18,556
and
$
33,612
, and net loss of $
384
and $
2,633
, respectively, from SOC.
The
following represents certain information from the unaudited pro forma Condensed Consolidated Statement of Operations as if SOC had been
included in the consolidated results of the Company for the three and six months ended June 30, 2025:
Three
Months Ended
June
30,
Six
Months Ended
June
30,
Pro-forma
2025
2025
Revenue
$
59,249
$
104,039
Gross
profit
$
24,888
$
44,422
Net
income (loss)
$
2,763
$
(
169
)
Alpha
Consulting Group Acquisition
On
July 23, 2025, the Company announced that it had acquired Alpha Consulting Group (“ACG”) (“Seller”), a Japan-based
provider of recruitment services. The acquisition of ACG represents the Company’s entry into the Japanese market as part of its
localization strategy for its Business Services segment. In connection with the acquisition, the seller received total cash consideration
of $
146
, subject to certain adjustments at closing.
There
were no earn-out payment arrangements associated with the transaction. The ACG acquisition was accounted for as a business combination
under the acquisition method of accounting. The total purchase price of $
146
consisted of $
200
paid in cash, net of cash acquired of
$
14
, and a working capital adjustment of negative $
68
. The purchase price was allocated to the net tangible and intangible assets and
liabilities based on their estimated fair values as of the acquisition date, with the excess recorded as goodwill. The Company incurred
$
11
of transaction costs related to the ACG Acquisition, which were expensed as part of “Office and general.”
323
The
Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2026, included revenue of $
243
and
$
471
, and net loss of $
68
and $
151
, respectively, from ACG.
Below
is a summary of the fair value of the net assets acquired on the acquisition date:
Fair
Value
Assets
Acquired:
Cash
and cash equivalents
$
10
Accounts
receivable
29
Prepaid
and other
5
Intangible
assets
95
Goodwill
242
Restricted
cash, non-current
4
Assets
Acquired
$
385
Liabilities
Assumed:
Current
payables
$
77
Accrued
salaries, commissions and benefits
3
Accrued
expenses and other current liabilities
126
Deferred
tax liabilities
33
Liabilities
Assumed
$
239
Fair
value of consideration transferred
$
146
NOTE
6 -
STOCK-BASED COMPENSATION
Incentive
Compensation Plan
The
Company maintains the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan, as amended and restated on May 24, 2016 and further amended
on September 14, 2020, May 17, 2022, and August 22, 2025 (the “ISAP”), pursuant to which it can issue equity-based compensation
incentives to eligible participants. The ISAP permits the granting of stock options, restricted stock, restricted stock units, and other
types of equity-based awards. The Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”)
will establish such conditions as it deems appropriate for the granting or vesting of stock options, restricted stock, restricted stock
units and other types of equity-based awards. As determined by the Compensation Committee, equity awards may also be subject to immediate
vesting upon the occurrence of certain events including death, disability, retirement or a change in control of the Company. When we
make grants of restricted stock or restricted stock units to our executive officers, including the named executive officers, we enter
into Restricted Stock Agreements and Restricted Stock Unit Agreements with such executive officers that contain provisions that are triggered
upon a termination of an executive officer or a change in control of our Company. For awards of restricted stock granted beginning on
November 6, 2015, effective upon a change in control of our Company, if the executive is employed by us or an affiliate of ours immediately
prior to the date of such change in control and is subsequently terminated within
12
months following the date of such change in control,
the shares of restricted stock will fully vest and the restrictions imposed upon the restricted stock will be immediately deemed to have
lapsed. For awards of restricted stock units granted beginning on March 10, 2016, effective upon a change in control of our Company,
if the executive is employed by us or an affiliate of ours immediately prior to the date of such change in control and is subsequently
terminated within
12
months following the date of such change in control, the restricted stock units will fully vest and the restrictions
imposed upon the restricted stock units will be immediately deemed to have lapsed. The Company primarily grants restricted stock and
restricted stock units to its employees. A restricted stock unit is equivalent to
one
share of the Company’s common stock and is
payable only in common stock of the Company issued under the ISAP.
The
Compensation Committee administers the ISAP and may designate any of the following as a participant under the ISAP: any officer or other
employee of the Company or its affiliates or individuals engaged to become an officer or employee, consultants or other independent contractors
who provide services to the Company or its affiliates, and non-employee directors of the Company. On August 21, 2025, the Company’s
stockholders at the 2025 Annual Meeting of Stockholders approved amendments to the ISAP to, among other things, increase the number of
shares of the Company’s common stock that are reserved for issuance by
400,000
shares and to permit the issuance of
175,000
shares
of the Company’s preferred stock. As of June 30, 2026, there were
66,167
shares of the Company’s common stock and
140,320
of shares of preferred stock available for future issuance under the ISAP, respectively.
324
All
share issuances related to stock compensation plans are issued from the aforementioned stock available for future issuance under stockholder
approved compensation plan.
In
February 2026, the Compensation Committee approved the Company’s 2026 long-term incentive program (the “2026 LTIP”)
under the ISAP. The 2026 LTIP is intended to incent long-term shareholder value creation over a three-year performance period from January
1, 2026 through December 31, 2028 and provides for awards in the form of restricted stock units (“RSUs”) that may be earned
based on the achievement of pre-established performance goals and continued service. Awards under the 2026 LTIP are currently denominated
in the Company’s common stock; no preferred stock has been issued in connection with the 2026 LTIP.
For
the six months ended June 30, 2026, the Company granted a total of
296,648
RSUs to employees, comprised of: (i)
111,239
performance-based
RSUs subject to performance conditions; (ii)
140,178
performance-based RSUs granted under the 2026 LTIP for the three-year period; and
(iii)
45,231
time-vested RSUs not subject to performance conditions. The
45,231
time-vested RSUs vest on the first anniversary of the
grant date, with each RSU representing the right to receive one share of the Company’s common stock upon settlement.
For
the six months ended June 30, 2025, the Company granted
48,688
restricted stock units subject to performance vesting conditions for the
year ended December 31, 2025. In connection with the merger completed on August 22, 2025, the Company converted unvested RSU awards previously
granted under SOC’s equity incentive plans using an exchange ratio of
0.23
shares of the Company’s common stock for each
SOC share. As of the merger date, the assumed awards consisted of
22,717
performance-based RSUs and
6,046
time-based RSUs. These assumed
awards remain subject to their original vesting terms and conditions and are recognized as part of the Company’s ongoing stock-based
compensation expense.
A
summary of the quantity and vesting conditions for stock-based units granted to the Company’s employees for the six months ended
June 30, 2026 was as follows:
Vesting
conditions
Number
of Restricted Stock Units Granted
Performance
and service conditions - Type 1
(1) (3)
10,695
Performance
and service conditions - Type 1
(2) (3)
240,722
Service
conditions only - Type 2
(4)
45,231
Total
shares of stock award granted
296,648
1.
The
performance conditions with respect to restricted stock units may be satisfied as follows:
a.
For grants to Corporate office employees subject to 2025 performance conditions,
100
% of
the restricted stock units may be earned on the basis of performance as measured by a group
adjusted EBITDA.
2.
The
performance conditions with respect to restricted stock units may be satisfied as follows:
a.
For grants to Corporate office employees subject to 2026 performance conditions,
100
% of
the restricted stock units may be earned on the basis of performance as measured by a group
adjusted EBITDA, corporate costs, and other qualitative factors.
3.
To
the extent restricted stock units are earned, such restricted stock units will vest on the basis of service as follows:
a.
33
% for Type 1 of the restricted stock units will vest on the first anniversary of the grant date;
b.
33
% for Type 1 of the restricted stock units will vest on the second anniversary of the grant date; and
c.
34
% for Type 1 of the restricted stock units will vest on the third anniversary of the grant date; provided that, in each case, the employee
remains employed by the Company from the grant date through the applicable service vesting date.
4.
To
the extent restricted stock units are earned, such restricted stock units will vest on the
basis of service as follows:
a.
100
% for Type 2 of the restricted stock units will vest on the first anniversary of the grant
date.
The
Company also maintains the Director Deferred Share Plan (the “Director Plan”) as part of the ISAP pursuant to which it can
issue restricted stock units to its non-employee directors. A restricted stock unit is equivalent to one share of the Company’s
common stock, and prior to the acquisition of SOC were payable in common stock issued under the ISAP upon a director ceasing service
as a member of the Company’s Board. Restricted stock units granted to directors vest over one year. Restricted stock units issued
under the Director Plan contain the right to a dividend equivalent award in the form of additional restricted stock units. The dividend
equivalent award is calculated using the same rate as the cash dividend paid on a share of the Company’s common stock, and then
divided by the closing price of the Company’s common stock on the date the dividend is paid to determine the number of additional
restricted stock units to grant. Dividend equivalent awards have the same vesting terms as the underlying awards. During the six months
ended June 30, 2026, the Company granted a total of
33,024
RSUs to its non-employee directors.
325
As
of June 30, 2026,
4,301
restricted stock units are deferred under the Company’s ISAP.
For
the three and six months ended June 30, 2026 and 2025, the Company’s stock-based compensation expense related to restricted stock
units and restricted shares of common stock were as follows:
Three
Months Ended
June
30,
Six
Months Ended
June
30,
2026
2025
2026
2025
Restricted
stock units
707
243
1,191
629
Restricted
Stock Units
As
of June 30, 2026, the Company had $
3,501
of unrecognized stock-based compensation expense related to outstanding unvested restricted
stock units. The Company expects to recognize that cost over a weighted average service period of
1.0
years. Restricted stock units have
no voting or dividend rights until the awards are vested.
Changes
in the Company’s restricted stock units for the six months ended June 30, 2026 and 2025 were as follows:
Six
Months Ended June 30, 2026
Performance-based
Time-based/Director
Total
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Unvested
restricted stock units at January 1, 2026
62,266
$
13.64
197,485
$
11.75
259,751
$
12.20
Granted
251,417
$
9.91
45,231
$
11.39
296,648
$
10.14
Vested
(
17,118
)
$
13.14
(
7,007
)
$
15.07
(
24,125
)
$
13.70
Forfeited
(
23,508
)
$
13.16
-
$
-
(
23,508
)
$
13.16
Unvested
restricted stock units at June 30, 2026
273,057
$
10.28
235,709
$
11.58
508,766
$
10.88
(a)
The number of shares earned above target are based on the performance target established by the Compensation Committee at the initial
grant date.
Six
Months Ended June 30, 2025
Performance-based
Time-based/Director
Total
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Number
of Shares of Restricted Stock Units
Weighted
Average Grant-Date Fair Value
Unvested
restricted stock units at January 1, 2025
55,591
$
17.58
128,474
$
14.96
184,065
$
15.75
Granted
48,688
$
13.15
7,868
$
10.04
56,556
$
12.72
Vested
(
7,280
)
$
35.57
(
11,522
)
$
12.46
(
18,802
)
$
21.41
Forfeited
(
48,311
)
$
14.87
(
3,264
)
$
20.97
(
51,575
)
$
15.26
Unvested
restricted stock units at June 30, 2025
48,688
$
13.15
121,556
$
14.72
170,244
$
14.27
(a)
The number of shares earned above target are based on the performance target established by the
326
NOTE
7 -
INCOME TAXES
Income
Tax Provision
Under
ASC 270, “Interim Reporting”, and ASC 740-270, “Income Taxes - Interim Reporting”, the Company is required to
adjust its effective tax rate for each quarter to be consistent with the estimated annual effective tax rate. Jurisdictions with a projected
loss for the full year where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax
rate. Applying the provisions of ASC 270 and ASC 740-270 could result in a higher or lower effective tax rate during a particular quarter,
based upon the mix and timing of actual earnings versus annual projections.
Effective
Tax Rate
The
provision for income taxes for the six months ended June 30, 2026 was $
4
on a pre-tax loss of $
5,637
, compared to a provision for income
taxes of $
377
on pre-tax loss of $
2,067
for the same period in 2025. The Company’s effective income tax rate (“ETR”)
was negative
0.08
% and negative
18
% for the six months ended June 30, 2026 and 2025, respectively. For the six months ended June 30,
2026, the effective tax rates differed from the U.S. Federal statutory rate of
21
% primarily due to pretax losses for which no tax benefit
can be recognized, foreign tax rate differences, and non-deductible expenses. For the six months ended June 30, 2025, the effective tax
rates differed from the U.S. Federal statutory rate of
21
% primarily due to pretax losses for which no tax benefit can be recognized,
foreign tax rate differences, and non-deductible expenses. The current year-to-date effective tax rate differs significantly from the
prior period effective tax rate primarily due to the interaction of rate reconciliation items, including changes in valuation allowance.
Uncertain
Tax Positions
As
of both June 30, 2026 and December 31, 2025, the Company had $
60
, respectively, of unrecognized tax benefits, excluding interest and
penalties, which, if recognized in the future, would lower the Company’s effective income tax rate.
The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. As
of June 30, 2026 and December 31, 2025, the Company had $
41
and $
39
, respectively, of accrued interest and penalties associated with
unrecognized tax benefits.
In
many cases, the Company’s unrecognized tax benefits are related to tax years that remain subject to examination by the relevant
tax authorities. Tax years with net operating losses (“NOLs”) remain open until such losses expire or until the statutes
of limitations for those years when the NOLs are used expire. As of June 30, 2026, the Company’s open tax years, which remain subject
to examination by the relevant tax authorities, are between 2016 and 2026 depending on the jurisdiction.
327
The
Company believes that its unrecognized tax benefits as of June 30, 2026 are appropriately reflected for all years subject to examination
above.
Net
Operating Losses (“NOLs”), Capital Losses, and Valuation Allowance
The
Company recorded a valuation allowance against all of our consolidated US deferred tax assets for NOLs and Capital Losses as of June
30, 2026 and December 31, 2025. We intend to continue maintaining a full valuation allowance on our deferred tax assets for NOLs until
there is sufficient evidence to support the reversal of all or some portion of these allowances in the future.
NOTE
8 -
ACCOUNTS RECEIVABLE, NET
Within
our Building Solutions and Energy Services segments, accounts receivable consist principally of trade receivables from customers. These
are recorded at the invoiced amount and are generally unsecured and due within 30 days. Trade receivables do not bear interest. We use
an expected loss methodology. This methodology includes information about past events, current economic conditions and reasonable and
supportable forecasts that impact the collectability of the reported amounts of the receivables over their lifetime. Within the Current
Expected Credit Losses (“CECL”) guidelines, we utilize a “probability of default” methodology to determine expected
credit losses under the CECL model. Account balances are charged off against the allowance when we believe it is probable the receivable
will not be recovered. Our “probability of default” methodology principally entails evaluating the collectability of our
trade receivables and providing reserves for doubtful accounts based on our historical experience rate, known collectability issues and
disputes, and our bad debt write-off history. Within our Business Services segment, accounts receivable balances are composed of trade
and unbilled receivables. Unbilled accounts receivable represent revenue recorded in advance of processing formal invoices pursuant to
the completion of contract provisions and, generally, become billable at contractually specified dates.
Our
estimates of collectability could be impacted by material amounts due to changed circumstances, such as a higher number of defaults or
material adverse changes in a payor’s ability to meet its obligations. Expected credit losses related to trade accounts receivable
are recorded as an allowance for doubtful accounts within accounts receivable, net in the Condensed Consolidated Balance Sheets, and
the related provision for doubtful accounts is charged to office and general expenses. We do not have any off-balance sheet credit exposure
related to our customers.
Unbilled
receivables of $
4,042
and $
6,960
as of June 30, 2026 and December 31, 2025, respectively, are expected to be invoiced and collected within
one year. The Company records accounts receivable when its right to consideration becomes unconditional. Contract assets primarily relate
to our rights to consideration for services provided that are conditioned on satisfaction of future performance obligations. Accounts
receivable, net, are stated at the amount the Company expects to collect, which is net of estimated losses resulting from the inability
of its customers to make required payments.
The
following table summarizes the components of “Accounts receivable, net” as presented on the Condensed Consolidated Balance
Sheets:
June
30,
December
31,
Accounts
Receivable:
2026
2025
Billed
receivables
$
31,187
$
28,535
Unbilled
receivables
4,042
6,960
Accounts
Receivable, Gross
35,229
35,495
Allowance
for expected credit losses
(
289
)
(
275
)
Accounts
Receivable, Net
$
34,940
$
35,220
328
The
following table summarizes the total provision for expected credit losses and write-offs:
Three
Months Ended
June
30,
Six
Months Ended
June
30,
2026
2025
2026
2025
Beginning
balance
$
310
$
227
$
275
$
391
Provision
for expected credit losses
158
13
209
19
Write-offs
(
179
)
(
35
)
(
195
)
(
205
)
Ending
Balance
$
289
$
205
$
289
$
205
NOTE
9 -
DEBT
A
summary of debt outstanding as of June 30, 2026 and December 31, 2025 is as follows:
June
30, 2026
December
31, 2025
Amount
Weighted-Average
Interest Rate
Amount
Weighted-Average
Interest Rate
Revolving
Credit Facility - KeyBank KBS
$
682
6.68
%
$
-
-
%
Revolving
Credit Facility - Premier EBGL
3,439
7.25
%
3,969
7.25
%
Revolving
Credit Facility - Austin ADT
1,457
9.25
%
1,205
9.25
%
Revolving
Credit Facility - NAB
1,470
7.86
%
1,385
7.36
%
Total
Short-term Revolving Credit Facilities
7,048
7.74
%
6,559
7.64
%
Austin
- ADT Term Loan
160
9.25
%
160
9.25
%
Term
Loan Secured by Mortgage
354
7.50
%
354
7.50
%
Bridgewater
- TT Term Loan
1,400
7.85
%
1,400
7.85
%
Total
Short-term Debt
8,962
7.77
%
8,473
7.70
%
Austin
- ADT Term Loan, net of current portion
280
9.25
%
359
9.25
%
Term
Loan Secured by Mortgage, net of current portion
2,166
7.50
%
2,320
7.50
%
Bridgewater
- TT Term Loan, net of current portion
2,677
7.85
%
3,377
7.85
%
Long
Term Debt, net of current portion
5,123
7.78
%
6,056
7.80
%
Total
Debt
$
14,085
7.77
%
$
14,529
7.74
%
Austin
Loan Agreement
On
March 3, 2025, ADT entered into a Loan and Security Agreement (the “Austin Loan Agreement”) with Austin Financial Services,
Inc. (“Austin” or “AFS”) providing ADT with a working capital line of credit of up to $
3,000
and a term loan
originally proposed of up to $
800
, subject to the conditions and procedures set forth in the Austin Loan Agreement. Availability under
the Austin Loan Agreement is based on a formula tied to ADT’s eligible accounts receivable, inventory, and equipment, and borrowings
bear interest at the prime rate plus
1.75
%, with interest payable monthly and the outstanding principal balance payable March 3, 2028
(the “Maturity Date”). Based on AFS’s appraisal of ADT’s machinery and equipment, AFS reduced the term loan commitment
to $
638
. The Austin Loan Agreement also provides for certain fees payable to Austin during its term. The term loan payment is approximately
$
13
per month. The loan is secured by substantially all of the assets of ADT and is subject to certain covenants. Under the terms of
the AFS loan agreement, the Company is required to provide various financial and collateral reports to the lender on a regular basis.
These reports include weekly availability and cash activity summaries, monthly accounts receivable and accounts payable agings, inventory
reports, balance sheets, and income statements, as well as annual financial statements reviewed by an independent CPA, if requested.
The Company must also provide any additional financial or operational information upon the lender’s request.
329
There
are no specific financial covenants related to ratios, thresholds, or performance metrics under the AFS facility. However, failure to
timely submit the required financial reports constitutes an event of default under the loan agreement.
Premier
Facility
On
August 16, 2023, EdgeBuilder and Glenbrook (referred to herein as the “EBGL Borrowers”), entered into a Revolving Credit
Loan Agreement with Premier Bank (“Premier”), which was subsequently amended on December 5, 2023 to provide the EBGL Borrowers
with a working capital line of credit of up to $
6,000
(the “Premier Loan Agreement”). Availability under the Premier Loan
Agreement is based on a formula tied to the EBGL Borrowers’ eligible accounts receivable, inventory, and equipment. Borrowings
under the Premier Loan Agreement bear interest at the prime rate plus
0.50
% (and a minimum interest rate of
6.75
%), with interest payable
monthly and the outstanding principal balance payable upon expiration of the term of the Premier Loan Agreement. The Premier Loan Agreement
also provides for certain fees payable to Premier during its term. The initial term of the Premier Loan Agreement expired on December
5, 2024 but may be extended from time to time at the request of the EBGL Borrowers, subject to approval by Premier. The term of the Premier
Loan Agreement has been extended to December 5, 2026. The EBGL Borrowers’ obligations under the Premier Loan Agreement are guaranteed
by the Company and secured by all of their inventory, equipment, accounts receivable, and other intangibles. As of June 30, 2026, availability
under the Premier Loan Agreement was approximately $
2,397
. Premier holds $
600
of restricted cash associated with the Premier Facility.
Financial
covenants associated with the Premier Loan Agreement require that at the end of each calendar year the EBGL Borrowers maintain (a) a
debt service coverage ratio for any calendar year of greater than
1.25
; (b) a debt-to-equity ratio of less than
1.65
; (c) a fixed charge
coverage ratio of greater than
1.10
; (d) working capital of at least $
2
million; and (e) a current ratio of at least
1.50
. As of December
31, 2025, the EBGL Borrowers were in compliance with the Premier Loan Agreement covenants.
KeyBank
Facility
On
April 24, 2024, KBS entered into a Loan and Security Agreement (the “KeyBank Loan Agreement”) with KeyBank National Association
(“KeyBank”) providing KBS with a working capital line of credit of up to $
4.0
million, subject to the conditions and procedures
set forth in the KeyBank Loan Agreement. All borrowings under the KeyBank Loan Agreement bear interest at the Adjusted Daily SOFR Rate
(as defined in the KeyBank Loan Agreement) plus
3
%, with interest payable monthly and the outstanding principal balance payable on April
30, 2025 (the “Maturity Date”). The KeyBank Loan Agreement expires on the Maturity Date but may be extended from time to
time at the request of KBS, subject to approval by KeyBank. SOC signed an extension on July 29, 2025 extending the Maturity Date to July
29, 2026. The Company signed a further extension on July 31, 2026 extending the Maturity Date to October 27, 2026. The KeyBank Loan Agreement
also provides for certain fees payable to KeyBank. KBS’ obligations under the KeyBank Loan Agreement are guaranteed by SOC and
secured by all of KBS’ inventory, equipment, accounts and other intangibles, if applicable, and all proceeds of the foregoing.
Simultaneous with the execution of the KeyBank Loan Agreement, SOC entered into that certain Guaranty, dated April 24, 2024 (the “Guaranty”),
pursuant to which SOC agreed to guarantee all amounts borrowed by KBS under the KeyBank Loan Agreement.
The
KeyBank Loan Agreement requires that KBS maintain a ratio of its Operating Cash Flow to its Total Fixed Charges of at least
1.25
to 1.00,
measured quarterly (the “FCCR Covenant”). KBS did not meet the FCCR Covenant as of June 30, 2026. The Company has requested
a waiver from KeyBank. Amounts outstanding under the KeyBank Loan Agreement are classified as current liabilities in the condensed consolidated
balance sheets. The availability under the line of credit was $
3,318
as of June 30, 2026.
Term
Loan Secured by Mortgage
On
June 28, 2024, in connection with SOC’s acquisition of substantially all of the assets used in the business of Timber Technologies,
Inc. which closed on May 17, 2024, Timber Properties, LLC (“Timber Properties”), an affiliate of the Seller, sold to 106
Bremer, LLC, a wholly owned subsidiary of the Company (“106 Bremer”), all of Timber Properties’ Owned Real Property
pursuant to a Real Estate Sales Agreement for $
3,000
plus closing costs.
In
connection with the purchase of the Owned Real Property, on June 28, 2024, 106 Bremer issued a Promissory Note in the principal amount
of $
3,000
(the “TT Property Note”) secured by a Mortgage (the “TT Property Mortgage”) on the Owned Real Property
to Timber Properties. All borrowings under the TT Property Note bear interest at
7.50
%, with interest payable quarterly and the outstanding
principal balance payable on June 29, 2034.
330
Bridgewater
Facility
In
connection with the completion of the TT Acquisition, on May 17, 2024, Timber Technologies Solutions, Inc., a wholly owned subsidiary
of SOC, (the “Borrower”), entered into a Loan Agreement (the “Bridgewater Loan Agreement”) with Bridgewater Bank
(“Bridgewater”) and issued a Term Promissory Note to Bridgewater in the amount of $
7,000
thereunder (the “Facility”).
All borrowings under the Facility bear interest at
7.85
%, with interest payable monthly and the outstanding principal balance payable
on May 20, 2029 (the “Maturity Date”). The Bridgewater Loan Agreement also provides for certain fees payable to Bridgewater
during its term. The Borrower’s obligations under the Facility are guaranteed by the Company and secured by all of the Borrower’s
inventory, equipment, accounts receivable, and other intangibles.
In
connection with the Bridgewater Loan agreement, an amount of $
1,000
was required to be deposited with Bridgewater and be under the sole
dominion and control of Bridgewater, and SOC shall not have any control over the use of, or any right to withdraw any amount of the restricted
deposit. In the event that SOC maintains compliance with all of the financial covenants set forth in the Bridgewater Loan Agreement for
four consecutive measurement dates, Bridgewater shall release a portion of the deposit. As of June 30, 2026, Bridgewater has released
$
500
. The remaining $
500
deposit is recorded in Restricted cash, non current in the Condensed Consolidated Balance Sheets.
Financial
covenants require that TT maintain (i) a ratio of Cash Flow to Total Fixed Charges of not less than
1.30
to 1.00 as measured on each
applicable Measurement Date on a trailing twelve (12) month basis; (ii) maintain a ratio of Senior Funded Debt to trailing twelve (12)
month Adjusted EBITDA not to exceed
3.00
to 1.00 as measured on each applicable Measurement Date for a Measurement Period; (iii) maintain
a ratio of Total Funded Debt to trailing twelve (12) month Adjusted EBITDA not to exceed
4.00
to 1.00 as measured on each applicable
Measurement Date for a Measurement Period. TT was in compliance with its covenants as of June 30, 2026.
Invoice
Finance Credit Facility
On
April 8, 2019, the Company’s Australian subsidiary (“Australian Borrower”) entered into an invoice finance credit facility
agreement (the “NAB Facility Agreement”) with National Australia Bank Limited (“NAB”). The NAB Facility Agreement
provides the Australian Borrower with the ability to borrow funds based on a percentage of eligible trade receivables up to a maximum
of
4
million Australian dollars. No receivables have terms greater than 90 days, and any risk of loss is retained by the Australian Borrower.
The interest rate is calculated as the variable receivable finance indicator rate, plus a margin of
1.60
% per annum. Borrowings under
this facility are secured by substantially all of the assets of the Australian Borrower. The NAB Facility Agreement does not have a stated
maturity date and can be terminated by either the Australian Borrower or NAB upon
90
days written notice. As of June 30, 2026, there
was $
1,470
outstanding under the NAB Facility Agreement. Interest expense and fees incurred on the NAB Facility Agreement were $
35
and
$
64
for the three and six months ended June 30, 2026, and $
4
and $
8
for the three and six months ended June 30, 2025, respectively.
The
NAB Facility Agreement contains various restrictions and covenants for the Australian Borrower including (1) that EBITDA must be at least
two
times total interest paid on debt on a 12-month rolling basis; (2) minimum tangible net worth must be at least
2.5
million Australian
dollars and be equal to at least
25
% of total tangible assets on June 30 and December 31 (as defined in the NAB Facility Agreement);
and (3) additional periodic reporting requirements to NAB. The Australian Borrower was in compliance with all financial covenants under
the NAB Facility Agreement as of June 30, 2026.
Amounts
borrowed from the NAB Facility may be large, contain short maturities and have quick turnovers. Amounts borrowed and repaid are presented
on a net basis on the Condensed Consolidated Statements of Cash Flows.
NOTE
10 -
LEASES
Lessee
We
have operating and finance leases for corporate offices, vehicles, and certain equipment. Our leases have remaining lease terms of
1
year to
20
years. Some of the leases include options to extend the leases and some include options to terminate the lease within
1
year.
Operating leases and finance leases are included separately in the Condensed Consolidated Balance Sheets.
331
On
December 16, 2025, ADT entered into three purchase and sale agreements with Custom Capital Strategies, Inc. (“Custom Capital”),
pursuant to which the parties agreed to consummate three sale and leaseback transactions of three different properties in Texas, Utah,
and Wyoming.
On
February 27, 2026, the property located at 101-107 Pasture Drive, Evanston, Wyoming, was sold for a total purchase price of $
1.7
million,
subject to adjustment for taxes and other charges and assessments. Thereafter, Custom Capital assigned their rights to buy the property
to their affiliate, Pasture Drive Holdings, LLC (the “ADT Wyoming Buyer”).
On
March 27, 2026 the property located at 3601 N County Rd 1148, Midland, Texas, was sold for a total purchase price of $
1.1
million, and
the property located at 1377 East 1500 South, Vernal, Utah was sold for a total purchase price of $
0.6
million. Both purchase prices
are subject to adjustment for taxes and other charges and assessments. Immediately prior to the closings Custom Capital assigned their
rights to buy the property to, Alliance Texas and Utah, LLC (the “ADT Property Buyer”).
Simultaneously
with the consummation of the above sales, ADT entered into three commercial single-tenant triple net leases with the ADT Wyoming Buyer
and the ADT Property Buyer, guaranteed by the Company, pursuant to which ADT leased back from the ADT Wyoming Buyer and the ADT Property
Buyer the above properties sold for terms commencing on February 27, 2026 and on March 27, 2026, respectively, and ending on the 20th
anniversaries thereof, unless earlier terminated or extended for four additional five year periods. Pursuant to the terms of the lease
agreements, ADT will be responsible for rent and all monthly expenses related to the properties, including insurance premiums, taxes,
utilities, and other expenses.
These
sale leasebacks meet the qualification of operating leases under ASC 842, “Leases” in that (i) they do not automatically
transfer title to the lessee at the end of the lease term; (ii) they do not contain a bargain purchase option; (iii) the lease term is
not for a major part of the estimated remaining useful life of the asset; (iv) the present value of the lease payments does not represent
substantially all of the fair value of the underlying assets; and (v) the underlying assets are not of such a specialized nature that
are assumed to have no alternative use to the lessor at the end of the lease term. Accordingly, the Company recognized the resulting
gain on sale of $
37
in full in “Other income (expense), net” in the period in which the buyer obtained control of the assets,
representing the excess of the aggregate sale proceeds of $
3,211
net of closing fees over the aggregate carrying value of the properties
of $
3,174
, and no portion of the gain was deferred. The related right-of-use assets and lease liabilities arising from the sale leasebacks
are accounted for in accordance with ASC 842 and are presented within operating lease right-of-use assets and operating lease liabilities
on the Condensed Consolidated Balance Sheets.
We
used our incremental borrowing rate as the discount rate for these sale leaseback transactions, as the rate implicit in the lease is
not readily determinable. We estimated our incremental borrowing rate based on our Company credit rating, adjusted for the lease’s
term and the collateralized nature of the lease obligations. Lease extensions are not reasonably certain of being exercised. As such,
we have not included such extensions in determining our incremental borrowing rate or in our initial valuation of the lease assets and
liabilities.
The
components of lease expense are as follows:
Three
Months Ended
June
30,
Six
Months Ended
June
30,
2026
2025
2026
2025
Operating
lease cost
$
796
$
291
$
1,508
$
575
Finance
lease cost:
Amortization
of finance lease assets
$
9
$
-
$
19
$
-
Interest
on finance lease liabilities
-
-
-
-
Total
finance lease cost
$
9
$
-
$
19
$
-
332
Supplemental
cash flow information related to leases was as follows:
Six
months Ended
June
30,
2026
2025
Cash
paid for amounts included in the measurement of lease liabilities
Operating
cash flows from operating leases
$
1,077
$
402
Financing
cash flows from finance leases
$
9
N/A
Right-of-use assets
obtained in exchange for lease obligations
Operating
leases
$
2,494
$
361
Supplemental
balance sheet information related to leases was as follows:
June
30, 2026
December
31, 2025
Weighted
average remaining lease term (in years)
Operating
leases
14.8
13.8
Finance
leases
0.6
0.9
Weighted
average discount rate
Operating
leases
12.69
%
12.80
%
Finance
leases
5.72
%
5.76
%
We
are committed to making future cash payments on non-cancelable operating leases and finance leases (including interest). The future minimum
lease payments due under both non-cancelable operating leases and finance leases having initial or remaining lease terms in excess of
one year as of June 30, 2026 were as follows:
Operating
Leases
Finance
Leases
2026
(for the remainder of the year)
$
1,271
$
6
2027
2,348
1
2028
2,095
-
2029
2,107
-
2030
1,922
-
2031
and thereafter
24,814
-
Total
future minimum lease payments
34,557
7
Less
amounts representing interest
(
20,452
)
-
Present
value of lease obligations
$
14,105
$
7
NOTE
11 -
GOODWILL AND INTANGIBLE ASSETS
Goodwill
For
the six months ended June 30, 2026 and the twelve months ended December 31, 2025, the changes in carrying amount of goodwill were as
follows:
Carrying
Value
2026
Goodwill,
January 1,
$
5,944
Currency
translation
(
45
)
Goodwill,
June 30, 2026
$
5,899
Carrying
Value
2025
Goodwill,
January 1,
$
5,703
Acquisitions
242
Currency
translation
(
1
)
Goodwill,
December 31, 2025
$
5,944
333
Intangible
Assets
The
Company’s intangible assets consisted of the following components as of June 30, 2026 and December 31, 2025:
June
30, 2026
Weighted
Average Remaining Amortization Useful Lives
(in
years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Non-compete
agreements
2.2
$
145
$
(
130
)
$
15
Trade
name
5.0
1,658
(
1,006
)
652
Customer
lists
1.3
4,012
(
3,324
)
688
Developed
technology
-
657
(
657
)
-
$
6,472
$
(
5,117
)
$
1,355
December
31, 2025
Weighted
Average Remaining Amortization Useful Lives
(in
years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Non-compete
agreements
2.7
$
147
$
(
133
)
$
14
Trade
name
5.4
1,662
(
933
)
729
Customer
lists
1.8
4,017
(
3,072
)
945
Developed
technology
-
657
(
657
)
-
$
6,483
$
(
4,795
)
$
1,688
Amortization
expense for the three and six months ended June 30, 2026 was $
170
and $
329
, respectively. Intangible assets are amortized on a straight-line
basis over their estimated useful lives.
No
impairment in the value of amortizable intangible assets was recognized during the six months
ended June 30, 2026 and 2025.
Estimated
future amortization expense for intangible assets for the remainder of the fiscal year ending December 31, 2026, and for each of the
next fiscal years are as follows:
2026
$
339
2027
574
2028
130
2029
110
2030
110
Thereafter
92
$
1,355
334
The
change in the book value of amortizable intangible assets is as follows:
January
1, 2026
Beginning
Balance
Acquisition
Amortization
Translation
and Other
June
30, 2026
Ending
Balance
Non-compete agreements
$
14
$
-
$
(
1
)
$
2
$
15
Trade name
729
-
(
74
)
(
3
)
652
Customer lists
945
-
(
254
)
(
3
)
688
$
1,688
$
-
$
(
329
)
$
(
4
)
$
1,355
NOTE
12 -
FAIR VALUE MEASUREMENTS
The
Financial Accounting Standards Board’s authoritative guidance for fair value measurements establishes a three-level hierarchy based
upon the inputs to the valuation model of an asset or liability. Assets and liabilities presented at fair value in our Condensed Consolidated
Balance Sheets are generally categorized as follows:
Level
1: Quoted prices in active markets for identical assets or liabilities.
Level
2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities. Such assets and liabilities may have values determined using pricing models, discounted cash flow methodologies, or similar
techniques, and include instruments for which the determination of fair value requires significant management judgment or estimation.
Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Our assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation
of assets and liabilities and their placement within the fair value hierarchy levels. The following table sets forth by level within
the fair value hierarchy our assets and liabilities that were recorded at fair value as of June 30, 2026:
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
Fair
Value as of June 30, 2026
Level
1
Level
2
Level
3
Total
Assets
(Liabilities):
Equity
securities
$
4,262
$
-
$
-
$
4,262
Total
$
4,262
$
-
$
-
$
4,262
Fair
Value as of December 31, 2025
Level
1
Level
2
Level
3
Total
Assets
(Liabilities):
Equity
securities
$
3,767
$
-
$
-
$
3,767
Total
$
3,767
$
-
$
-
$
3,767
The
table below presents a reconciliation for Level 3 liabilities for the period ended December 31, 2025. The Level 3 liabilities consist
of an earnout liability associated with SOC’s acquisition of Big Lake Lumber (“BLL”) in 2023. The change in the Level
3 liability during the period was primarily due to net payments.
2025
Acquisition
value at August 22, 2025
$
201
Net
reductions (payments)
(
201
)
Balance
as at December 31, 2025
$
-
335
Assets
and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain
assets acquired and liabilities assumed in connection with the SOC acquisition were measured at fair value on a nonrecurring basis as
of the acquisition date.
Additional
information regarding the valuation methodologies and assumptions used in determining these fair values is included in Note 5 - Acquisitions,
which presents the allocation of purchase consideration and related fair value measurements required under ASC 805, Business Combinations.
No
other assets or liabilities were measured at fair value on a nonrecurring basis during the period.
Equity
Securities
The
investment in equity securities consists of common stock of publicly traded companies. The fair value of these securities is based on
the closing prices observed on June 30, 2026, and is recorded in “Investments in equity securities” in the Condensed Consolidated
Balance Sheets.
Gains
and losses from investments in equity securities are recorded in other income (expense) in the Condensed Consolidated Statements of Operations
and included the following for the period ended June 30, 2026.
Three
Months Ended
June
30,
Six
Months Ended
June
30,
2026
2026
Unrealized
loss on equity securities
$
(
668
)
$
(
945
)
Unrealized
gain on equity securities
314
569
Realized
gain on equity securities
316
496
Total
(loss) gain on equity securities
$
(
38
)
$
120
Lumber
Derivative Contracts
We
may enter into lumber derivative contracts in order to protect our gross profit margins from fluctuations caused by lumber price volatility.
Such contracts, which are generally entered into to protect the gross margins on our wall panel contracts at EdgeBuilder and Glenbrook
Building Supply, Inc. (“Glenbrook” and referred to jointly with EdgeBuilder as “EBGL”), are recorded within current
assets or liabilities in the Condensed Consolidated Balance Sheets. As of June 30, 2026, we did not have any lumber derivatives contracts
open.
Gains
and losses from lumber derivative contracts are recorded in the cost of revenues in the Condensed Consolidated Statements of Operations.
There were no unrealized or realized gains or losses on lumber derivatives for the three and six months ended June 30, 2026.
NOTE
13 -
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
Basic
loss per share is computed by dividing the Company’s net loss attributable to common shareholders by the weighted average number
of shares outstanding during the period. When the effects are not anti-dilutive, diluted loss per share is computed by dividing the Company’s
net loss attributable to common shareholders by the weighted average number of shares outstanding and the impact of all dilutive potential
common shares, primarily stock options “in-the-money”, unvested restricted stock, and unvested restricted stock units. We
have not allocated net income (loss) attributable to warrants because the holders of our warrants are not contractually obligated to
share in our income (loss). The dilutive impact of stock options, unvested restricted stock, and unvested restricted stock units is determined
by applying the “treasury stock” method. Performance-based restricted stock awards are included in the computation of diluted
loss per share only to the extent that the underlying performance conditions: (i) are satisfied prior to the end of the reporting period;
or (ii) would be satisfied if the end of the reporting period were the end of the related performance period and the result would be
dilutive under the treasury stock method. Stock awards subject to vesting or exercisability based on the achievement of market conditions
are included in the computation of diluted earnings per share only when the market conditions are met.
336
A
reconciliation of the numerators and denominators of the basic and diluted loss per share calculations for the three and six months ended
June 30, 2026 and 2025 was as follows:
Three
Months Ended
June
30,
Six
Months Ended
June
30,
2026
2025
2026
2025
Loss
per share attributable to common shareholders (“EPS”):
Basic
$
(
0.66
)
$
(
0.23
)
$
(
1.84
)
$
(
0.82
)
Diluted
$
(
0.66
)
$
(
0.23
)
$
(
1.84
)
$
(
0.82
)
EPS
numerator - basic and diluted:
Net
loss attributable to common shareholders
$
(
2,451
)
$
(
688
)
$
(
6,836
)
$
(
2,444
)
EPS
denominator (in thousands):
Weighted
average common stock outstanding - basic
3,704
2,995
3,724
2,990
Common
stock equivalents: restricted stock units and restricted shares of common stock
(a)
-
-
-
-
Weighted
average number of common stock outstanding - diluted
3,704
2,995
3,724
2,990
(a)
The
diluted weighted average number of shares of common stock outstanding did not differ from the basic weighted average number of shares
of common stock outstanding because the effects of any potential common stock equivalents (see Note 6 to the Condensed Consolidated
Financial Statements for further details on unvested restricted stock units) were anti-dilutive and therefore not included in the
calculation of the denominator of dilutive earnings per share.
NOTE
14 -
STOCKHOLDERS’ EQUITY
Common
Stock
On
August 8, 2023, the Company’s Board of Directors authorized a share repurchase program for up to $
5,000
of the Company’s
outstanding common stock. The Company continues to view share repurchases as an attractive use of capital and may repurchase shares from
time to time, as market conditions warrant, through open market purchases, privately negotiated transactions, block trades, or other
methods, in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934 (the “Exchange
Act”).
In
the third quarter of 2025, the Company completed its $
5,000
share repurchase program authorized on August 8, 2023. On September 10, 2025,
the Board of Directors authorized a new common stock repurchase program under which the Company may repurchase up to $
3,000
of its outstanding
common stock. During the six months ended June 30, 2026, the Company repurchased on the open market a total of
86,257
shares of its common
stock for an aggregate cost of $
0.9
million under these authorizations. As of June 30, 2026, under the July 30, 2015, August 8, 2023
and September 10, 2025 authorizations combined, the Company had repurchased an aggregate of
1,034,639
shares for a total cost of $
16.4
million, completing the August 8, 2023 authorization and leaving $
1.6
million available for purchase under the September 10, 2025 authorization.
During the six months ended June 30, 2025, no repurchases of shares were made by the Company.
The
Company cannot predict when or if it will repurchase any shares of common stock as such stock repurchase program will depend on a number
of factors, including constraints specified in any Rule 10b5-1 trading plans, price, general business and market conditions, and alternative
investment opportunities. Information regarding share repurchases will be available in the Company’s periodic reports on Form 10-Q
and 10-K filed with the Securities and Exchange Commission as required by the applicable rules of the Exchange Act.
NOTE
15 -
PERPETUAL PREFERRED STOCK
Holders
of shares of our Series A Preferred Stock are entitled to receive, when, as, and if, authorized by the Company’s board of directors
(or a duly authorized committee of the Company’s board of directors) and declared by the Company out of funds legally available
for the payment of dividends, preferential cumulative cash dividends at the rate of
10
% per annum of the liquidation preference of $
10
per share. Dividends are payable quarterly, in arrears, by the last calendar day of March, June, September and December to holders of
record at the close of business on the first day of each payment month. The Series A Preferred Stock is not convertible and does not
have any voting rights, except when dividends are in arrears for
6
or more consecutive quarters, then the holders of those shares together
with holders of all other series of preferred stock equal in rank would be entitled to vote separately as a class for the election of
two additional directors to board of directors, until all dividends accumulated on such shares of Series A Preferred Stock for the past
dividend periods and the dividend for the current dividend period shall have been fully paid or declared and a sum sufficient for the
payment thereof set apart for payment. The Series A Preferred Stock is not subject to redemption by the Company.
337
On
February 13, 2026, Star announced that its Board of Directors declared a cash dividend to holders of the Company’s Preferred Stock
of $
0.25
per share. The record date for this dividend was March 1, 2026, and the payment date was March 10, 2026. On May 15, 2026, Star
announced that its Board of Directors declared a cash dividend to holders of the Company’s Preferred Stock of $
0.25
per share.
The record date for this dividend was June 1, 2026, and the payment date was June 10, 2026. As of June 30, 2026, we are current on our
preferred dividend payments.
On
May 18, 2026, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) under which the Company
may offer and sell, from time to time, shares of its 10% Series A Cumulative Perpetual Preferred Stock, par value $
0.001
per share (the
“Series A Preferred Stock”). Sales of Series A Preferred Stock under the Sales Agreement, if any, are made by any method
permitted by law and deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act, including
sales made directly on the Nasdaq Global Select Market.
During
the three months ended June 30, 2026, the Company sold
82,764
shares of Series A Preferred Stock under the Sales Agreement at a weighted
average price of $
9.86
per share, for gross proceeds of approximately $
816
. After deducting commissions and fees of approximately $
25
,
the Company received net proceeds of approximately $
790
.
NOTE
16 -
STOCKHOLDER RIGHTS PLAN
On
October 15, 2018, the Company’s Board of Directors declared a dividend to the Company’s stockholders of record as of the
close of business on October 25, 2018 (the “Record Date”), for each outstanding share of the Company’s common stock,
of one right (a “Right”) to purchase one one-hundredth of a share of a new series of participating preferred stock of the
Company. The terms of the Rights are set forth in the Rights Agreement, dated as of October 15, 2018 (as amended, the “Rights Agreement”),
by and between the Company and Computershare Trust Company, N.A., as rights agent (the “Rights Agent”). The Company’s
stockholders approved the Rights Agreement at the Company’s 2019 Annual Meeting of Stockholders held on May 6, 2019. On September
28, 2021, the Company and the Rights Agent entered into a First Amendment to Rights Agreement (the “Amendment”) that amended
the Rights Agreement to extend its term through October 15, 2024. The amendment was approved by the Board on September 28, 2021, subject
to stockholder approval, and the Company’s stockholders approved the Amendment at the Company’s 2022 Annual Meeting of Stockholders
held on May 17, 2022. The Board of Directors has taken further action to amend the Original Rights Agreement, as amended by the First
Amendment, to extend the expiration of the Rights Agreement to October 15, 2027, as contemplated in the Second Amendment to Rights Agreement
(the “Second Amendment”). The Second Amendment was approved by the Board on June 13, 2024, subject to stockholder approval,
and the Company’s stockholders approved the Amendment at the Company’s 2024 Annual Meeting of Stockholders held on July 31,
2024.
The
Company also has a provision in its Amended and Restated Certificate of Incorporation which generally prohibits transfers of its common
stock that could result in an ownership change.
Each
Right allows its holder to purchase from the Company one one-hundredth of a share of the Company’s Series B Junior Participating
Preferred Stock (“Series B Preferred Stock”) for a purchase price of $
3.50
. Each fractional share of Series B Preferred Stock
would give the stockholder approximately the same dividend, voting and liquidation rights as does
one
share of common stock. Prior to
exercise, however, a Right does not give its holder any dividend, voting or liquidation rights.
The
Board entered into the Rights Agreement in an effort to preserve the value of the Company’s significant U.S. NOLs and other tax
benefits. The Company’s ability to utilize its NOLs may be substantially limited if the Company experiences an “ownership
change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general,
an “ownership change” would occur if the percentage of the Company’s ownership by one or more “5-percent shareholders”
(as defined in the Code) increases by more than 50 percent over the lowest percentage owned by such stockholders at any time during the
prior three years. The Rights Agreement is designed to preserve the Company’s tax benefits by deterring transfers of common stock
that could result in an “ownership change” under Section 382 of the Code. In general terms, the Rights Agreement imposes
a significant penalty upon any person or group that acquires beneficial ownership (as defined under the Rights Agreement) of
4.99
% or
more of the outstanding common stock without the prior approval of the Board (an “Acquiring Person”). Any Rights held by
an Acquiring Person are void and may not be exercised.
The
Rights will not be exercisable until the earlier of (i)
10
days after a public announcement by the Company that a person or group has
become an Acquiring Person; and (ii)
10
business days (or a later date determined by the Board) after a person or group begins a tender
or an exchange offer that, if completed, would result in that person or group becoming an Acquiring Person.
338
Until
the date that the Rights become exercisable (the “Distribution Date”), common stock certificates will also evidence the Rights
and will contain a notation to that effect. Any transfer of shares of common stock prior to the Distribution Date will constitute a transfer
of the associated Rights. After the Distribution Date, the Rights will separate from the common stock and be evidenced by Right certificates,
which the Company will mail to all holders of Rights that have not become void. After the Distribution Date, if a person or group already
is or becomes an Acquiring Person, all holders of Rights, except the Acquiring Person, may exercise their Rights upon payment of the
purchase price to purchase shares of common stock (or other securities or assets as determined by the Board) with a market value of
two
times the purchase price (a “Flip-in Event”). After the Distribution Date, if a Flip-in Event has already occurred and the
Company is acquired in a merger or similar transaction, all holders of Rights, except the Acquiring Person, may exercise their Rights
upon payment of the purchase price, to purchase shares of the acquiring or other appropriate entity with a market value of
two
times
the purchase price of the Rights. Rights may be exercised to purchase Series B Preferred Stock only after the Distribution Date occurs
and prior to the occurrence of a Flip-in Event as described above. A Distribution Date resulting from the commencement of a tender offer
or an exchange offer as described in the second bullet point above could precede the occurrence of a Flip-in Event, in which case the
Rights could be exercised to purchase Series B Preferred Stock. A Distribution Date resulting from any occurrence described in the first
bullet point above would necessarily follow the occurrence of a Flip-in Event, in which case the Rights could be exercised to purchase
shares of common stock (or other securities or assets) as described above.
The
Rights will expire on the earliest of (i) the close of business on October 15, 2027, or such earlier date as of which the Board determines
that this Agreement is no longer necessary for the preservation of Tax Benefits, (ii) the time at which the Rights are redeemed as provided
in Section 23, (iii) the time at which all exercisable Rights are exchanged as provided in Section 24, (iv) the close of business on
the effective date of the repeal of Section 382 of the Code or any successor or replacement provision if the Board determines that this
Agreement is no longer necessary for the preservation of Tax Benefits, and (v) the Close of Business on the first day of a taxable year
of the Company to which the Board determines that no Tax Benefits may be carried forward.
The
Board may redeem all (but not less than all) of the Rights for a redemption price of $
0.001
per Right at any time before the later of
the Distribution Date and the date of the first public announcement or disclosure by the Company that a person or group has become an
Acquiring Person. Once the Rights are redeemed, the right to exercise the Rights will terminate, and the only right of the holders of
such Rights will be to receive the redemption price.
The
Board may adjust the purchase price of the Series B Preferred Stock, the number of shares of Series B Preferred Stock issuable and the
number of outstanding Rights to prevent dilution that may occur as a result of certain events, including, among others, a stock dividend,
a stock split or a reclassification of the Series B Preferred Stock or common stock.
Before
the time the Rights cease to be redeemable, the Board may amend or supplement the Rights Agreement without the consent of the holders
of the Rights, except that no amendment may decrease the redemption price below $
0.001
per Right.
NOTE
17 -
SEGMENT AND GEOGRAPHIC DATA
Segment
Reporting
Corporate
expenses are reported separately for the
four
reportable segments and pertain to certain functions, such as executive management, corporate
governance, investor relations, legal, accounting, tax, and treasury. A portion of these expenses are attributed to the reportable segments
for providing the above services to them, and have been allocated to the segments as management service expenses, and are included in
the segments’ non-operating other income (expense). We have disclosed for each reportable segment the significant expense that
is reviewed by CODM in the tables below with no additional significant expenses beyond those presented. Segment information is presented
in accordance with ASC 280, “Segment Reporting.” This standard is based on a management approach that requires segmentation
based upon the Company’s internal organization and disclosure of revenue and certain expenses based upon internal accounting methods.
The Company’s financial reporting systems present various data for management to run the business, including internal profit and
loss statements prepared on a basis not consistent with U.S. GAAP. Accounts receivable and long-lived assets are the only significant
assets separated by segment for internal reporting purposes.
Our
reportable segments are based upon our internal organizational structure, the manner in which our operations are managed, the criteria
used by our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), to evaluate segment performance,
the availability of separate financial information, and overall materiality considerations. Effective as of the acquisition of SOC on
August 22, 2025, our business segments are organized into the following four reportable segments, reflecting the manner in which our
CODM assesses performance and allocates resources:
1.
Building Solutions
2.
Business Services
3.
Energy Services
4.
Investments
Our
reporting segments have been determined based on the nature of the products and services offered to customers or the nature of their
function in the organization. We evaluate performance based on gross profit and operating income (loss). Our operating costs included
in our shared service functions primarily consist of senior executive officers, finance, human resources, legal, and information technology.
Star Equity shared service corporate costs have been separated from the reportable segments. Prior period presentation previously disclosed
conforms to current year presentation.
339
Segment
information for the three and six months ended June 30, 2026 and 2025, respectively, is as follows:
Building
Solutions
Business
Services
Energy
Services
Investments
Corporate
and Intersegment eliminations
Total
For
The Three Months Ended June 30, 2026
Revenues
$
14,612
$
36,385
$
3,944
$
158
$
(
158
)
$
54,941
Cost
of revenues
11,454
18,570
2,048
74
-
32,146
Gross
profit
(a)
3,158
17,815
1,896
84
(
158
)
22,795
Salaries
and related
(
1,786
)
(
14,369
)
(
583
)
-
(
1,229
)
(
17,967
)
Office
and general
(
1,074
)
(
2,032
)
(
506
)
(
157
)
(
1,104
)
(
4,873
)
Marketing
and promotion
(
11
)
(
982
)
(
8
)
-
-
(
1,001
)
Operating
expenses depreciation and amortization
(
101
)
(
213
)
-
-
(
10
)
(
324
)
Operating
income / (loss)
$
186
$
219
$
799
$
(
73
)
$
(
2,501
)
$
(
1,370
)
EBITDA
(loss)
(b)
$
23
$
72
$
1,102
$
(
56
)
$
(
1,785
)
$
(
644
)
Total
depreciation and amortization
(
267
)
(
213
)
(
370
)
(
74
)
(
10
)
(
934
)
Interest
income / (expense), net
(
140
)
(
169
)
(
49
)
217
141
-
Provision
for income tax
-
(
461
)
-
-
191
(
270
)
Net
income / (loss)
$
(
384
)
$
(
771
)
$
683
$
87
$
(
1,463
)
$
(
1,848
)
For
The Six Months Ended June 30, 2026
Revenues
$
26,210
$
71,390
$
7,402
$
317
$
(
317
)
$
105,002
Cost
of revenues
21,411
36,129
3,963
149
-
61,652
Gross
profit
(a)
4,799
35,261
3,439
168
(
317
)
43,350
Salaries
and related
(
3,378
)
(
29,461
)
(
1,266
)
-
(
2,602
)
(
36,707
)
Office
and general
(
2,241
)
(
4,161
)
(
884
)
(
249
)
(
1,935
)
(
9,470
)
Marketing
and promotion
(
23
)
(
1,879
)
(
21
)
-
-
(
1,923
)
Operating
expenses depreciation and amortization
(
191
)
(
405
)
(
19
)
-
(
20
)
(
635
)
Operating
income / (loss)
$
(
1,034
)
$
(
645
)
$
1,249
$
(
81
)
$
(
4,874
)
$
(
5,385
)
EBITDA
(loss)
(b)
$
(
1,331
)
$
(
943
)
$
1,950
$
(
9
)
$
(
3,415
)
$
(
3,748
)
Total
depreciation and amortization
(
531
)
(
405
)
(
771
)
(
149
)
(
20
)
(
1,876
)
Interest
income / (expense), net
(
266
)
(
327
)
(
92
)
390
282
(
13
)
Provision
for income tax
-
305
-
-
(
309
)
(
4
)
Net
income / (loss)
$
(
2,128
)
$
(
1,370
)
$
1,087
$
232
$
(
3,462
)
$
(
5,641
)
As
of June 30, 2026
Accounts
receivable, net
$
7,940
$
22,000
$
4,971
$
-
$
29
$
34,940
Long-lived
assets, net of accumulated depreciation and amortization (c)
$
4,257
$
7,597
$
5,409
$
6,437
$
152
$
23,852
Total
assets
$
32,401
$
41,525
$
14,220
$
21,099
$
(
1,009
)
$
108,236
340
Business
Services
Corporate
and Intersegment eliminations
Total
For
The Three Months Ended June 30, 2025
Revenues
$
35,541
$
-
$
35,541
Cost
of revenues
16,906
-
16,906
Gross
profit (a)
18,635
-
18,635
Salaries
and related
(
14,460
)
(
377
)
(
14,837
)
Office
and general
(
1,646
)
(
1,147
)
(
2,793
)
Marketing
and promotion
(
971
)
-
(
971
)
Operating
expenses depreciation and amortization
(
243
)
(
2
)
(
245
)
Operating
income (loss)
$
1,315
$
(
1,526
)
$
(
211
)
EBITDA
(loss) (b)
$
954
$
(
1,106
)
$
(
152
)
Depreciation
and amortization
(
243
)
(
2
)
(
245
)
Interest
income (expense), net
(
157
)
211
54
Provision
for income taxes
(
372
)
27
(
345
)
Net
income (loss)
$
182
$
(
870
)
$
(
688
)
For
The Six Months Ended June 30, 2025
Revenues
$
67,407
$
-
$
67,407
Cost
of revenues
32,374
-
32,374
Gross
profit (a)
35,033
-
35,033
Salaries
and related
(
28,354
)
(
828
)
(
29,182
)
Office
and general
(
3,284
)
(
2,073
)
(
5,357
)
Marketing
and promotion
(
1,901
)
-
(
1,901
)
Operating
expenses depreciation and amortization
(
523
)
(
5
)
(
528
)
Operating
income (loss)
$
971
$
(
2,906
)
$
(
1,935
)
EBITDA
(loss) (b)
$
458
$
(
2,122
)
$
(
1,664
)
Total
depreciation and amortization
(
523
)
(
5
)
(
528
)
Interest
income (expense), net
(
278
)
403
125
Provision
for income taxes
(
448
)
71
(
377
)
Net
loss
$
(
791
)
$
(
1,653
)
$
(
2,444
)
As
of December 31, 2025
Building
Solutions
Business
Services
Energy
Services
Investments
Corporate
and Intersegment eliminations
Total
Accounts
receivable, net
$
8,671
$
22,398
$
4,045
$
-
$
106
$
35,220
Long-lived
assets, net of accumulated depreciation and amortization
(c)
$
4,320
$
7,934
$
7,235
$
6,586
$
167
$
26,242
Total
assets
$
34,105
$
43,418
$
12,526
$
21,689
$
1,493
$
113,231
(a)
Gross
profit in the Business Services segment includes the direct staffing costs of salaries, payroll taxes, employee benefits, travel
expenses, and insurance costs for the Company’s contractors and reimbursed out-of-pocket expenses and other direct costs. The
region where services are provided, the mix of RPO and contracting, and the functional nature of the staffing services provided can
affect operating income and EBITDA. The salaries, commissions, payroll taxes, and employee benefits related to recruitment professionals
are included under the caption “Salaries and related” in the Condensed Consolidated Statements of Operations.
(b)
SEC
Regulation S-K Item 229.10(e)1(ii)(A) defines EBITDA as earnings before interest, taxes, depreciation, and amortization. EBITDA is
presented to provide additional information to investors about the Company’s operations on a basis consistent with the measures
that the Company uses to manage its operations and evaluate its performance. Management also uses this measurement to evaluate working
capital requirements. EBITDA should not be considered in isolation or as a substitute for operating income and net income prepared
in accordance with U.S. GAAP or as a measure of the Company’s profitability.
(c)
Comprised
of property and equipment, intangible assets and goodwill, net of accumulated depreciation and amortization.
341
Geographic
Data Reporting
A
summary of revenues for the three and six months ended June 30, 2026 and 2025 and net assets by geographic area as of June 30, 2026 and
December 31, 2025, were as follows:
Australia
United
States
United
Kingdom
Other
Total
For
The Three Months Ended June 30, 2026
Revenue
(a)
$
18,079
$
25,846
$
5,424
$
5,592
$
54,941
For
The Three Months Ended June 30, 2025
Revenue
(a)
$
16,832
$
6,739
$
6,211
$
5,759
$
35,541
For
The Six Months Ended June 30, 2026
Revenue
(a)
$
35,505
$
48,263
$
10,223
$
11,011
$
105,002
For
The Six Months Ended June 30, 2025
Revenue
(a)
$
31,694
$
13,249
$
11,505
$
10,959
$
67,407
As
of June 30, 2026
Long-lived
assets, net of accumulated depreciation and amortization
(b)
$
46
$
21,814
$
50
$
1,942
$
23,852
Net
assets
$
2,046
$
43,386
$
2,074
$
12,291
$
59,797
As
of December 31, 2025
Long-lived
assets, net of accumulated depreciation and amortization
(b)
$
32
$
24,160
$
35
$
2,015
$
26,242
Net
assets
$
3,855
$
47,524
$
1,475
$
12,853
$
65,707
(a)
Revenue
by geographic region disclosed above is net of any inter-segment revenue and, therefore, represents only revenue from external customers
according to the location of the operating subsidiary.
(b)
Comprised
of property and equipment, intangible assets and goodwill, net of accumulated depreciation and amortization.
NOTE
18 -
SUPPLEMENTARY BALANCE SHEET INFORMATION
Inventories
The
components of inventories are as follows:
June
30, 2026
December
31, 2025
Raw
materials
$
4,061
$
4,122
Work-in-process
450
536
Finished
goods
2,443
2,330
Total
inventories, net
$
6,954
6,988
ADT’s
inventory, amounting to $
1,097
as of June 30, 2026, consists of component equipment, parts and supplies which are classified as raw materials
using the weighted average cost method.
342
Property
and Equipment
Property
and equipment consists of the following:
June
30, 2026
December
31, 2025
Land
$
795
$
1,134
Buildings
and leasehold improvements
7,117
9,070
Transportation
2,217
2,023
Machinery
and equipment
14,101
12,750
Gross
property and equipment
24,230
24,977
Accumulated
depreciation
(
7,632
)
(
6,367
)
Total
property and equipment, net
$
16,598
$
18,610
Depreciation
expense for the three and six months ended June 30, 2026 was $
764
and $
1,547
, respectively, and $
6
and $
52
for the three and six months
ended June 30, 2025, respectively.
As
of June 30, 2026, we held non-operating land and a building in Oxford, Maine for investment and potential future use which had a carrying
value of $
1,701
and was included within property and equipment on the Condensed Consolidated Balance Sheets.
Warranty
Reserves
Within
our Building Solutions segment, KBS provides a limited assurance warranty on its residential homes that covers substantial defects in
materials or workmanship for a period of
12
months after delivery to the owner. EdgeBuilder provides a
limited warranty on the sale of its wood foundation products that covers leaks resulting from defects in workmanship for a period of
twenty-five
years. TT provides a
fifty-year
limited warranty to the original buyer of its products, qualified by the original buyer’s obligation to ensure that the products
are properly handled, stored, and installed. Historical losses related to the Timber Technologies warranty have been insignificant and
therefore no reserve has been established. Estimated future warranty costs are accrued and charged to cost of goods sold in the period
that the related revenue is recognized. Within our Energy Services segment, we do not provide warranties on our products.
Notes
Receivable
Notes
receivable consists of the following principal and interest balances as of June 30, 2026 and December 31, 2025:
June
30, 2026
December
31, 2025
Principal
and interest
Principal
and interest
Catalyst
Note
$
8,725
$
8,257
MDOS
Note
447
596
KBS
Customer Note
12
32
Total
note receivable
9,184
8,885
Less
current portion
(
236
)
(
256
)
Note
receivable, net of current portion
$
8,948
$
8,629
As
a part of the sale of Digirad Health in May 2023, SOC entered into a $
7,000
promissory note (the “Catalyst Note”) which represents
an unsecured note receivable on our balance sheet. The note has a maturity date of May 3, 2029 with payment-in-kind (non-cash) interest
on the outstanding principal balance hereof to accrue at the Interest Rate. The full balance is scheduled to be paid at the maturity
date. The Interest Rate is defined as (i) during the period from the date of issuance of the note through the third anniversary of the
date of issuance of the note, a per annum rate equal to the sum of (x)
5.0
%
per annum plus (y) the greater of
5.0
%
per annum and the
weighted average term SOFR-based interest rate of outstanding loans under the Senior Loan Agreement (as defined in the Purchase Agreement)
during such period, and (ii) during the period following the third anniversary of the date of issuance of the note, a per annum rate
equal to the sum of (x)
5.0
%
per annum plus (y) the greater of
7.0
%
per annum and the weighted average term SOFR-based interest rate
of outstanding loans under the Senior Loan Agreement during such period.
In
2021, SOC completed the sale of MD Office Solutions in exchange for a secured promissory note (the “MDOS Note”). This note,
the principal of which is approximately $
447
at June 30, 2026, is included in “Notes receivable, net of current portion”
and “Notes receivable” in our Condensed Consolidated Balance Sheets at June 30, 2026 and December 31, 2025 for $
223
and $
224
,
respectively. The MDOS Note requires quarterly installments of $
74
and incurs interest at a fixed rate of
5.0
%
through maturity in 2028.
343
In
2023, KBS issued a promissory note to a customer, incurring
12
%
interest per annum (the “KBS Customer Note”). The KBS Customer
Note is included in “Notes receivable, net of current portion” in the Condensed Consolidated Balance Sheets at June 30, 2026.
The
Company evaluates its notes receivable portfolio under the Current Expected Credit Loss (“CECL”) model.
Long
Term Investments
Below
are the components of our Long Term Investments as of June 30, 2026:
Method
of Accounting
June
30, 2026
December
31, 2025
Investment
in Catalyst
Cost
Method
$
953
$
953
Total
$
953
$
953
Investment
in Catalyst
As
a part of the sale of Digirad Health, SOC received common equity of Catalyst Parent, which is held in our Investments Segment at a fair
value of $
953
at June 30, 2026. We have elected the measurement alternative under ASC 321,
Investments-Equity Securities
. The
measurement alternative election allows for equity securities that do not have readily determinable fair values to be recorded at cost,
with adjustments for impairment and certain observable price changes reflected in earnings. Such securities are adjusted to fair value
when an observable price change occurs or impairment is identified.
Investment
in Enservco
On
August 9, 2024, SOC entered into an investment in Enservco pursuant to a Share Exchange Agreement in which SOC agreed to issue to Enservco
250,000
shares of
10
%
Series A Cumulative Perpetual Preferred Stock representing $
2,600
of value in exchange for
9,023,035
Enservco Common
Shares, representing
19.9
%
of the equity interests of Enservco, and
3.5
million Enservco Preferred Shares and certain options included
in the Share Exchange Agreement. We also issued a $
1,000
note to Enservco to facilitate Enservco’s acquisition of Buckshot Trucking,
LLC. The investment in Enservco had a value of zero at June 30, 2026.
NOTE
19 -
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash,
cash equivalents, and restricted cash as reported within the accompanying Condensed Consolidated Balance Sheets as of June 30, 2026 and
December 31, 2025 was as follows:
June
30,
2026
December
31,
2025
Cash
and cash equivalents
$
6,834
$
10,269
Restricted
cash, current
1,540
1,819
Restricted
cash, non-current
551
1,322
Total
cash, cash equivalents, and restricted cash
$
8,925
$
13,410
Restricted
cash primarily includes lease and collateral deposits, as well as bank guarantees for licensing.
NOTE
20 -
COMMITMENTS AND CONTINGENCIES
Litigation
and Complaints
The
Company is subject, from time to time, to various claims, lawsuits, contract disputes, and other complaints from, for example, clients,
candidates, suppliers, landlords for both leased and subleased properties, former and current employees, and regulators or tax authorities
arising in the ordinary course of business. The Company routinely monitors claims such as these, and records provisions for losses when
the claim becomes probable and the amount due is estimable. Although the outcome of these claims cannot be determined, the Company believes
that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, results
of operations or liquidity.
344
For
matters that reach the threshold of probable and estimable, the Company establishes reserves for legal, regulatory, and other contingent
liabilities. The Company had $
0.2
million of legal reserves as of both June 30, 2026 and December 31, 2025.
In
the normal course of business, we have been and will likely continue to be subject to litigation or administrative proceedings incidental
to our business, such as claims related to compliance with regulatory standards, customer disputes, employment practices, wage and hour
disputes, product liability, professional liability, malpractice liability, commercial disputes, licensure restrictions or denials, and
warranty or patent infringement. Responding to litigation or administrative proceedings, regardless of whether they have merit, can be
expensive and disruptive to normal business operations. We are not able to predict the timing or outcome of these matters but currently
do not expect that the resolution of these matters will have a material adverse effect on our financial position or results of operations.
The
outcome of litigation and the amount or range of potential loss at particular points in time may be difficult to ascertain. Among other
things, uncertainties can include how trial and appellate courts will apply the law and interpret facts, as well as the contractual and
statutory obligations of other indemnifying and insuring parties. The estimated range of reasonably possible losses, and their effect
on our financial position is based on currently available information and is subject to significant judgment and a variety of assumptions,
as well as known and unknown uncertainties.
NOTE
21 -
SUBSEQUENT EVENTS
The
Company has evaluated events and transactions occurring after June 30, 2026 through August 14, 2026, the date these condensed consolidated
financial statements were issued, for potential recognition or disclosure in the accompanying condensed consolidated financial statements.
Except as described below, the Company has determined that no other material subsequent events require recognition or disclosure.
Merger
Agreement with Harte Hanks, Inc.
On
August 14, 2026, the Company, Merger Sub - R, Inc., a wholly owned subsidiary of the Company (“HH Merger Sub”), and Harte
Hanks, Inc. (“Harte Hanks”) entered into an Agreement and Plan of Merger (the “HH Merger Agreement”) providing
for the merger of HH Merger Sub with and into Harte Hanks, with Harte Hanks surviving as a wholly owned subsidiary of the Company (the
“HH Merger”).
Under
the HH Merger Agreement, each share of Harte Hanks common stock (outstanding immediately prior to the effective time, other than shares
held in treasury or owned by the Company or its HH Merger Sub, which will be cancelled without consideration), and each share underlying
a Harte Hanks equity award entitled to consideration under the HH Merger Agreement, will be converted into the right to receive, at the
holder’s election and subject to proration, either (i) $
5.00
per share in cash, (ii)
0.5
shares of the Company’s Series A
Preferred Stock, or (iii) a combination of the two. Aggregate cash consideration, including cash payable in lieu of fractional preferred
shares, may not exceed $
19.2
million. If cash elections exceed that amount, cash is allocated pro rata among cash-electing shares and
the balance is paid in Series A Preferred Stock. All outstanding Harte Hanks restricted stock units that vest in connection with the
Closing will be cancelled in exchange for the same merger consideration, and vested Harte Hanks stock options having a per share exercise
price below the per share merger consideration will be cancelled in exchange for the excess of that consideration over the exercise price.
Options with a per share exercise price at or above the per share merger consideration will be cancelled without payment.
Assuming
the maximum cash consideration is elected and paid, aggregate consideration would consist of $
19.2
million in cash and
1.92
million shares
of Series A Preferred Stock. Consistent with the Company’s accounting for its acquisition of Star Operating Companies described
in Note 5, consideration transferred will be measured at the acquisition-date fair value of the Series A Preferred Stock issued.
Completion
of the HH Merger is subject to customary closing conditions, including approval of the HH Merger Agreement by Harte Hanks stockholders,
effectiveness of a Registration Statement on Form S-4 to be filed by the Company with respect to the Series A Preferred Stock issuable
in the HH Merger, receipt of specified third-party consents, and completion of debt financing sufficient to enable the Company to fund
the cash portion of the merger consideration.
The financing is expected to be provided by a drawdown on Harte Hanks’ existing $25
million asset-based revolving credit facility with Texas Capital Bank (with the drawdown not to exceed $15 million), under which $21.3
million was available as of June 30, 2026 after giving effect to outstanding letters of credit
. Availability under that facility is limited
by a borrowing base determined primarily by reference to cash and accounts receivable, and the facility contains covenants restricting
mergers and acquisitions and the incurrence of indebtedness; accordingly, consummation of the financing will require the consent of,
or an amendment from, the lender. In the event the lender fails to consent to provide all or a portion of the financing, the Company
intends to seek alternative debt financing. Directors and executive officers of Harte Hanks have entered into voting and support agreements
in favor of the HH Merger. There can be no assurance that the HH Merger will be completed on the terms described or at all.
The
Company expects to account for the HH Merger as a business combination, with the Company as the accounting acquirer. Because the HH Merger
had not been completed as of the date these condensed consolidated financial statements were issued, the Company has not completed its
determination of the fair values of the assets to be acquired and liabilities to be assumed, and no purchase price allocation or pro
forma financial information is presented. Entry into the HH Merger Agreement is a non-recognized subsequent event, and accordingly no
amounts related to the HH Merger have been recorded in the condensed consolidated balance sheet as of June 30, 2026 or in the condensed
consolidated statements of operations for the periods presented, other than transaction costs incurred through that date.
345
Annex
D
Solely
for purposes of this Annex D, references to “the Company,” “we,” “us,” and “our” refer
to Harte Hanks, Inc.
This
Annex D includes business and other company information, Management’s Discussion and Analysis of Financial Condition and Results
of Operations for the years ended December 31, 2025 and 2024, and audited consolidated financial statements and related notes, together
with the report of the independent registered public accounting firm, from Harte Hanks’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2025, filed on March 17, 2026. This Annex D also includes Management’s Discussion and Analysis of Financial
Condition and Results of Operations for the three and six months ended June 30, 2026 and 2025 and unaudited condensed consolidated financial
statements and related notes from Harte Hanks’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2026, filed
on August 14, 2026.
Information
about Harte Hanks
Harte
Hanks is a leading customer and brand experience company operating in six service categories - data, marketing, sales, customer care,
fulfillment and logistics. In and across these service categories, we address today’s biggest growth and customer experience challenges
for B2B and B2C businesses across the world in the new era of intelligence and artificial intelligence (“AI”), by being a
modern journey enabler. The challenges we solve include:
●
Grappling
with data, AI and technology in a cookie-restricted digital environment;
●
Growing
awareness, demand and sales for products;
●
Storing,
fulfilling and delivering samples, kits, materials and products direct to the door of consumers, influencers or businesses;
●
Delivering
better customer experience and support across multiple channels; and
●
Delivering
effectively with tighter budgets and talent shortages.
Our
clients need help enabling their journey to growth, to transformation, to customer centricity, to product success and to AI powered approaches
and solutions to marketing, sales, fulfillment and customer care. At the core of how we address this is a concentration on our clients’
key audiences - prospects, customers, patients, members, partners, employees and influencers - and how we help align our clients’
brands and products to these different audiences along journeys. This includes the
product journey,
e.g., product innovation,
build, strategy, launch, sell, deliver, support and recall and the
customer journey,
e.g., how customers become aware of their
needs, how they buy, making the purchase, using the product or service, advocacy and renewal. We are focused on helping our clients better
understand, engage, acquire, deliver to, service, support and retain these audiences. We start by understanding and architecting the
journey in focus, and then enable, deliver and manage some or all aspects along this journey. Our alignment of customers and products
on behalf of brands along the entire lifecycle distinguishes us from most other agencies and competitors in our service categories.
We
offer a uniquely diverse range of services and solutions in and across our service categories to businesses in the following industries:
●
B2B
Technology & Services including cloud, SaaS, hardware, software, semiconductors, health technology, fintech, electronics, distributors
and telecommunications
●
Healthcare,
Pharmaceuticals & Health Insurance
●
Consumer
Products including health, well-being and beauty; consumer tech/electronics; domestic appliances
●
Travel,
Hospitality, Streaming & Entertainment
●
QSRs
(Quick Service Restaurants)
●
Financial
Services and Fintech
●
Automotive
●
Retail
We
work in partnership with our clients to provide them with: data-driven analytics and actionable insights from research; robust customer-experience
(“CX”), marketing or sales strategies; and the data, content & technology to enable delivery. We then combine these insights
with seamless program execution, fulfillment, service and delivery on a project or ongoing service basis to meet our clients’ goals.
In essence we offer services along the customer & product lifecycle - from Data to Demand, to Deal, to Delivery, and everything in
between.
346
Operationally,
starting in 2024, our services are organized into three business units that span the end to end customer and product lifecycles:
●
Data,
marketing, demand generation and managed marketing services
●
Customer
Care
●
Fulfillment
& Logistics
Data,
Marketing, Demand Generation and Managed Marketing Services
Harte
Hanks helps our clients determine, detect and activate their audiences through traditional, digital, and emerging channels. We provide
full service multi-channel marketing from strategy to campaign execution. This includes the support of our customers’ sales teams
in their continued pursuit of excellence, delivering specialized outsourcing, optimization, lead nurturing and messaging development
services to global and national partners. We leverage data, insights, technology, and award-winning creative solutions to meet and exceed
our clients’ business objectives and optimize our clients’ return on investment.
Our
key offerings include:
●
Data
& Analytics
– In-depth data and analytics including audience identification,
profiling, segmentation and prioritization, predictive modeling and data strategy. We provide
data hygiene and cleansing to ensure the best possible results. We access broad first-party
and third-party data sources, search and social media, and research through syndicated, primary
and secondary sources, and we leverage our proprietary DataView tool, a comprehensive, aggregate
data mart for B2C (USA) and B2B (Global) that provides a 360-degree customer view, with over
1,500 attributes enabling accurate predictive marketing to our clients. We also offer a unique
intent data solution called Audience Finder for detecting in-market prospects.
●
Research
& Intelligence
- Primary and secondary research to help our clients understand their
customers, category, competitors and capabilities, either as a standalone deliverable or
to inform the development of strategies for campaigns and programs.
●
Strategy
– Provide strategic guidance to help clients efficiently and effectively plan and execute
omnichannel marketing, demand generation and customer experience programs that deliver business
results. We leverage data and insights to enhance our clients’ understanding of their
consumers, competitors and category dynamics, then apply those insights to develop the strategies
to fuel activities such as customer acquisition, engagement, purchase behavior, loyalty and
advocacy. Our expertise spans the range of strategies including targeting, Go-To-Market,
commercial, product launch, customer experience, campaign, content, ABM (Account Based Marketing)
and demand strategy.
●
Creative
& Content
- Full-service creative and content design, development and execution spanning
traditional and digital channels, including creative concepts, messaging and content assets
for print, broadcast, direct mail, website, app, display, social, mobile, search engine marketing,
and voice.
●
Marketing
Technology
– Website and app development, e-commerce development and enablement,
database building and management, platform architecture creation, and marketing automation
to serve as the foundation for digital and multi-channel marketing execution.
●
Digital
and Multi-channel Marketing Execution & Advertising -
Orchestration and execution
of programs and campaigns across multiple channels, territories and audiences, using data,
strategies, content and Marketing technology or MarTech provided either by Harte Hanks or
by our clients. Setup and management of digital advertising programs and campaigns across
the latest advertising channels (e.g., Google, Meta, LinkedIn, TikTok) and platforms (DSPs,
ABM advertising, industry networks).
●
Demand
Generation and ABM
- Providing intelligence-based B2B solutions that understand audiences
and their behaviors, and then inspire and drive action to deliver results. These solutions
help companies understand which accounts, sectors and persons to target, and then generate
marketing qualified leads (“MQLs”) and pipelines for their marketing and sales
team, through combining data, strategy, content, MarTech and digital/multi-channel execution.
347
●
Managed
Marketing Services
- Also referred to as “Marketing as a Service”. A flexible
outsourcing marketing operations solution, that works as a highly integrated extension of
a client’s own marketing function by blending the best of agency and business outsourcing
processes and capabilities. Marketing as a Service operationalizes, manages and delivers
some or all of: data operations, marketing technology, analytics, demand generation, and
staff augmentation.
●
Inside
Sales Outsourcing
- Combining best-in-class analytics, accomplished sales professionals
and full-cycle experimentation we provide B2B enterprises, and Small to Midsized Businesses
with a fully outsourced sales service, that can work alongside or in lieu of an internal
sales function.
●
Lead
Generation
– Combining data, lead generation resources and technology, we provide
turnkey lead generation and development that converts interested or good fit prospects into
leads for sales to qualify, nurture and sell to.
●
Sales
Play Development
- Designing sales plays and cadences to enable sales teams to find,
plan, engage, nurture and convert prospects into sales opportunities.
Customer
Care
Our
customer care services are customized to meet the needs of our partners’ customer, helping them attract new buyers and turn existing
patrons into loyal brand advocates. We support our clients by addressing their end customers’ urgent needs, navigating an increasingly-complex
technology landscape, and integrating AI technology and automation — while maintaining a fierce devotion to reducing customer effort,
for the benefit of both the business and the buyer. This approach to “effortless customer experience” not only drives better
service results but is also designed to lower our clients’ operational costs.
Our
global, omnichannel delivery model is focused on providing our clients three key services:
●
Customer
Service Outsourcing -
Our accomplished customer care associates interact and resolve
consumer queries and complaints across hardware and software platforms, healthcare benefit
plans, product recalls and/or a myriad of other customer service issues. We leverage technology
to help reduce customer effort while providing a human touch to increase customer satisfaction.
●
Customer
Care Technology and AI Transformation
– Our solution services teams configure various
CRM solutions (e.g., Salesforce, Zendesk) and channel /AI technology including Amazon Connect
to create meaningful customer interactions by connecting content between agent, AI-driven
interfaces and web-based self-help tools and community forums.
●
Self-Service
Technology
- We provide and maintain self-service solutions through Interactive Voice
Response (“IVR”), Help Centers, online, and via apps and channel technology.
We
also analyze a significant amount of aggregated data obtained from customer interactions on behalf of our clients. We leverage information
gained from this analysis and end customer-driven feedback to drive efficiencies, provide insights on predictive behaviors that lead
to lower customer churn and help our clients innovate their core product offerings and develop innovative product features.
Fulfillment
& Logistics Services
Our
fulfillment and logistics services are designed to meet the diverse and dynamic needs of businesses across industries, ensuring that
products, promotional materials, and essential items are delivered efficiently, accurately, and on time. Harte Hanks fulfillment unlocks
critical sales enablement, value-added product fulfillment, and eCommerce channels for our clients. Harte Hanks logistics supports the
supply chain needs of our clients in everything from time-sensitive deliveries to full scale supply chain management. By leveraging our
modern infrastructure, advanced technology, and industry expertise, we help our clients streamline their operations, enhance customer
experience, and optimize cost efficiencies. We support enterprise-level supply chain management, execute precise time-sensitive deliveries,
and enable eCommerce scalability.
348
End
to End Product, Print-On-Demand, and Mail Fulfillment Services
Our
extensive fulfillment capabilities include:
●
Print-On-Demand
& Literature Distribution
– We facilitate the seamless production and distribution
of marketing materials, sales collateral, and product literature, ensuring businesses can
effectively engage with customers, prospects, and partners.
●
Promotional
& Branded Product Distribution
– We manage and distribute promotional products,
trade show materials, and corporate gifts to enhance brand awareness and customer engagement.
●
Custom
Kitting & Event Fulfillment
– Our curated kitting solutions support corporate
events, influencer marketing programs, employee appreciation campaigns, and conference giveaways,
ensuring that clients can create impactful brand experiences.
●
Product
Recall Management
– We assist in efficient product recalls, ensuring regulatory
compliance, customer safety, and brand reputation protection.
●
Temperature-Controlled
& FDA-Registered Fulfillment Centers
– We have strategically located fulfillment
centers across the United States, that provide temperature-controlled storage and are FDA-registered
to handle sensitive products such as:
○
Nutritional
supplements, medical foods, and baby formulas
○
Chocolates,
coffee, tea, snack foods, nuts, and seeds
○
Pet
food, treats, and nutritional supplements
●
Scalable
Global Fulfillment
– Our fulfillment network spans the U.S., with capabilities in Europe and additional support from regional
logistics partners that ensure efficient international product distribution.
Through
our upgraded order management platform, we can now streamline order processing, facilitate seamless integration with various data sources
and eCommerce platforms, and ensure real-time visibility into inventory and shipment status.
Third-Party
Logistics & Freight Optimization
Harte
Hanks logistics services help businesses achieve supply chain excellence by ensuring efficient transportation, freight optimization,
and timely product delivery. Our logistics expertise enables businesses to reduce costs, improve delivery speed, and optimize their supply
chain operations—whether managing individual shipments or full-scale supply chain management. Our comprehensive logistics solutions
include:
●
Nationwide
& Regional Shipping
– We facilitate the shipping of millions of time-sensitive
materials annually, leveraging our nationwide logistics network.
●
Certified
Fleet & Expedited Shipping
– With access to a contracted fleet of over 15,000
trucks, we provide clients with scalable third-party logistics (3PL) services tailored to
their needs.
●
Allink
®
360:
Proprietary Logistics Technology
– Our proprietary rate-shopping system, Allink
360, optimizes freight costs and delivery timelines, ensuring shipments arrive on time and
within budget.
●
Flexible
& Scalable Logistics Solutions
– We offer customized logistics solutions designed
to accommodate businesses of all sizes, from startups to Fortune 500 enterprises.
Client
Relationships
We
are known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every customer
touch point in order to deliver desired business outcomes. Realizing our clients’ success is the only valid measure of our own
success. We ensure all our efforts are aligned with our clients’ business objectives and measured against defined performance metrics.
It is this commitment to our clients and their businesses that allows us to build meaningful relationships with them. Our client engagements
may consist of one or a few of our service offerings – with a goal toward continuously expanding our relationships. We provide
cross-service client management along with continuous business reviews to ensure our clients receive value from our partnerships.
349
Use
of Subcontractors
Certain
segments of our business rely on subcontractors and other third parties to provide a portion of our overall services in certain engagements.
Over the years we have established strong relationships with subcontractors that translate into high level service and favorable prices
for our customers.
Customers
Our
clients include large multinational enterprises, small and medium-sized businesses and government organizations. Our largest client in
terms of revenue generated 10.5% of total revenues in 2025. Our largest 25 clients in terms of revenue generated 68.3% of total revenue
in 2025. Our clients span a wide range of industries including but not limited to retail, travel, streaming, healthcare, financial services,
and technology, which reduced the concentration risk of the Company in any one sector. We generally enter into long-term contracts with
our clients ranging in duration from one to three years. Most of our contracts do not require our customers to purchase a minimum amount
of services from us. In general, our contracts with our customers are terminable on short notice with little or no penalty payable on
termination.
Sales
and Marketing
Harte
Hanks operates a modern sales and marketing growth engine to generate awareness, create demand and convert this demand into new business,
as well as support existing client growth and retention. As a B2B services company we practice the marketing and sales methodology and
tactics we offer to our clients, including ABM, demand generation, content marketing, inside sales and enterprise sales. We also leverage
partnerships to extend our reach and broaden our solutions.
For
marketing, we leverage a combination of corporate marketing resources, marketing services resources and a modern MarTech stack including
CRM, content management, SEO/digital advertising tools to support targeting, account-based marketing, demand creation and awareness.
For
sales we rely on our enterprise and solution sellers, combined with an internal sales team, to sell our products and services to new
clients and task our employees supporting existing clients to expand our client relationship through additional solutions and products.
We have expanded our sales team coverage internationally to support our global client and prospect network. Our sales force sells a variety
of solutions and services to address our clients’ cross-selling targeted marketing needs. We also maintain solution-specific experts
in our sales force and sales groups to sell our individual products and solutions, with expertise by target industries including B2B,
Health and B2C.
Competition
Our
competition comes from local, national, and international marketing, advertising, customer care, print fulfillment, smaller 3PL, logistics
companies, and internal client resources, against whom we compete for individual projects, entire client relationships, and marketing
expenditures. The principal competitive factors in our industry are the breadth, depth and quality of service offerings, technical and
strategic expertise, the perceived value of the services provided, reputation, pricing, and brand recognition. We also compete against
social, mobile, web-based, email, print, broadcast, and other forms of advertising for marketing and advertising dollars in general.
Furthermore,
competition may begin to emerge as a result of the availability of in-house information technology solutions that can replicate some
of our services. We expect our clients to continue to improve their information technology systems and offerings and, in some circumstances,
move the services we provide in-house.
Seasonality
Some
of our revenue streams tend to be higher in the fourth quarter than in other quarters during a given year. This increased revenue is
a result of overall increased activity prior to the holiday season in the retail vertical, and due to the open enrollment period in the
healthcare vertical.
350
PROPERTIES
Our
headquarters is located in Chelmsford, MA. We lease office and fulfillment facilities around the world, primarily in the United States,
Europe and Asia.
As
of December 31, 2025, we operated the following types of facilities in the following locations:
Domestic
Offices
International
Offices
Operational
Warehouses
Chelmsford,
Massachusetts
Hasselt,
Belgium
East
Bridgewater, Massachusetts
Greenville,
South Carolina
Iasi,
Romania
Hasselt,
Belgium
Plano,
Texas
Manila,
Philippines
Kansas
City, Kansas
St.
Petersburg, Florida
Uxbridge,
United Kingdom
Valencia,
Spain
As
of December 31, 2025, our operational facilities were for the following use and square footage by segment:
Description of Use
United
States
International
Total
Office space
28,850
38,963
67,813
Fulfillment facilities
623,948
4,402
628,350
Total
652,798
43,365
696,163
Segment
Leased
Sq Ft
Customer Care
49,615
Fulfillment & Logistics
628,350
Revenue Solutions
11,947
689,912
Corporate office
6,251
Total
696,163
We
believe our facilities to be suitable and adequate for our business and operations as currently administered.
LEGAL
PROCEEDINGS
In
the ordinary course of its business, the Company is involved in various legal proceedings involving a variety of matters. The Company
does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or
results of operations.
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Our
common stock is listed for trading on the NASDAQ under the symbol “HHS”. As of January 31, 2026, there were approximately
593 common stockholders of record.
Dividend
Policy
The
Company currently does not pay any dividends and any future dividend payment is at the discretion of the Board of Directors.
351
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2025
Cautionary
Note About Forward-Looking Statements
This
report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),
contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified
by the cautionary note included under “Forward-Looking Statements” above, which is provided pursuant to the safe harbor provisions
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
may vary materially from what is expressed in or indicated by the forward-looking statements, for the reasons described in this MD&A,
in the Risk Factors in Item 1A above or elsewhere in this Annual Report on Form 10-K.
Overview
The
following MD&A section is intended to help the reader understand the results of operations and the financial condition of Harte Hanks.
This section is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying
notes included herein.
Harte
Hanks, Inc. is a leading global customer experience company operating in three business segments: Revenue Solutions formerly referred
to as Marking Services, Customer Care, and Fulfillment & Logistics Services. Our mission is to partner with clients to provide them
with robust customer-experience, or CX strategy, data-driven analytics, and actionable insights combined with seamless program execution
to better understand, attract, and engage their customers. Our services include strategic planning, data strategy, performance analytics,
creative development, and execution; technology enablement; marketing automation; B2B and B2C e-commerce; cross-channel customer care;
and product, print, and mail fulfillment.
We
are affected by the general, national, and international economic and business conditions in the markets where we and our customers operate.
Marketing budgets are largely discretionary in nature and, as a consequence, are easier for our clients to reduce in the short-term than
other expenses. Our revenues are also affected by the economic fundamentals of each industry that we serve, the expansion of alternative
channels, various market factors, including the demand for services by our clients, the financial condition of and budgets available
to our clients, and regulatory factors, among other factors. Due to the recent increases in inflation and interest rates throughout the
globe, as well as the ongoing armed conflicts in multiple regions, there is continued uncertainty and volatility in the global economy.
We remain committed to executing our multichannel strategy while also continuing to adjust our cost structure to appropriately reflect
our operations and outlook.
Management
is closely monitoring inflation and wage pressure in the market, and the potential impact on our business. While inflation has not had
a material impact on our business, it is possible a material increase in inflation could have an impact on our clients, and in turn,
on our business.
352
Results
of Operations
Operating
results from operations were as follows:
Year
Ended December 31,
In thousands,
except per share amounts
2025
% Change
2024
Operating revenue
$
159,570
-13.9
%
$
185,242
Operating expenses
159,184
-13.1
%
183,149
Operating income
$
386
-81.6
%
$
2,093
Operating margin
0.2
%
-78.6
%
1.1
%
Other expenses, net
1,394
-96.5
%
40,027
Income tax benefit
(197
)
-97.4
%
(7,637
)
Net loss
$
(811
)
-97.3
%
$
(30,297
)
Diluted EPS from operations
$
(0.11
)
-97.4
%
$
(4.15
)
Year
Ended December 31, 2025 vs. Year Ended December 31, 2024
Consolidated
Results
Revenues
Revenues
of $159.6 million for the year ended December 31, 2025 decreased $25.6 million, or 13.9%, when compared to $185.2 million for the year
ended December 31, 2024. Revenue in the Revenue Solutions segment declined $15.2 million, or 30.2%, to $35.1 million; our Fulfillment
& Logistics Services declined $7.6 million, or 9.3%, to $74.4 million; revenue in our Customer Care segment declined $2.9 million,
or 5.4%, to $50.1 million. Please see segment results below for additional information on the changes in revenue year over year.
Operating
Expenses
Operating
expenses of $159.2 million for the year ended December 31, 2025 decreased $24.0 million, or 13.1%, when compared to $183.1 million for
the year ended December 31, 2024.
Labor
costs decreased by $12.9 million, or 13.8%, when compared to the year ended December 31, 2024, primarily due to the reduction in salary
and wages as operations were optimized to account for lower revenue. Termination of senior management staff also resulted in lower stock
based compensation.
Production
and Distribution expenses decreased $6.7 million, or 11.9%, when compared to the year ended December 31, 2024, primarily driven by lower
transportation costs in proportion with our lower revenues in our logistics business.
Advertising,
Selling, and General and Administrative expenses decreased $0.6 million or 2.5%, when compared to the year ended December 31, 2024 primarily
due to the lower sales expenses from lower revenue as well as lower professional expenses, which was partially offset by increased technology
expenses.
Restructuring
expenses decreased $0.6 million to $1.8 million for the year ended December 31, 2025. The restructuring expenses included $0.2 million
of consulting expenses, $1.3 million of severance charges, and $0.3 million of facility related and other expenses.
2024
operating expenses also included impairment charges of $1.6 million and $1.5 million for goodwill and intangible assets. There were no
impairment charges incurred for goodwill and intangible assets in 2025.
353
Depreciation
expense increased $0.1 million, or 2.0%, when compared to the year ended December 31, 2024.
The
largest components of our operating expenses are labor, transportation expenses and outsourced costs. Each of these costs is, at least
in part, variable and tends to fluctuate in line with revenues and the demand for our services. Transportation rates have decreased over
the last year due to changes in demand and supply within the transportation industry. Future changes in transportation expenses will
continue to impact our total production costs and total operating expenses and in turn our margins. Postage costs of mailings are borne
by our clients and are not directly reflected in our revenues or expenses.
Other
Expenses, net
The
total other expenses, net were $1.4 million for the year ended December 31, 2025, when compared to other expense, net of $40.0 million
for the year ended December 31, 2024. This $38.6 million decrease in other expenses was mainly due to $37.5 million of pension termination
charges booked in the year ended December 31, 2024.
Income
Tax Benefit
Our
2025 income tax benefit was $0.2 million for the year ended December 31, 2025, when compared to tax benefit of $7.6 million for the year
ended December 31, 2024. The decrease in tax benefit of $7.4 million was primarily related to the one time pension termination charge
booked in the year ended December 31, 2024.
Segment
Results
The
following is a discussion and analysis of the results of our reporting segments for the years ended December 31, 2025 and 2024. There
are three principal financial measures reported to our President (the chief operating decision maker) for use in assessing segment performance
and allocating resources. Those measures are revenues, operating income and operating income plus depreciation and amortization (“EBITDA”).
EBITDA is considered a non-GAAP financial measure. A reconciliation of EBITDA to operating income is included below.
Revenue
Solutions:
Year
Ended December 31,
In thousands
2025
% Change
2024
Operating revenues
$
35,128
-30.2
%
$
50,332
EBITDA
5,584
7.8
%
5,182
Depreciation and amortization
expense
797
-45.4
%
1,459
Operating income
4,787
28.6
%
3,723
Operating income % of revenue
13.6
%
84.2
%
7.4
%
Revenue
Solutions segment revenue declined $15.2 million, or 30.2%, due to customer turnover and additional client spending reductions. This
segment is our most economically sensitive segment with regard to changes in our clients’ marketing strategies. Operating income
for the year ended December 31, 2025 increased $1.1 million improving operating income by 28.6% mainly due to the 2024 impairment of
goodwill and intangible assets.
354
Customer
Care:
Year
Ended December 31,
In thousands
2025
% Change
2024
Operating revenues
$
50,067
-5.4
%
$
52,918
EBITDA
6,245
-38.3
%
10,128
Depreciation and amortization
expense
266
28.5
%
207
Operating income
5,979
-39.7
%
9,921
Operating income % of revenue
11.9
%
-36.3
%
18.7
%
Customer
Care segment revenue declined $2.9 million, or 5.4% when compared to the prior year, which was impacted by fluctuations based on the
geographic regions customers select for staff support. Existing customers who shift current programs to our lower cost off-shore markets
can reduce revenues as the per agent cost is lower. We are leveraging our Amazon Connect cloud-based platform to test and pilot new AI
tools, and are exploring how we can augment growth by providing more technical support as clients migrate to more capable contact center
platforms. Operating income for the year ended December 31, 2025 decreased by $3.9 million to $6.0 million, or 39.7%, primarily due to
higher technology costs, tighter margins in a competitive marketplace and reduced revenue.
Fulfillment
& Logistics:
Year
Ended December 31,
In thousands
2025
% Change
2024
Operating revenues
$
74,375
-9.3
%
$
81,992
EBITDA
6,551
13.7
%
5,761
Depreciation and amortization
expense
2,214
76.3
%
1,256
Operating income
4,337
-3.7
%
4,505
Operating income % of revenue
5.8
%
6.1
%
5.5
%
Fulfillment
& Logistics segment revenue declined $7.6 million, or 9.3%, primarily due to lost customers and the lower revenue from existing customers
not being offset by growth in new programs and customers. For the year ended December 31, 2025, operating income was $4.3 million, a
decrease of $0.2 million or 3.7%. The decrease in operating income was primarily the result of lower revenue. Operating income as a percent
of revenue improved with the continued focus on operational optimization.
355
Liquidity
and Capital Resources
Sources
and Uses of Cash
Our
cash and cash equivalent balances were $5.6 million and $9.9 million as of December 31, 2025, and 2024, respectively. As of December
31, 2025 and 2024, we had the ability to borrow approximately $24.3 million and $24.0 million under our Credit Facility, respectively.
Our
principal sources of liquidity are cash on hand, cash provided by operating activities, and borrowings available under our Credit Facility.
Our cash is primarily used for general corporate purposes, working capital requirements, and capital expenditure. At this time, we believe
that we will be able to continue to meet our liquidity requirements and fund our fixed obligations such as finance and operating leases
and unfunded pension plan benefit payments and other needs for our operations in the short term and beyond. Although the Company believes
that it will be able to meet its cash needs for the short and medium term, if unforeseen circumstances arise, the company may need to
seek alternative sources of liquidity.
Operating
Activities
Net
cash used in operating activities was $1.7 million for the year ended December 31, 2025, when compared to cash used in operating activities
of $3.0 million for the year ended December 31, 2024. The $1.3 million year-over-year decrease in cash used in operating activities was
primarily due to changes in assets and liabilities.
Investing
Activities
Net
cash used in investing activities was $2.8 million for the year ended December 31, 2025, compared to cash used in investing activities
of $3.7 million for the year ended December 31, 2024. The $0.9 million decrease was mainly driven by $0.9 million lower property, plant
and equipment purchase in the year ended December 31, 2025, as compared to the year ended December 31, 2024.
Financing
Activities
Net
cash provided by financing activities was $0.5 million for the year ended December 31, 2025, compared to $0.4 million net cash used in
financing activities for the year ended December 31, 2024. The $0.9 million increase in cash provided by financing activities was primarily
related to the $1.1 million of cash we received for the recovery of short-swing profit from one shareholder in the year ended December
31, 2025, which was partially offset by $0.3 million of tax liability associated with this short-swing profit.
Foreign
Holdings of Cash
Consolidated
foreign holdings of cash as of December 31, 2025, and 2024 were $2.2 million and $1.5 million, respectively. The Company will repatriate
foreign cash holdings when and if it is financially efficient to do so.
Long
Term Debt
On
December 21, 2021, the Company entered into a three-year, $25.0 million asset-based revolving credit facility (the “Credit Facility”)
with Texas Capital Bank (“TCB”). The Company’s obligations under the Credit Facility are guaranteed on a joint and
several basis by the Company’s material subsidiaries (the “Guarantors”). The Credit Facility is secured by substantially
all the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, among the
Company, TCB and the Guarantors party thereto (the “Security Agreement”). On December 29, 2023, the Company extended the
maturity date for the Credit Facility by a period of six months to June 30, 2025. The extension was executed with substantially similar
terms and conditions as the original Credit Facility. On June 24, 2025, the Company entered into a second amendment to the Credit Facility
(the “Second Amendment”) with TCB which extended the maturity date for the Credit Facility by a period of three years to
June 30, 2028. The Second Amendment also includes an accordion feature that allows the Company to seek up to a $10.0 million increase
in commitments under the credit line, subject to TCB approval.
356
The
Credit Facility provides for loans up to the lesser of (a) $25.0 million or (b) the amount available under a “borrowing base”
calculated primarily by reference to the Company’s cash and cash equivalents and accounts receivables. The Credit Facility allows
the Company to use up to $3.0 million of its borrowing capacity to issue letters of credit.
The
loans under the Credit Facility accrue interest at a varying rate equal to the Secured Overnight Financing Rate (“SOFR”)
plus a margin of 2.25% per annum. The outstanding amounts advanced under the Credit Facility are due and payable in full on June 30,
2028.
The
Company may repay and reborrow all or any portion of the loans advanced under the Credit Facility at any time, without premium or penalty.
The Credit Facility is subject to mandatory prepayments (i) from the net proceeds of asset dispositions not otherwise permitted under
the Credit Facility; (ii) if the unpaid principal balance under the Credit Facility plus the aggregate face amount of all outstanding
letters of credit exceeds the borrowing base; (iii) in an amount equal to 50% of the net proceeds of issuances of capital stock (subject
to customary exceptions); or (iv) in an amount equal to the net proceeds from any issuance of debt not otherwise permitted under the
Credit Facility.
The
Credit Facility contains certain covenants restricting the Company’s and its subsidiaries’ ability to create, incur, assume
or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company’s stock; create, incur or
assume liens, consummate mergers or acquisitions, liquidate, dissolve, suspend or cease operations, or modify accounting or tax reporting
methods (other than as required by accounting principles generally accepted in the United States of America (“GAAP”)).
As
of December 31, 2025 and 2024, we had no borrowings outstanding under the Credit Facility. At each of December 31, 2025 and 2024, we
had letters of credit outstanding in the amount of $0.7 million and $1.0 million, respectively. No amounts were drawn against these letters
of credit at December 31, 2025 and 2024. These letters of credit exist to support insurance programs relating to workers’ compensation,
medical insurance, and reducing the cash security deposit on leased property. We had no other off-balance sheet financing activities
at December 31, 2025 and 2024. After the letters of credit on December 31, 2025 and 2024, we had the ability to borrow up to $24.3 million
and $24.0 million, respectively, under the Credit Facility.
Dividends
We
did not pay any dividends in either 2025 or 2024. Any future dividend declaration can be made only upon, and subject to, approval of
our Board of Directors, and will depend on our results of operations, financial condition, cash requirements, future business prospects,
contractual and indenture restrictions and other factors deemed relevant by our Board of Directors.
Share
Repurchase
On
May 2, 2023, the Board of Directors of Harte Hanks approved a share repurchase program to maximize shareholder value with authorization
to repurchase $6.5 million of the Company’s Common Stock. During 2023, 391,785 shares of common stock were repurchased for a total
combined purchase price of $2.4 million. In 2025 and 2024, no shares of common stock were repurchased.
Outlook
We
consider such factors as total cash and cash equivalents and restricted cash, current assets, current liabilities, total debt, revenues,
operating income, cash flows from operations, investing activities, and financing activities when assessing our liquidity. Our management
of cash is designed to optimize returns on cash balances and to ensure that it is readily available to meet our operating, investing,
and financing requirements as they arise. We believe that there are no conditions or events, considered in the aggregate, that raise
substantial doubt about our ability to continue as a going concern for the twelve months following the issuance of the Consolidated Financial
Statements.
357
Critical
Accounting Estimates
Our
Consolidated Financial Statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate
our estimates and assumptions based on historical experience and on various other assumptions that we believe are reasonable under the
circumstances. Our actual results could differ from these estimates under different assumptions or conditions. The areas that we believe
involve the most significant management estimates and assumptions are detailed below. On an ongoing basis, management reviews its estimates
and assumptions based on currently available information.
Management
believes that the following are critical accounting estimates:
Revenue
Recognition
We
recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration
we expect to be entitled to receive in exchange for those products or services based on the relevant contract.
Revenue
recognition requires management to apply judgment in identifying performance obligations and determining the timing and amount of revenue
recognized under customer contracts. Certain client programs provide for adjustments to billings based upon whether we achieve certain
performance criteria which requires us to estimate variable consideration.
Income
Taxes
We
are subject to income taxes in the United States and numerous other jurisdictions. Significant judgment is required in determining our
provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting
principles and complex tax laws.
We
record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability
method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences
between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which
those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets
to the net amount that we believe is more likely than not to be realized. A material valuation allowance is recorded for foreign and
specific state jurisdictions.
We
recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately
reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially
different. We adjust these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.
To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision
for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating
results. The provision for income taxes includes the effects of any reserves that we believe are appropriate, as well as the related
net interest and penalties.
Goodwill
and other Intangibles
Goodwill
is reviewed for impairment at least annually during the fourth quarter, or more frequently if events occur indicating the potential for
impairment. During the goodwill impairment review, the Company may assess qualitative factors to determine whether it is more likely
than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include,
but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company.
If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair
value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company
performs a quantitative goodwill impairment test in which the fair value of the reporting unit is compared to its carrying amount. Fair
value is determined through various valuation techniques and assumptions such as cash flow models, discount rates, market multiples and
control premiums.. The Company may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the quantitative
goodwill impairment test. We booked an impairment charge of $1.6 million for goodwill in the year ended December 31, 2024 , leaving a
balance of $0.3 million. There was no goodwill impairment in the year ended December 31, 2025.
358
Finite-lived
intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If circumstances require an intangible asset to be tested for possible impairment, the Company first compares undiscounted
cash flows expected to be generated by that intangible asset to its carrying amount. If the carrying amount of the intangible asset is
not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair
value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and
third-party independent appraisals, as considered necessary. The factors that drive the estimate of useful life are often uncertain and
are reviewed on a periodic basis or when events occur that warrant review. Recoverability is measured by comparing the assets’
book value to future net undiscounted cash flows that the assets are expected to generate to determine if a write-down to the recoverable
amount is appropriate. If such assets are written down, an impairment will be recognized as the amount by which the book value of the
asset group exceeds the recoverable amount. During the year ended December 31, 2024, a significant amount of revenue from its original
customers was lost. As a result, we booked an impairment loss of $1.5 million to our intangible assets. The net carrying balance of intangible
assets as of December 31, 2025 and December 31, 2024 was $0.4 million and $0.6 million, respectively. There was no impairment of our
intangible assets during the year ended December 31, 2025.
Pension
Accounting
The
Company sponsors defined benefit pension plans, the obligations and related expense of which are determined using actuarial valuations.
Management engages a third-party actuary to calculate the projected benefit obligation and pension expense based on standard actuarial
assumptions, including the discount rate, mortality assumptions, and expected return on plan assets.
Legal
and Other Contingencies
The
Company is subject to various legal proceeding and claims that arise in the ordinary course of business, the outcomes of which are inherently
uncertain. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable,
the determination of which requires significant judgment. Resolution of legal matters in a manner inconsistent with management’s
expectations could have a material impact on the Company’s financial condition and operating results.
359
Harte
Hanks, Inc. and Subsidiaries
Index
to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements (Wolf & Company, P.C., PCAOB ID #392)
361
Consolidated Balance Sheets as of December 31, 2025 and 2024
363
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2025 and 2024
364
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025 and 2024
365
Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024
366
Notes to Consolidated Financial Statements
367
All
schedules for which provision is made in the applicable rules and regulations of the SEC have been omitted as the schedules are not required
under the related instructions, are not applicable, or the information required thereby is set forth in the consolidated financial statements
or notes thereto.
360
Report
of Independent Registered Public Accounting Firm
To
the Stockholders and the Board of Directors of Harte Hanks, Inc. and Subsidiaries:
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Harte Hanks, Inc. and Subsidiaries (the Company) as of December 31, 2025
and 2024, the related consolidated statements of comprehensive (loss) income, changes in stockholders’ equity and cash flows for
each of the two years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively,
the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the
period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue
from Contracts with Customers
As
described in Note C to the financial statements, the Company generates revenue by offering a variety of services discrete to each of
its reportable segments. Revenue recognition requires management to apply judgment in identifying performance obligations and determining
the timing and amount of revenue recognized under customer contracts. Given the diversity of services offered and the judgment required
to apply the relevant accounting guidance, we identified revenue recognition as a critical audit matter.
361
Obtaining
an understanding of the Company’s accounting policies and processes for revenue recognition across its segments required significant
auditor effort. We also applied subjective auditor judgment when determining the nature and extent of our audit procedures and evaluating
the overall sufficiency of the audit evidence obtained.
Addressing
this critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the financial statements. These procedures include, among others: i) obtaining, reading and assessing management’s accounting
policy memorandums, ii) testing a sample of revenue transactions to customer contracts, third-party source documents and other documentation,
as applicable, to support the amount and timing of revenue recognized and iii) for customer contracts obtained, we evaluated the completeness
and accuracy of performance obligations identified by management.
/s/
Wolf & Company, P.C.
We
have served as the Company’s auditor since 2024.
Boston,
Massachusetts
March
17, 2026
362
Harte
Hanks, Inc. and Subsidiaries Consolidated Balance Sheets
December
31,
In thousands,
except per share and share amounts
2025
2024
ASSETS
Current assets
Cash and cash
equivalents and restricted cash
$
5,587
$
9,934
Accounts receivable (less
allowance of $22 and $50 at December 31, 2025 and 2024, respectively)
27,841
31,648
Contract assets and unbilled
accounts receivable
7,049
8,215
Prepaid expenses
2,363
1,511
Prepaid income tax and
income tax receivable
1,431
938
Other
current assets
2,046
1,368
Total current assets
$
46,317
$
53,614
Net property, plant and equipment
8,386
8,956
Right-of-use assets
19,854
$
22,460
Other assets
Intangible assets, net
370
563
Goodwill
295
295
Deferred tax assets, net
16,040
15,177
Other
long-term assets
564
717
Total
other assets
$
17,269
$
16,752
Total
assets
$
91,826
$
101,782
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
$
13,096
$
13,429
Accrued expenses
5,915
8,403
Accrued payroll and related
expenses
2,749
3,210
Deferred revenue and customer
advances
813
1,589
Customer postage and program
deposits
868
1,625
Other current liabilities
3,180
3,145
Short-term
lease liabilities
3,543
3,736
Total current liabilities
$
30,164
$
35,137
Pension liabilities - Qualified plans
4,106
5,445
Pension liabilities - Nonqualified plan
16,995
17,103
Long-term lease liabilities
18,861
20,860
Other long-term liabilities
1,174
1,548
Total liabilities
$
71,300
$
80,093
Stockholders’ equity
Common stock, $1 par value,
25,000,000 shares authorized, 12,221,484 shares issued, 7,414,794 and 7,357,450 shares outstanding at December 31, 2025 and
2024, respectively
12,221
12,221
Additional paid-in capital
109,558
124,194
Retained earnings
813,812
814,623
Less treasury stock, 4,806,690
and 4,864,034 shares at December 31, 2025 and 2024, respectively, at cost
(900,085
)
(915,752
)
Accumulated
other comprehensive loss
(14,980
)
(13,597
)
Total
stockholders’ equity
$
20,526
$
21,689
Total
liabilities and stockholders’ equity
$
91,826
$
101,782
See
Accompanying Notes to Consolidated Financial Statements.
363
Harte
Hanks, Inc. and Subsidiaries Consolidated Statements of Comprehensive (Loss) Income
Year
Ended December 31,
In thousands,
except per share amounts
2025
2024
Operating revenue
$
159,570
$
185,242
Operating expenses
Labor
80,823
93,769
Production and distribution
49,898
56,644
Advertising, selling, general
and administrative
22,209
22,781
Restructuring expense
1,782
2,402
Goodwill impairment charge
—
1,631
Intangible assets impairment
charge
—
1,537
Depreciation
and amortization expense
4,472
4,385
Total
operating expenses
$
159,184
$
183,149
Operating income
$
386
$
2,093
Other expenses, net
Interest expense, net
248
187
Pension plan termination
charges
—
37,505
Other
expenses, net
1,146
2,335
Total
other expenses, net
$
1,394
$
40,027
Loss before income taxes
(1,008
)
(37,934
)
Income tax benefit
(197
)
(7,637
)
Net loss
$
(811
)
$
(30,297
)
Loss per common share
Basic and Diluted
$
(0.11
)
$
(4.15
)
Weighted-average shares used to compute loss
per share attributable to common shares
Basic and Diluted
7,393
7,293
Comprehensive income, net of tax
Net loss
$
(811
)
$
(30,297
)
Adjustment to pension liabilities,
net of tax benefit of $180 and $11,492
(1,014
)
32,273
Foreign
currency translation adjustments
(369
)
(1,780
)
Total other comprehensive
(loss) income, net of tax
$
(1,383
)
$
30,493
Comprehensive (loss)
income
$
(2,194
)
$
196
See
Accompanying Notes to Consolidated Financial Statements.
364
Harte
Hanks, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity
In thousands
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
(loss)
income
Total
Stockholders’
Equity
Balance at December 31, 2023
$
12,221
$
157,889
$
844,920
$
(951,083
)
$
(44,090
)
$
19,857
Stock-based compensation
—
1,931
—
—
—
1,931
Vesting of RSUs
—
(35,626
)
—
35,331
—
(295
)
Net loss
—
—
(30,297
)
—
—
(30,297
)
Other comprehensive income
—
—
—
—
30,493
30,493
Balance at December 31, 2024
$
12,221
$
124,194
$
814,623
$
(915,752
)
$
(13,597
)
$
21,689
Stock-based compensation
—
258
—
—
—
258
Vesting of RSUs
—
(15,732
)
—
15,667
—
(65
)
Net Recovery of short swing profits
—
838
—
—
—
838
Net loss
—
—
(811
)
—
—
(811
)
Other comprehensive loss
—
—
—
—
(1,383
)
(1,383
)
Balance at December 31, 2025
$
12,221
$
109,558
$
813,812
$
(900,085
)
$
(14,980
)
$
20,526
See
Accompanying Notes to Consolidated Financial Statements.
365
Harte
Hanks, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year
Ended December 31,
In thousands
2025
2024
Cash Flows from Operating Activities
Net loss
$
(811
)
$
(30,297
)
Adjustments to reconcile
net loss to net cash (used in) provided by operating activities
Depreciation and amortization
expense
4,472
4,385
Restructuring expense
—
158
Impairment charges for
goodwill and intangible assets
—
3,168
Stock-based compensation
258
1,931
Net pension cost
(2,343
)
30,576
Deferred income taxes
(928
)
(9,279
)
Changes in assets and liabilities:
Accounts receivable, net
and contract assets
4,973
2,385
Prepaid expenses, income
tax receivable and other current assets
(1,885
)
703
Accounts payable and accrued
expenses
(3,210
)
(795
)
Deferred revenue and customer
advances
(776
)
(1,606
)
Customer postage and program
deposits
(757
)
(190
)
Other
accrued expenses and liabilities
(728
)
(4,126
)
Net
cash used in operating activities
$
(1,735
)
$
(2,987
)
Cash Flows from Investing Activities
Purchases of property,
plant and equipment
(2,757
)
(3,746
)
Proceeds
from the sale of property, plant and equipment
1
2
Net cash used in investing
activities
$
(2,756
)
$
(3,744
)
Cash Flows from Financing Activities
Debt financing costs
(100
)
—
Payment of finance leases
(159
)
(124
)
Recovery of short-swing
profit from stockholders
838
—
Treasury
stock activities
(65
)
(295
)
Net
cash provided by (used in) financing activities
$
514
$
(419
)
Effect of exchange rate changes on cash and
cash equivalents and restricted cash
(370
)
(1,780
)
Net decrease in cash and cash equivalents and
restricted cash
(4,347
)
(8,930
)
Cash and cash equivalents
and restricted cash at beginning of year
9,934
18,864
Cash
and cash equivalents and restricted cash at end of year
(1)
$
5,587
$
9,934
(1) This amount is comprised of the below balances:
Cash and cash equivalents
5,582
9,810
Restricted
cash
5
124
$
5,587
$
9,934
Supplemental disclosures:
Cash paid for interest
$
292
$
234
Cash (received) for interest
$
(123
)
$
(236
)
Cash paid for income taxes,
net of refunds
$
1,779
$
1,452
Non-cash investing and financing activities:
Purchases of property,
plant and equipment included in accounts payable and accrued expense
$
498
$
1,257
Right-of-use assets acquired
through operating leases
$
1,252
$
303
See
Accompanying Notes to Consolidated Financial Statements
366
Harte
Hanks, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note
A — Background and Basis of Presentation
Background
Harte
Hanks, Inc. together with its subsidiaries (“Harte Hanks,” “Company,” “we,” “our,” or
“us”) is a leading global customer experience company. With offices in North America, Asia-Pacific and Europe, Harte Hanks
works with some of the world’s most respected brands.
Basis
of Presentation
Consolidation
The
accompanying audited consolidated financial statements include the accounts of Harte Hanks, Inc. and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation. As used in this report, the terms “Harte Hanks,”
“the Company,” “we,” “us,” or “our” may refer to Harte Hanks, Inc., one or more of its
consolidated subsidiaries, or all of them taken as a whole, as the context may require.
Operating
Expense Presentation in the Consolidated Statements of Comprehensive (Loss) Income
The
“Labor” line in the Consolidated Statements of Comprehensive (Loss) Income includes all employee payroll and benefits costs,
including stock-based compensation and temporary labor costs. The “Production and distribution” and “Advertising, selling,
general and administrative” lines do not include labor, depreciation, or amortization expense. Certain labor costs are included
in restructuring expense, please see Note M for details.
Note
B — Significant Accounting Policies
Use
of Estimates
Preparation
of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from those estimates
due to uncertainties. Such estimates include, but are not limited to, estimates related to revenue recognition; income taxes; goodwill
and intangible assets impairment as well as pension accounting. On an ongoing basis, management reviews its estimates and assumptions
based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.
Segment
Reporting
The
Company operates three business segments: Revenue Solutions; Customer Care; and Fulfillment & Logistics Services. Our President is
considered to be our chief operating decision maker (CODM). Our President reviews our operating results on an aggregate basis for purposes
of allocating resources and evaluating financial performance by using the three financial measures: revenue, operating income and operating
income plus depreciation and amortization (EBITDA).
Cash
Equivalents
All
highly liquid investments with an original maturity of 90 days or less at the time of purchase are considered to be cash equivalents.
Cash equivalents are carried at cost, which approximates fair value.
367
Restricted
Cash
In
our normal business operation, we receive cash from our customers for certain customer program service funding. As these programs impose
legal restrictions on the commingling of funds, we present this cash as restricted cash.
Accounts
Receivable and Allowance for Credit Losses
Accounts
receivables are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We make
estimates of expected credit and collectability trends for the allowance for credit losses based upon our assessment of various factors,
including historical experience, the age of the accounts receivable balances, credit quality of our customers, current and future economic
conditions that may affect the Company’s expectation of the collectability in determining the allowance for credit losses. Provisions
for expected credit losses are recorded in the “Advertising, selling, general, and administrative” line of our Consolidated
Statements of Comprehensive (Loss) Income. As of December 31, 2025 and 2024, our accounts receivables, net, were $27.8 million
and $31.6 million, respectively.
The
changes in the allowance for credit losses accounts consisted of the following:
December
31,
In thousands
2025
2024
Balance at beginning of year
$
50
$
474
Net charges to expense
27
(86
)
Amounts recovered against
the allowance
(55
)
(338
)
Balance at end of year
$
22
$
50
Unbilled
receivables
For
the majority of service contracts, the Company performs the services prior to billing the client, and this amount is captured as Unbilled
accounts receivable, net on the consolidated balance sheet. Billing usually occurs in the month after the Company performs the services
or in accordance with the specific contractual provisions.
Geographic
Concentrations
Depending
on the needs of our clients, our services are provided through an integrated approach through twelve facilities worldwide, of which six
are located outside of the U.S.
The
following table provides information about the operations in different geographic for the periods indicated:
Revenue
(1)
Year
Ended December 31,
In thousands
2025
2024
United States
$
144,338
$
167,787
Other countries
15,232
17,455
Total revenue
$
159,570
$
185,242
(1)
Geographic revenues are based on the location of the service being performed.
Property,
plant and equipment, net
(2)
December
31,
In thousands
2025
2024
United States
$
7,279
$
8,374
Other countries
1,107
582
Net property, plant
and equipment
$
8,386
$
8,956
(2)
Property, plant and equipment are based on physical location.
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Credit
Risk and Concentration
Accounts
receivables are typically unsecured and are derived from revenue earned from customers across different industries and countries. We
perform ongoing credit evaluations of our customers and generally do not require collateral. In the event that the accounts receivable
collection cycle deteriorates, our operating results and financial position could be adversely affected.
Our
top customer represented 12.3% and 11.9% of total accounts receivable as of December 31, 2025 and 2024, respectively.
Revenue
by Top Customers
The
table below sets forth the percentage of our total revenue derived from our largest customers:
Year
Ended December 31,
2025
2024
Top ten customers
43.2
%
46.2
%
Top twenty-five customers
68.3
%
72.1
%
Our
top customer represented 10.5% and 9.4% of total revenue for the years ended December 31, 2025 and 2024, respectively.
Revenue
Recognition
We
recognize revenue upon the transfer of control of promised products or services to customers in an amount that reflects the consideration
we expect to be entitled to receive in exchange for those products or services based on the relevant contract. We apply the following
five-step revenue recognition model:
●
Identification
of the contract, or contracts, with a customer;
●
Identification
of the performance obligations in the contract;
●
Determination
of the transaction price;
●
Allocation
of the transaction price to the performance obligations in the contract; and
●
Recognition
of revenue when (or as) we satisfy the performance obligation.
Certain
client programs provide for adjustments to billings based upon whether we achieve certain performance criteria. In these circumstances,
revenue is recognized when the foregoing conditions are met. We record revenue net of any taxes collected from customers and subsequently
remitted to governmental authorities. Any payments received in advance of the performance of services or delivery of the product are
recorded as deferred revenue until such time as the services are performed or the product is delivered. Costs incurred for search engine
marketing solutions payable to the engine host and postage costs of mailings are billed to our clients and are not directly reflected
in our revenue.
Revenue
from agency and digital services, direct mail, logistics, fulfillment and contact center is recognized as the work is performed. Fees
for these services are determined by the terms set forth in each contract. These fees are typically a set fixed price or rate by transaction
occurrence, service provided, time spent, or product delivered.
369
Fair
Value of Financial Instruments
Financial
Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 820,
Fair Value Measurements
and Disclosures
, (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy
that prioritizes the inputs used in valuation methodologies into three levels:
Level
1
Quoted
prices in active markets for identical assets or liabilities.
Level
2
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level
3
Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
Because
of their maturities and/or variable interest rates, certain financial instruments have fair values approximating their carrying values.
These instruments include cash and cash equivalents and restricted cash, accounts receivable, trade payables, and debt. The fair value
of the assets in our funded pension plan is disclosed in Note H,
Employee Benefit Plans
.
Property,
Plant and Equipment
Property,
plant and equipment, net consist of the following:
December
31,
In thousands
2025
2024
Property, plant and equipment
Buildings and
improvements
$
5,284
$
4,550
Equipment and furniture
16,156
20,336
Software
19,949
19,799
Software
development and equipment installations in progress
1,613
1,906
Gross property, plant and
equipment
43,002
46,591
Less
accumulated depreciation
(34,616
)
(37,635
)
Net property, plant and
equipment
$
8,386
$
8,956
Property,
plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The general ranges of estimated useful lives are:
Years
Buildings and improvements
3
to 40
Software
2
to 5
Equipment and furniture
3
to 20
For
the year ended December 31, 2025, the Company recorded $4.1 million of depreciation expense compared to $3.5 million for the year
ended December 31, 2024.
Capitalized
software costs for internally developed software and implementation of third-party software are amortized over a period of three to five
years. On an ongoing basis, management reviews the valuation of these software costs to determine if there has been impairment to the
carrying value of these assets and adjusts this value accordingly.
Long-lived
assets such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset group is not recoverable if it exceeds
the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group.
370
Leases
We
determine if an arrangement is a lease at its inception. Operating and finance leases are included in the lease right-of-use (“ROU”)
assets and in the current portion and long-term portion of lease liabilities on our consolidated balance sheets. ROU assets represent
our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising
from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of each lease based on the present
value of lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing
rate based on the information available at commencement date of each lease to determine the present value of lease payments. The operating
lease ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or
terminate the lease, which are included in the lease ROU assets when it is reasonably certain that we will exercise that option. Lease
expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease
components, which are generally accounted for separately. For certain real estate leases, we account for the lease and non-lease components
as a single lease component.
Goodwill
Goodwill
is the amount by which the cost of the acquired net assets in a business combination exceeds the fair value of the identifiable net assets
on the date of purchase. Goodwill is not amortized. Goodwill is reviewed for impairment at least annually during the fourth quarter,
or more frequently if events occur indicating the potential for impairment.
The
Company has three reporting segments, but the current goodwill balance is booked in the Revenue Solutions segment. During its goodwill
impairment review, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of
its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic
conditions, industry and market considerations, and the overall financial performance of the Company. If, after assessing the totality
of these qualitative factors, the Company determines that it is not more likely than not that the fair value of its reporting unit is
less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company performs a quantitative goodwill
impairment test. The Company may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the quantitative
goodwill impairment test. There was no goodwill impairment in the year ended December 31, 2025. We booked an impairment charge of
$1.6 million for goodwill in the year ended December 31, 2024, leaving a balance of $0.3 million.
Intangible
Assets
Intangible
assets consist of finite-lived intangible assets acquired through the Company’s business combinations. Such amounts are initially
recorded at fair value and subsequently amortized over their useful lives using the straight-line method, which reflects the pattern
of benefit, and assumes no residual value.
Finite-lived
intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If circumstances require an intangible asset to be tested for possible impairment, the Company first compares undiscounted
cash flows expected to be generated by that intangible asset to its carrying amount. If the carrying amount of the intangible asset is
not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair
value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and
third-party independent appraisals, as considered necessary.
The
factors that drive the estimate of useful life are often uncertain and are reviewed on a periodic basis or when events occur that warrant
review. Recoverability is measured by comparing the assets’ book value to future net undiscounted cash flows that the assets are
expected to generate to determine if a write-down to the recoverable amount is appropriate. If such assets are written down, an impairment
will be recognized as the amount by which the book value of the asset group exceeds the recoverable amount. There was no impairment of
our intangible assets during the year ended December 31, 2025. During the year ended December 31, 2024, revenue from its original
customer base was lost. As a result, we booked an impairment loss of $1.5 million to our intangible assets. The net carrying balance
of intangible assets as of December 31, 2024 was $0.6 million.
371
A
summary of the Company’s intangible asset as of December 31, 2025, is as follows:
In thousands
Weighted
Average Amortization Period
Gross
Carrying Amount
Accumulated
Amortization
Net
Carrying
Amount
Customer Relationships
5 years
$
2,102
$
1,732
$
370
Estimated
future amortization expense related to intangible assets as of December 31, 2025, is as follows:
In thousands
Year Ending
December 31,
Amount
2026
$
193
2027
177
Total
$
370
Income
Taxes
Income
tax expense includes U.S. and international income taxes accounted for under the asset and liability method. Certain income and expenses
are not reported in tax returns and financial statements in the same year. Such temporary differences are reported as deferred tax. Deferred
tax assets are reported net of valuation allowances where we have assessed that it is more likely than not that a tax benefit will not
be realized.
Earnings
Per Share
Basic
earnings per common share are based upon the weighted-average number of common shares outstanding during the period. Diluted earnings
per common share are based upon the weighted-average number of common shares and dilutive common stock equivalents outstanding during
the period. Dilutive common stock equivalents are calculated based on the assumed exercise of stock options and vesting of unvested shares
using the treasury stock method.
Stock-Based
Compensation
All
share-based awards are recognized as operating expense in the “Labor” line of the Consolidated Statements of Comprehensive
(Loss) Income. Calculated expense is based on the fair values of the awards on the date of grant and is recognized over the requisite
service period or performance period of the awards. We account for forfeitures as they occur.
Reserve
for Healthcare Benefit and Worker’s Compensation Liability
We
are self-insured for the majority of our healthcare insurance. We pay actual medical claims up to a stop loss limit of $0.4 million.
The reserve is estimated using current claims activity, historical experience, and claims incurred but not reported. We use loss development
factors that consider both industry norms and company specific information. Our liability is recorded at the estimate of the ultimate
cost of claims at the balance sheet date. On December 31, 2025 and 2024, our reserve for healthcare, and workers’ compensation,
net, was $1.1 million and were included in accrued liabilities. Periodic changes to the reserve for workers’ compensation are recorded
as increases or decreases to insurance expense, which is included in the “Advertising, selling, general and administrative”
line of our Consolidated Statements of Comprehensive (Loss) Income. Periodic changes to the reserve for healthcare are recorded as increases
or decreases to employee benefits expense, which is included in the “Labor” line of our Consolidated Statements of Comprehensive
(Loss) Income.
372
Foreign
Currencies
In
most instances, the functional currencies of our foreign operations are the local currencies. Assets and liabilities recorded in foreign
currencies are translated in U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at average
rates of exchange prevailing during a given month. Adjustments resulting from this translation are charged or credited to other comprehensive
income.
Recent
Accounting Pronouncements
Recent
Accounting Guidance Adopted in the Current Year
In
December 2023, FASB issued ASU 2023-09,
Improvements to Income Tax Disclosures
(“ASU 2023-09”). ASU 2023-09 amends
ASC 740,
Income Taxes
to expand income tax disclosures and requires that the Company disclose (i) the income tax rate reconciliation
using both percentages and reporting currency amounts; (ii) specific categories within the income tax rate reconciliation; (iii) additional
information for reconciling items that meet a quantitative threshold; (iv) the composition of state and local income taxes by jurisdiction;
and (v) the amount of income taxes paid disaggregated by jurisdiction. The Company adopted ASU 2023-09 for the year ended December 31,
2025 on a prospective basis. See
Note I. Income Taxes
for additional information.
Recent
Accounting Guidance Not Yet Adopted
In
November 2024, FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The ASU requires the disaggregated
disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within
relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition
of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years
beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued
for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated
financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included
in our consolidated financial statements, once adopted. We are currently evaluating the provisions of this ASU.
In
July 2025, the FASB issued ASU 2025-05, which amends ASC 326-20 to provide a practical expedient (for all entities) relating to the estimation
of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under
ASC 606. ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within
those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact that this ASU will have
on our consolidated financial statements.
In
September 2025, the FASB issued ASU 2025-06 to target improvements to the Accounting for Internal-Use Software, which simplifies the
capitalization guidance by removing all references to software development project stages and clarifies the criteria to begin capitalizing
cost. The amendment is effective for annual and interim periods beginning after December 15, 2027, though early adoption is permitted.
The Company is currently evaluating the impact of this amendment on its Consolidated Financial Statements.
No
other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the consolidated financial
statements.
373
Note
C - Operating revenue from Contracts with Customers
Our
contracts with customers state the terms of sale, including the description, quantity, and price of the products sold or service provided.
Payment terms can vary by contract, but the period between invoicing and when payment is due is not significant. The Company’s
contracts with its customers generally do not include rights of return or a significant financing component.
Disaggregation
of Revenue
We
disaggregate revenue by three key revenue streams which are aligned with our business segments. The nature of the services offered by
each key revenue stream is different. The following tables summarize revenue from contracts with customers for the years ended December
31, 2025, and 2024 by our three business segments:
Year Ended December 31,
In thousands
2025
2024
Revenue Solutions
$
35,128
$
50,332
Customer Care
50,067
52,918
Fulfillment & Logistics Services
74,375
81,992
Total Revenue
$
159,570
$
185,242
During
the years ended December 31, 2025 and 2024, the Company recognized revenue of $3.4 million and $2.4 million from performance obligations
satisfied at a point in time. The remainder of revenues recognized in 2025 and 2024 were recognized in an over time pattern. Our contracts
with customers may consist of multiple performance obligations. If the contract contains a single performance obligation, the entire
transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require
an allocation of the transaction price to each performance obligation based on a relative standalone selling price (“SSP”)
basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct
good or service that forms part of a single performance obligation. For most performance obligations, we determine SSP based on the price
at which the performance obligation is sold separately. Although uncommon, if the SSP is not observable through past transactions, we
estimate the SSP taking into account available information such as market conditions and internally approved pricing guidelines related
to the performance obligations. Further discussion of other performance obligations in each of our major revenue streams follows:
Revenue
Solutions
Our
Revenue Solutions segment delivers strategic planning, data strategy, performance analytics, creative development and execution, technology
enablement, marketing automation, and database management. The customer can choose other services to supplement and support their own
in-house sales team. These services may range from leveraging data for lead generation, and outsourcing the design and testing of sale
play, to full hiring and managing of a dedicated internal sales team.
Most
revenue solutions performance obligations are satisfied over time and often offered on a project basis. We have concluded that the best
approach to measure the progress toward completion of the project-based performance obligations is the input method, which is based on
either the costs or labor hours incurred to date depending upon whether costs or labor hours more accurately depict the transfer of value
to the customer.
Our
database solutions are built around centralized marketing databases with services rendered to build custom databases, database hosting
services, customer or target marketing lists and data processing services.
374
These
performance obligations, including services rendered to build a custom database, database hosting services, customer or target marketing
lists and data processing services, may be satisfied over time or at a point in time. We provide software as a service (“SaaS”)
solutions to host data for customers and have concluded that these solutions are stand-ready obligations to be recognized over time on
a monthly basis. Our promise to provide certain data related services meets the over-time recognition criteria because our services do
not create an asset with an alternative use, and we have an enforceable right to payment. For performance obligations recognized over
time, we choose either the input (i.e., labor hour) or output method (i.e., number of customer records) to measure the progress toward
completion depending on the nature of the services provided. Some of our other data-related services do not meet the over-time criteria
and are therefore, recognized at a point-in-time, typically upon the delivery of a specific deliverable.
Our
contracts may include outsourced print production work for our clients. These contracts may include a promise to purchase postage on
behalf of our clients. In such cases, we have determined we are an agent, rather than principal on the postage purchase and therefore
recognize net consideration as revenue.
Customer
Care
We
deliver customer care services in the United States, Asia and Europe to provide advanced solutions such as voice, SMS/chat, email, integrated
voice response, web self-service, social cloud monitoring and analytics.
Performance
obligations are stand-ready obligations and are satisfied over time. With regard to account management and SaaS, we use a time-elapsed
output method to recognize revenue. For performance obligations where we charge customers a transaction-based fee, we use the output
method based on transaction quantities. In most cases, our contracts provide us the right to invoice for services provided, therefore,
we generally use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations
unless significant discounts are offered in a contract and prices for services do not represent their SSPs.
Fulfillment
& Logistics Services
Our
services, delivered internally and with our partners, include printing, lettershop, advanced mail optimization (including commingling
services), logistics and transportation optimization, monitoring and tracking, to support traditional and specialized mailings. Our print
and fulfillment centers in Massachusetts and Kansas provide custom kitting services, print on demand, product recalls, trade marketing
fulfillment, e-commerce product fulfillment, sampling programs, and freight optimization, thereby allowing our customers to distribute
literature and other marketing materials.
Performance
obligations offered within this revenue stream may be satisfied either over time or at a point in time. Over time performance obligations
utilize either the input or output method, depending on the nature of the service, to measure progress toward satisfying the performance
obligation. For performance obligations where we charge customers a transaction-based fee, we utilize the output method based on the
quantities fulfilled. Services provided through our fulfillment centers are typically priced at a per transaction basis and our contracts
provide us the right to invoice for services provided and reflects the value to the customer of the services transferred to date. In
most cases, we use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations
unless significant discounts are offered in a contract and prices for services do not represent their standalone selling prices. Our
direct mail business contracts may have included a promise to purchase postage on behalf of our clients; in such cases, we have determined
we are an agent, rather than principal and therefore recognize net consideration as revenue.
Transaction
Price Allocated to Future Performance Obligations
We
have elected to apply certain optional exemptions that limit the disclosure requirements over remaining performance obligations at period
end to exclude performance obligations that have an original expected duration of one year or less, transactions using the “as
invoiced” practical expedient, or when a performance obligation is a series and we have allocated the variable consideration directly
to the services performed. As of December 31, 2025 and 2024, we had no transaction prices allocated to unsatisfied or partially satisfied
performance obligations requiring disclosure, upon application of the above exemptions.
375
Contract
Balances
We
record an unbilled accounts receivable when revenue is recognized prior to invoicing when we have an unconditional right to consideration
(only the passage of time is required before payment of that consideration is due) and a contract asset when the right to payment is
conditional upon our future performance such as delivery of an additional good or service (e.g., customer contract requires customer’s
final acceptance of custom database solution or the delivery of a final marketing strategy delivery presentation before customer payment
is required). If invoicing occurs prior to revenue recognition, the unearned revenue is presented on our Consolidated Balance Sheets
as a contract liability, referred to as deferred revenue.
The
following table summarizes our contract balances as of December 31, 2025 and 2024:
In thousands
December 31, 2025
December 31, 2024
January 1, 2024
Unbilled Accounts Receivable
$
6,728
$
7,852
$
7,677
Contract assets
321
363
258
Deferred revenue and customer advances
813
1,589
3,195
Deferred revenue included in other long-term liabilities
—
182
294
Revenue
recognized during the year ended December 31, 2025 from amounts included in deferred revenue as of December 31, 2024 was approximately
$1.3 million. Revenue recognized during the year ended December 31, 2024 from amounts included in deferred revenue as of December 31,
2023 was approximately $3.0 million.
Costs
to Obtain and Fulfill a Contract
We
recognize an asset for the direct costs incurred to obtain and fulfill our contracts with customers to the extent that we expect to recover
these costs and if the benefit is longer than one year. These costs are amortized to expense over the expected period of the benefit
in a manner that is consistent with the transfer of the related goods or services to which the asset relates. We impair the asset when
recoverability is not anticipated. We capitalized a portion of commission expense, implementation and other costs that represent the
cost to obtain a contract. The remaining unamortized contract costs were $0.3 million and $0.2 million as of December 31, 2025 and 2024,
respectively. They are included in other current assets and other assets on our consolidated balance sheets. For the years presented,
no impairment was recognized.
Note
D - Leases
We
have operating and finance leases for corporate and business offices, service facilities, call centers and certain equipment. Leases
with an initial term of 12 months or less are generally not recorded on the balance sheet, unless the arrangement includes an option
to purchase the underlying asset, or an option to renew the arrangement, that we are reasonably certain to exercise (short-term leases).
Our leases have remaining lease terms of one year to seven years, some of which may include options to extend the leases for up to an
additional five years.
As
of December 31, 2025, assets recorded under finance and operating leases were approximately $0.6 million and $19.2 million respectively,
and accumulated amortization associated with finance leases was $0.3 million. As of December 31, 2024, assets recorded under finance
and operating leases were approximately $0.8 million and $21.7 million respectively, and accumulated depreciation associated with finance
leases was $0.1 million. Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based
on the present value of lease payments over the lease term. The discount rate used to determine the commencement date present value of
lease payment is the interest rate implicit in the lease, or when that is not readily determinable, we utilized our incremental borrowing
rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in
a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs
paid or incentives received.
There
was no impairment of leases during the years ended December 31, 2025 and 2024.
376
The
following tables present supplemental balance sheet information related to our financing and operating leases:
As of December 31, 2025
As of December 31, 2024
In thousands
Operating Leases
Finance Leases
Total
Operating Leases
Finance Leases
Total
Right-of-use Assets
$
19,247
$
607
$
19,854
$
21,678
$
782
$
22,460
Liabilities:
Short-term lease liabilities
3,376
167
3,543
3,578
158
3,736
Long-term lease liabilities
18,400
461
18,861
20,235
625
20,860
Total Lease Liabilities
$
21,776
$
628
$
22,404
$
23,813
$
783
$
24,596
For
the years ended December 31, 2025 and 2024, the components of lease expense were as follows:
In thousands
Year Ended December 31, 2025
Year Ended December 31, 2024
Operating lease cost
$
5,108
$
5,315
Finance lease cost
Amortization of right-of-use assets
174
102
Interest on lease liabilities
55
31
Total Finance lease cost
229
133
Variable lease cost
1,484
1,875
Sublease income
—
(368
)
Total lease cost, net
$
6,821
$
6,955
Other
information related to leases was as follows:
In thousands
Year Ended December 31, 2025
Year Ended December 31, 2024
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
8,742
$
11,170
Operating cash flows from finance leases
51
28
Financing cash flows from finance leases
159
124
Weighted Average Remaining Lease term
(in years)
Operating leases
5.55
6.38
Finance leases
3.55
4.53
Weighted Average Discount Rate
Operating leases
5.89
%
5.74
%
Finance leases
7.77
%
7.77
%
377
The
maturities of the Company’s finance and operating lease liabilities as of December 31, 2025 are as follows:
In thousands
Operating Leases
Finance Leases
Year Ending December 31,
2026
$
4,492
$
207
2027
4,524
206
2028
4,525
206
2029
4,568
98
2030
4,485
—
2031 & Beyond
3,116
—
Total future minimum lease payments
25,710
717
Less: Imputed interest
3,934
89
Total lease liabilities
$
21,776
$
628
As
of December 31, 2025, we have no new operating leases that have not yet commenced.
Note
E - Stock Repurchase Program
On
May 2, 2023, the Board of Directors of Harte Hanks approved a share repurchase program to maximize shareholder value with authorization
to repurchase $6.5 million of the Company’s Common Stock. As of December 31, 2025, the share repurchase program authorization availability
was $4.1 million. In the year ended December 31, 2025 and 2024, we didn’t repurchase any shares of common stock.
Note
F — Credit Facility
On
December 21, 2021, the Company entered a three-year, $25.0 million asset-based revolving credit facility (the “Credit Facility”)
with Texas Capital Bank (“TCB”). The Company’s obligations under the Credit Facility are guaranteed on a joint and
several basis by the Company’s material subsidiaries (the “Guarantors”). The Credit Facility is secured by substantially
all the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, among the
Company, TCB and the other Guarantors party thereto (the “Security Agreement”). On December 29, 2023, the Company extended
the maturity date of the Credit Facility by a period of six months to June 30, 2025. The extension was executed with substantially similar
terms and conditions as the original Credit Facility. On June 24, 2025, the Company entered into a second amendment to the Credit Facility
(the “Second Amendment”) with TCB which extended the maturity date for the Credit Facility by a period of three years to
June 30, 2028. The Second Amendment also includes an accordion feature that allows the Company to seek up to a $10.0 million increase
in commitments under the credit line, subject to TCB approval.
The
Credit Facility provides for loans up to the lesser of (a) $25.0 million or (b) the amount available under a “borrowing base”
calculated primarily by reference to the Company’s cash and cash equivalents and accounts receivables. The Credit Facility allows
the Company to use up to $3.0 million on of its borrowing capacity to issue letters of credit.
The
loans under the Credit Facility accrue interest at a varying rate equal to the Secured Overnight Financing Rate (SOFR) plus a margin
of 2.25% per annum. The interest rate was 6.30% as of December 31, 2025. The outstanding amounts advanced under the Credit Facility are
due and payable in full on June 30, 2028. As of December 31, 2025 and 2024, we had letters of credit outstanding in the amount of $0.7
million and $1.0 million, respectively. No amounts were drawn against these letters of credit as of December 31, 2025. These letters
of credit exist to support insurance programs relating to workers’ compensation, medical insurance, and reducing the cash security
on leased property. The Company is charged a commitment fee of 0.25% per annum on the unused portion of the revolving credit facility.
378
The
Credit Facility contains certain covenants restricting the Company’s and its subsidiaries’ ability to create, incur, assume
or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company’s stock; create, incur or
assume liens, consummate mergers or acquisitions, liquidate, dissolve, suspend or cease operations, or modify accounting or tax reporting
methods (other than as required by GAAP)
As
of December 31, 2025 and 2024, we had the ability to borrow an additional $24.3 million and $24.0 million, respectively, under the Credit
Facility. As of December 31, 2025 and December 31, 2024 we had no borrowings outstanding under the Credit Facility.
Note
G — Stock-Based Compensation
We
maintain stock incentive plans for the benefit of certain officers, directors, and employees. Our stock incentive plans provide for the
ability to issue stock options, cash stock appreciation rights, performance stock units, phantom stock units and cash performance stock
units. We determined the fair value of the stock options using the Black-Scholes option pricing model and we determined the fair value
of the performance stock units using Monte-Carlos simulation model.
Compensation
expense for stock-based awards is based on the fair values of the awards on the date of grant and is recognized on a straight-line basis
over the vesting period of the entire award in the “Labor” line of the Consolidated Statements of Comprehensive (Loss) Income.
We recognized $0.3 million and $2.0 million of stock-based compensation expense for the years ended December 31, 2025 and 2024, respectively.
In
2020, we established our 2020 Equity Incentive Plan (“2020 Plan”) which replaced the 2013 Equity Incentive Plan (“2013
Plan”). Any shares of common stock that remained eligible for issuance under the 2013 Plan are now instead eligible for issuance
under the 2020 Plan. The “2013 Plan” as of December 31, 2025 and 2024, has 196,850 and 195,124 shares available for grant,
respectively. In August 2020, we filed a Form S-8 to register up to an aggregate of 2,521,244 shares that may be issued under the 2020
Plan. The 2020 Plan provides for the issuance of stock-based awards to directors, employees and consultants. No additional stock-based
awards will be granted under the 2013 Plan, but awards previously granted under the 2013 Plan will remain outstanding in accordance with
their respective terms. As of December 31, 2025 and 2024, there were approximately 1.0 million and 1.1 million shares available, respectively,
for grant under the 2020 Plan.
In
August 2023, we established the 2023 Inducement Equity Incentive Plan (“2023 Plan”), pursuant to which the Company issued
240,000 shares of stock option awards. During 2025 and 2024, the Board approved the issuance of 69,702 and 148,200 incentive stock options,
respectively.
Stock
Options
Options
granted under the 2023 Plan have an exercise price equal to the closing market price of our common stock on the date prior to the grant
date. These options become exercisable in 33.3% increments on the first three anniversaries of their date of grant and expire on the
tenth anniversary of their date of grant. Options to purchase 166,602 and 388,200 shares granted under 2023 Plan awards were outstanding
as of December 31, 2025 and 2024, respectively, with exercise prices ranging from $4.55 to $7.74 and $5.59 to $76.80 per share, respectively.
Options
granted under the 2020 Plan, 2013 Plan or as inducement awards have an exercise price equal to the market value of the common stock on
the grant date. These options become exercisable in 25% increments on the first four anniversaries of their date of grant and expire
on the 10th anniversary of their date of grant. There were no options outstanding under the 2020 plan as of December 31, 2025 and 2024.
379
There
were no options outstanding under the 2013 plan as of December 31, 2025. Options to purchase 1,726 shares granted under 2013 Plan awards
were outstanding as of December 31, 2024, with exercise prices ranging from $5.59 to $116.40 per share.
Options
granted to officers after April 2015 vest in full upon a change in control if such options are not assumed or replaced by a publicly
traded successor with an equivalent award (as defined in such officers’ change in control severance agreements).
The
following summarizes all stock option activity during the years ended December 31, 2025 and 2024:
Number of Shares
Weighted-Average Exercise Price
Weighted- Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value (In thousands)
Options outstanding at December 31, 2023
246,663
$
7.61
9.67
$
288
Granted
148,200
7.59
$
—
—
Exercised
—
—
—
—
Unvested options forfeited
—
—
—
—
Vested options expired
(4,937
)
81.35
—
—
Options outstanding at December 31, 2024
389,926
$
6.67
8.84
$
—
Granted
69,702
$
4.96
—
—
Exercised
—
—
Unvested options forfeited
(211,300
)
6.01
—
—
Vested options expired
(81,726
)
7.10
—
—
Options outstanding at December 31, 2025
166,602
$
6.58
8.57
$
—
Vested and expected to vest at December 31, 2025
166,602
$
6.58
8.57
$
—
Exercisable at December 31, 2025
32,299
$
7.74
8.08
$
—
There
were 69,702 and 148,200 options granted during 2025 and 2024, respectively. The weighted average grant date fair value of 2025 options
granted is $3.24. The weighted average grant date fair value of 2024 options granted is $5.08. As of December 31, 2025 and 2024, there
were $0.3 million and $1.0 million of unrecognized compensation cost related to unvested stock options, respectively.
Restricted
Stock Units
Restricted
stock units granted as inducement awards or under the 2020 Plan and 2013 Plan vest in three equal increments on the first three anniversaries
of their date of grant. Restricted stock units settle in treasury stock or newly issued shares and are treated as equity. Outstanding
restricted stock units granted to officers as inducement awards or under the 2013 Plan vest in full (to the extent not previously vested)
upon a change in control if such unvested shares are not assumed or replaced by a publicly traded successor with an equivalent award
(as such terms are defined in such officers’ change-in-control severance agreements).
380
The
following summarizes all restricted stock units’ activity during 2025 and 2024:
Number of Shares
Weighted-Average Grant Date Fair Value
Unvested shares outstanding at December 31, 2023
243,441
$
7.24
Granted in 2024
98,192
$
7.61
Vested in 2024
(187,778
)
6.76
Forfeited in 2024
(32,662
)
7.49
Unvested shares outstanding at December 31, 2024
121,193
$
8.21
Granted in 2025
281,444
$
4.03
Vested in 2025
(83,691
)
8.43
Forfeited in 2025
(45,834
)
6.00
Unvested shares outstanding at December 31, 2025
273,112
$
4.21
The
fair value of each restricted stock unit is estimated on the date of grant as the closing market price of our common stock on the date
prior to the grant. As of December 31, 2025, there was $0.9 million of total unrecognized compensation cost related to restricted stock
units. This cost is expected to be recognized over a weighted average period of approximately 1.79 years.
Performance
Stock Units
Performance
stock units are a form of share-based award similar to unvested shares, except that the number of shares ultimately issued is based on
our performance against specific performance goals over either a two-year or three-year period. At the end of the performance period,
the number of shares of stock issued will be determined in accordance with the specified performance target(s) in a range between 0%
and 100%. Performance stock units vest solely in common stock and are treated as equity. Upon a change in control, performance stock
units granted to officers vest on a pro-rated basis (based on time elapsed from the grant) to the extent not previously settled if they
are not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such officers’
change-in-control severance agreements). Performance Stock Units have been issued under the 2013 Plan, and the 2020 Plan as inducement
awards.
The
following summarizes all performance stock unit activity during 2025 and 2024 :
Number of
Units
Weighted-
Average Grant
Date Fair Value
Performance stock units outstanding as of December 31, 2023
43,000
$
7.80
Granted
50,000
$
7.53
Settled
—
—
Forfeited
(6,000
)
7.96
Performance stock units outstanding as of December 31, 2024
87,000
$
7.63
Granted
—
$
—
Settled
—
—
Forfeited
(37,000
)
7.61
Performance stock units outstanding as of December 31, 2025
50,000
$
7.65
381
The
fair value of each performance stock unit is estimated on the date of grant as the closing market price of our common stock on the date
prior to the grant, minus the present value of anticipated dividend payments. Periodic compensation expense is based on the current estimate
of future performance against specific performance goals over a two-year or three-year period and is adjusted up or down based on those
estimates. As of December 31, 2025, the total unrecognized compensation cost related to performance stock units was $0.
Note
H — Employee Benefit Plans
Prior
to January 1, 1999, we provided a defined benefit pension plan for which most of our employees were eligible to participate (the “Qualified
Pension Plan”). In conjunction with significant enhancements to our 401(k) plan, we elected to freeze benefits under the Qualified
Pension Plan as of December 31, 1998.
In
1994, we adopted a non-qualified, unfunded, supplemental pension plan (the “Restoration Pension Plan”) covering certain employees,
which provides for incremental pension payments so that total pension payments equal those amounts that would have been payable from
the principal pension plan were it not for limitations imposed by income tax regulation. The benefits under the Restoration Pension Plan
were intended to provide benefits equivalent to our Qualified Pension Plan as if such plan had not been frozen. We elected to freeze
benefits under the Restoration Pension Plan as of April 1, 2014.
At
the end of 2020, the Board of Directors of the Company approved the division of the Qualified Pension Plan into two distinct plans, “Qualified
Pension Plan I” and “Qualified Pension Plan II.” The assets and liabilities of the Qualified Pension Plan that were
attributable to certain participants in Qualified Pension Plan II were spun off and transferred into Qualified Pension Plan II effective
as of the end of December 31, 2021, in accordance with Internal Revenue Code section 414 (I) and ERISA Section 4044.
In
January 2023, the Board of Directors of the Company approved the termination of the Qualified Pension Plan I. The termination process
took approximately eighteen months and was completed in June 2024, which resulted in the transfer of our obligations pursuant to this
pension plan to an insurance company. We made a cash contribution of $6.7 million in the year ended December 31, 2024 to terminate the
Qualified Pension Plan I. This contribution, together with the liquidation of pension assets was used to purchase annuities from an insurance
company, which settled the liabilities for Pension Plan I participants as well as to submit the final filings to the Pension Benefit
Guaranty Corporation. We recognized $37.5 million of pension termination charges which were reflected in our Consolidated Statements
of Comprehensive (Loss) Income for the year ended December 31, 2024.
The
Qualified Pension Plans II, together with the Restoration Pension Plan are collectively referred to as the “defined benefit pension
plans”. The overfunded or underfunded status of our defined benefit pension plans is recorded as an asset or liability on our consolidated
balance sheets. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation.
Periodic changes in the funded status are recognized through other comprehensive income in the Consolidated Statements of Comprehensive
(Loss) Income. We currently measure the funded status of our defined benefit plans as of December 31, the date of our year-end Consolidated
Balance Sheets.
382
The
status of the defined benefit pension plans at year-end was as follows:
Year Ended December 31,
In thousands
2025
2024
Change in benefit obligation
Benefit obligation at beginning of year
$
54,537
$
141,427
Interest cost
2,957
5,032
Settlements
—
(77,891
)
Benefits paid
(4,102
)
(7,361
)
Actuarial loss (gain)
1,963
(6,670
)
Benefit obligation at end of year
$
55,355
$
54,537
Change in plan assets
Fair value of plan assets at beginning of year
$
30,119
$
103,696
Actual return on plan assets
2,820
1,790
Settlements
—
(77,891
)
Contributions
3,546
9,885
Benefits paid
(4,102
)
(7,361
)
Fair value of plan assets at end of year
$
32,383
$
30,119
Funded status at end of year
$
(22,972
)
$
(24,418
)
The
following amounts have been recognized in the Consolidated Balance Sheets as of December 31:
In thousands
2025
2024
Current pension liabilities within accrued expenses
$
1,871
$
1,870
Long term pension liabilities - Qualified plans
4,106
5,445
Long term pension liabilities - Nonqualified plan
16,995
17,103
Total pension liabilities
$
22,972
$
24,418
The
following amounts have been recognized in accumulated other comprehensive losses, net of tax, as of December 31:
In thousands
2025
2024
Accumulated other comprehensive losses, net of tax
$
11,197
$
10,183
Based
on current estimates, we will be required to make $1.7 million in cash contributions to our Qualified Pension Plan II in 2026.
We
are not required to make and do not intend to make any contributions to our Restoration Pension Plan in 2026 other than to the extent
needed to cover benefit payments. We made benefit payments under this supplemental plan of $1.9 million in 2025.
The
following information is presented for pension plans with an accumulated benefit obligation in excess of plan assets:
In thousands
2025
2024
Projected benefit obligation
$
55,355
$
54,537
Accumulated benefit obligation
$
55,355
$
54,537
Fair value of plan assets
$
32,383
$
30,119
383
The
Restoration Pension Plan had an accumulated benefit obligation of $18.9 million and $19.0 million as of December 31, 2025, and 2024,
respectively.
The
following table presents the components of net periodic benefit cost and other amounts recognized in other comprehensive income in the
Consolidated Statements of Comprehensive (Loss) Income for Qualified Pension Plan II and Restoration Pension Plans:
Year Ended December 31,
In thousands
2025
2024
Net Periodic Benefit Cost
Interest cost
$
2,957
$
5,032
Expected return on plan assets
(2,147
)
(3,633
)
Recognized actuarial loss
394
1,557
Net periodic benefit cost
1,204
2,956
Amounts Recognized in Other Comprehensive (Loss) income
Adjustment to pension liabilities
1,014
(32,273
)
Net cost recognized in net periodic benefit cost and other comprehensive income
$
2,218
$
(29,317
)
The
components of net periodic benefit costs other than the service cost component are included in Other expenses, net in our Consolidated
Statement of Comprehensive (Loss) Income. The estimated net loss for the defined benefit pension plans that will be amortized from accumulated
other comprehensive income (loss) into net periodic benefit cost in 2026 is $0.4 million. The period over which the net loss from the
Qualified Pension Plan is amortized into net periodic benefit cost was the average future lifetime of all participants (approximately
23.0 years for Qualified Pension Plan II). The Qualified Pension Plan II is frozen and almost all of the plan’s participants are
not active employees.
The
weighted-average assumptions used for measurement of the defined pension plans were as follows:
Year Ended December 31,
Weighted-average assumptions used to determine net periodic benefit cost
2025
2024
Discount rate
Qualified Plan I
n/a
5.64
%
Qualified Plan II
5.63
%
4.99
%
Restoration Plan
5.54
%
4.92
%
Expected return on plan assets
Qualified Plan I
n/a
4.85
%
Qualified Plan II
7.15
%
6.95
%
Restoration Plan
n/a
n/a
384
December 31,
Weighted-average assumptions used to determine benefit obligations
2025
2024
Discount rate
Qualified Plan I
n/a
n/a
Qualified Plan II
5.37
%
5.63
%
Restoration Plan
5.18
%
5.64
%
The
discount rate assumptions are based on current yields of investment-grade corporate long-term bonds. The expected long-term return on
plan assets is based on the expected future average annual return for each major asset class within the plan’s portfolio (which
is principally comprised of equity investments) over a long-term horizon. In determining the expected long-term rate of return on plan
assets, we evaluated input from our investment consultants, actuaries, and investment management firms, including their review of asset
class return expectations, as well as long-term historical asset class returns. Projected returns by such consultants and economists
are based on broad equity and bond indices. Additionally, we considered our historical 15-year compounded returns, which were in excess
of the forward-looking return expectations.
The
funded pension plan assets as of December 31, 2025 and 2024, by asset category, were as follows:
In thousands
2025
%
2024
%
Equity securities
$
31,599
98
%
$
23,658
79
%
Debt securities
—
—
%
5,252
17
%
Other
784
2
%
1,209
4
%
Total plan assets
$
32,383
100
%
$
30,119
100
%
The
fair values presented have been prepared using values and information available as of December 31, 2025 and 2024.
The
following tables present the fair value measurements of the assets in our funded pension plan:
As of December 31, 2025
In thousands
Total
Quoted
Prices in Active Markets
for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Equity securities
$
31,599
$
31,572
$
—
$
27
Debt securities
—
—
—
—
Total investments, excluding investments valued at NAV
31,599
31,572
—
27
Investments valued at NAV
(1)
784
—
—
—
Total plan assets
$
32,383
$
31,572
$
—
$
27
385
As of December 31, 2024
In thousands
Total
Quoted Prices in Active Markets
for Identical Assets
(Level 1)
Significant Other Observable
Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Equity securities
$
23,658
$
23,658
$
—
$
—
Debt securities
5,252
3,669
1,583
—
Total investments, excluding investments valued at NAV
28,910
27,327
1,583
—
Investments valued at NAV
(1)
1,209
—
—
—
Total plan assets
$
30,119
$
27,327
$
1,583
$
—
(1)
Investment valued
at net asset value (“NAV”) are comprised of cash, cash equivalents, and short-term investments used to provide liquidity
for the payment of benefits and other purposes. The commingled funds are valued at NAV based on the market value of the underlying investments,
which are primarily government issued securities.
The
investment policy for the Qualified Pension Plan II focuses on the preservation and enhancement of the corpus of the plan’s assets
through prudent asset allocation, quarterly monitoring and evaluation of investment results, and periodic meetings with investment managers.
The
investment policy’s goals and objectives are to meet or exceed the representative indices over a full market cycle (3-5 years).
The policy establishes the following investment mix, which is intended to subject the principal to an acceptable level of volatility
while still meeting the desired return objectives:
Qualified
Pension Plan II
Target
Acceptable
Range
Benchmark
Index
Equities
77%
62%
- 87%
U.S.
Large Cap
28%
18%
- 38%
Russell
1000 TR
U.S.
Mid Cap
18%
13%
- 23%
Russell
Mid Cap Index TR
U.S.
Small Cap
9%
4%
- 14%
Russell
2000 TR
International
Equity
Developed
16%
11%
- 21%
MSCI
EAFE Net TR USD Index
Emerging
Markets
6%
0%
- 9%
MSCI
Emerging Net Total Return
Fixed
Income
21%
11%
- 31%
Investment
Grade
21%
11%
- 31%
BBG
BARC US Aggregate Bond Index
Cash
Equivalent
2%
0%
- 40%
ICE
BofA US 3-Month Treasury Bill Index TR
The
funded pension plans provide for investment in various investment types. Investments, in general, are exposed to various risks, such
as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with investments, it is reasonably
possible that changes in the value of investments will occur in the near term and may impact the funded status of these plans. To address
the issue of risk, the investment policy places high priority on the preservation of the value of capital (in real terms) over a market
cycle. Investments are made in companies with a minimum five-year operating history and sufficient trading volume to facilitate, under
most market conditions, prompt sales without severe market effects. Investments are diversified across numerous market sectors and individual
companies. Reasonable concentration in any one issue, issuer, industry, or geographic area is allowed if the potential reward is worth
the risk.
386
Investment
managers are evaluated by the performance of the representative indices over a full market cycle for each class of assets. The Pension
Plan Committee reviews, on a quarterly basis, the investment portfolio of each manager, which includes rates of return, performance comparisons
with the most appropriate indices, and comparisons of each manager’s performance with a universe of other portfolio managers that
employ the same investment style.
The
expected future benefit payments for Qualified Pension Plan II and Restoration Pension Plan over the next ten years as of December 31,
2025, are as follows:
In thousands
2026
$
4,306
2027
4,396
2028
4,479
2029
4,637
2030
4,735
2031 - 2035
22,679
Total
$
45,232
The
Company also has two pension plans in its foreign jurisdictions, the associated pension liabilities are not material.
We
also sponsored a 401(k)-retirement plan in which we match a portion of employees’ voluntary before-tax contributions prior. Under
this plan, both employee and matching contributions vest immediately. We incurred $0.9 million and $1.0 million in 401k match expenses
in 2025 and 2024, respectively.
Note
I — Income Taxes
The
components of income tax provision (benefit) are as follows:
Year Ended December 31,
In thousands
2025
2024
Current
Federal
$
—
$
—
State and local
288
428
Foreign
443
1,214
Total current
$
731
$
1,642
Deferred
Federal
$
(254
)
$
(7,729
)
State and local
(703
)
(1,446
)
Foreign
29
(104
)
Total deferred
$
(928
)
$
(9,279
)
Total income tax benefit
$
(197
)
$
(7,637
)
The
U.S. and foreign components of loss before income taxes were as follows:
Year Ended December 31,
In thousands
2025
2024
United States
$
(4,629
)
$
(43,860
)
Foreign
3,621
5,926
Total loss before income taxes
$
(1,008
)
$
(37,934
)
The
provision (benefit) for income taxes is based on the various rates set by federal, foreign and local authorities and is affected by permanent
and temporary differences between financial accounting and tax reporting requirements. The principal reasons for the difference between
the statutory rate and the annual effective rate for 2025 were the state taxes, change in valuation allowance, federal and foreign income
tax credits and the shortfall expense related to vested restricted stock.
As
further described in
Note B - Significant Accounting Policies
, the Company has elected to prospectively adopt the guidance in
ASC 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures or ASU 2023-09. The following table is a reconciliation
of the U.S. federal statutory rate of 21% to the Company’s effective tax rate for the year ended December 31, 2025 in accordance
with the guidance in ASU 2023-09.
387
Year Ended December 31,
In thousands, except percentages
2025
Loss before income taxes
$
(1,008
)
Provision for income taxes at U.S. federal statutory rate
(212
)
21.0
%
State and local income taxes, net of federal benefit
(1)
(481
)
47.6
%
Foreign tax effects
Belgium
Statutory Tax Rate Difference
48
(4.7
)%
Other
(20
)
2.0
%
France
Statutory Tax Rate Difference
17
(1.7
)%
Differences with statutory accounting policies
(124
)
12.3
%
Valuation Allowance
41
(4.1
)%
Netherlands
Statutory Tax Rate Difference
(4
)
0.4
%
Valuation Allowance
22
(2.1
)%
Philippines
Statutory Tax Rate Difference
(258
)
25.5
%
Other
1
(0.1
)%
Other foreign Jurisdictions
(11
)
1.1
%
Effect of cross-border tax laws:
Global Intangible Low-Taxed Income
569
(56.5
)%
Section 78 Gross-up
95
(9.4
)%
Tax Credits
(50
)
5.0
%
Changes in valuation allowances
14
(1.4
)%
Non-taxable or non-deductible items:
Equity compensation
132
(13.1
)%
Meals and Entertainment
15
(1.5
)%
Work Opportunity Tax Credit
11
(1.1
)%
Other
3
(0.3
)%
Other Reconciling Items
(5
)
0.5
%
Effective income tax rate
$
(197
)
19.6
%
(a)
TX made up the majority (greater than 50%) of the tax effect in this category.
388
The
following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the years ended
December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09:
In thousands
Year Ended December 31, 2024
Computed expected income tax benefit
$
(7,966
)
Net effect of state income taxes
(1,885
)
Foreign subsidiary dividend inclusions
666
Foreign tax rate differential
42
Change in valuation allowance
991
Return to Provision
599
Change in Rate
(125
)
Credits
(346
)
Adjustments to State Attributes
565
Other Adjustments, net
(178
)
Income tax benefit
$
(7,637
)
The
tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows:
December 31,
In thousands
2025
2024
Deferred tax assets
Accrued expenses not deductible until paid
$
58
$
173
Lease liability
5,713
6,201
Investment in foreign subsidiaries, outside basis difference
1,969
1,930
Interest Expense limitations
1,495
1,167
Other, net
1,625
1,979
Foreign net operating loss carryforwards
1,535
1,325
State net operating loss carryforwards
7,845
7,709
Federal net operating loss carryforwards
9,692
9,585
Foreign tax credit carryforwards
3,740
3,726
General Business Credit Carryovers
641
591
Total gross deferred tax assets
$
34,313
$
34,386
Less valuation allowances
(7,757
)
(8,082
)
Net deferred tax assets
$
26,556
$
26,304
389
Deferred tax liabilities
Property, plant and equipment
$
(890
)
$
(1,143
)
Deferred compensation and retirement plan
(3,706
)
(3,394
)
Right-of-use asset
(5,041
)
(5,624
)
Other, net
(879
)
(966
)
Total gross deferred tax liabilities
$
(10,516
)
$
(11,127
)
Net deferred tax assets
$
16,040
$
15,177
During
the year ended December 31, 2025, the Company paid $455 thousand in state income taxes, net of refunds, and $1.3 million in foreign taxes.
The
amount of cash income taxes paid by the Company were as follows:
In thousands
Year ended December 31, 2025
State and Local
Florida
$
90
Texas
215
Other
150
Foreign
United Kingdom
538
Philippines
412
Romania
82
Belgium
292
Income taxes, net of amounts refunded
$
1,779
In
assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. After considering the weight of available evidence, both positive and negative, the Company concluded
that it is more-likely-than-not that it will realize the majority of its U.S. deferred tax assets. Certain foreign tax credits as well
as certain state net operating loss carryovers will continue to have a valuation allowance until there is substantial evidence that enough
future taxable income exists at a more likely than not level in order to utilize those deferred tax assets. The valuation allowance for
deferred tax assets was $7.8 million and $8.1 million as of December 31, 2025 and 2024, respectively. The change in the valuation allowance
was $0.3 million for the year ended December 31, 2025.
We
or one of our subsidiaries file income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state, federal
and foreign returns, we are no longer subject to tax examinations for years prior to 2020.
There
is no balance of unrecognized tax benefits as of December 31, 2025 and 2024. Any adjustments to this liability as a result of the finalization
of audits or potential settlements would not be material.
We
have elected to classify any interest and penalties related to income taxes within income tax expense in our Consolidated Statements
of Comprehensive (Loss) Income. There are no interest and penalties related to income taxes for the year ended December 31, 2025 and
2024.
For
U.S. tax return purposes, net operating losses and tax credits are normally available to be carried forward to future years, subject
to limitations as discussed below.
390
As
of December 31, 2025, the Company has federal NOL carryforwards of $46.2 million. The entire amount was generated in 2024 and will be
carried over indefinitely, but will generally limit the net operating deduction to the lesser of the net operating loss carryforward
or 80% of a corporation’s taxable income (subject to Section 382 of the Internal Revenue Code of 1986, as amended).
The
Company also has state NOL carryforward of $158.1 million and foreign NOL carryforwards of $5.0 million. The state NOL carryforwards
will begin to expire in 2029, The federal foreign tax carryforward credits of $3.7 million will expire on various dates from 2027 to
2036. General business credit carryforwards of $0.6 million will begin to expire on various dates from 2037 to 2046. Under Section 163(j)
of the Internal Revenue Code, the deduction for business interest expense is limited to the sum of business interest income, 30% of adjusted
taxable income, and floor plan financing interest. Any business interest expense that is disallowed due to the limitation can be carried
forward indefinitely to future years. As of December 31, 2025 and 2024, the Company has disallowed business interest expense carryforwards
of $5.7 million and $3.8 million, respectively.
Deferred
income taxes have not been provided on the undistributed earnings of our foreign subsidiaries as these earnings have been, and under
current plans will continue to be, permanently reinvested in these subsidiaries. It is not practicable to estimate the amount of additional
taxes which may be payable upon the distribution of these earnings. However, because of the provisions in the Tax Reform Act, the tax
cost of repatriation is immaterial and limited to foreign withholding taxes, currency translation and state taxes.
On
July 4, 2025, the “One Big Beautiful Bill Act” (the “Act”) became law. The legislation includes several changes
to federal tax law that generally allow more favorable deductibility of certain business expenses beginning in 2025, including the reinstatement
of 100% of bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The Act also includes
certain changes to the US taxation of foreign activity, including changes to foreign tax credits, global intangible low-taxed income,
and base erosion and anti-abuse tax, amongst other changes. These changes are generally effective for tax years beginning after December
31, 2025, and therefore do not impact the current year’s tax provision. While these changes are not yet effective, the Company
has begun assessing the potential impact on its future effective tax rate, deferred tax assets and liabilities, and global tax planning
strategies. Based on preliminary modeling, the Company anticipates that the elimination of the Net Deemed Tangible Income Return (NDTIR)
may slightly increase future U.S. tax liability on foreign earnings, partially offset by the increased foreign tax credit. The Company
will continue to monitor regulatory guidance and assess the impact of these changes in future reporting periods. No adjustments to current
or deferred taxes have been recorded in the second half of 2025 related to the Act.
Note
J — Earnings Per Share
Basic
income (loss) per share (“EPS”) is calculated using the income available to common stockholders, divided by the weighted
average number of shares outstanding during the period. Diluted earnings per share is calculated using income available to common stockholders
divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in
connection with restricted common stock awards and stock options under our stock incentive plans.
391
Reconciliations
of basic and diluted EPS are as follows:
Year Ended December 31,
In thousands, except per share amounts
2025
2024
Numerator:
Net loss
$
(811
)
$
(30,297
)
Denominator:
Basic EPS denominator:
7,393
7,293
Diluted EPS denominator
7,393
7,293
Basic (loss) income per common share
$
(0.11
)
$
(4.15
)
Diluted (loss) income per common share
$
(0.11
)
$
(4.15
)
For
the years ended December 31, 2025 and 2024, respectively, the following shares have been excluded from the calculation of shares used
in the diluted EPS calculation: 207,406 and 349,129 shares of anti-dilutive market price options; 127,506 and 20,685 anti-dilutive unvested
shares.
Note
K — Comprehensive Income (Loss)
Comprehensive
income (loss) for a period encompasses net income (loss) and all other changes in equity other than from transactions with our stockholders.
Changes in accumulated other comprehensive loss by component were as follows:
In thousands
Defined
Benefit
Pension Items
Foreign
Currency Items
Total
Balance at December 31, 2023
$
(42,456
)
$
(1,634
)
$
(44,090
)
Other comprehensive loss, net of tax, before reclassifications
—
(1,780
)
(1,780
)
Amounts reclassified from accumulated other comprehensive loss, net of tax
32,273
—
32,273
Net current period other comprehensive income (loss), net of tax
32,273
(1,780
)
30,493
Balance at December 31, 2024
$
(10,183
)
$
(3,414
)
$
(13,597
)
Other comprehensive loss, net of tax, before reclassifications
—
(369
)
(369
)
Amounts reclassified from accumulated other comprehensive loss, net of tax
(1,014
)
—
(1,014
)
Net current period other comprehensive loss, net of tax
(1,014
)
(369
)
(1,383
)
Balance at December 31, 2025
$
(11,197
)
$
(3,783
)
$
(14,980
)
Reclassification
amounts related to the defined pension plans are included in the computation of net period pension benefit cost (see
Note H, Employee
Benefit Plan
s).
Note
L — Litigation and Contingencies
In
the normal course of our business, we are obligated under some agreements to indemnify our clients as a result of third-party claims
that we infringe on the proprietary rights of third parties, or third party claims relating to other
ad hoc
contract obligations.
The terms and duration of these commitments vary and, in some cases, may be indefinite, and some of these contractual commitments do
not limit the maximum amount of future payments we could become obligated to make thereunder; accordingly, our actual aggregate maximum
exposure related to these types of commitments is not reasonably estimable. Historically, we have not been obligated to make significant
payments for obligations of this nature, and no liabilities have been recorded for these obligations in our consolidated financial statements.
392
We
are also subject to various claims and legal proceedings in the ordinary course of conducting our business and, from time to time, we
may become involved in additional claims and lawsuits incidental to our business. We routinely assess the likelihood of adverse judgments
or outcomes to these matters, as well as ranges of probable losses; to the extent losses are reasonably estimable. Accruals are recorded
for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur,
is reasonably estimable.
In
the opinion of management, appropriate and adequate accruals for legal matters have been made, and management believes that the probability
of a material loss beyond the amounts accrued is remote. Nevertheless, we cannot predict the impact of future developments affecting
our pending or future claims and lawsuits. We expense legal costs as incurred, and all recorded legal liabilities are adjusted as required
as better information becomes available to us. The factors we consider when recording an accrual for contingencies include, among others:
(i) the opinions and views of our general counsel and outside legal counsel; (ii) our previous experience with similar claims; and (iii)
the decision of our management as to how we intend to respond to the complaints.
Note
M — Restructuring Activities
During
the second half of 2023, we engaged a consulting firm to help review and analyze the structure and operations of the Company. The program
named “Project Elevate” involved the optimization and rationalization of our business resources as well as the partial reinvestment
of savings into the Company’s sales and marketing team, technology, and strategy. Reorganization cost reductions from Project Elevate
during 2024 through 2025 are estimated to be $16.0 million. We incurred total restructuring charges of $9.9 million through the end of
2025. For the years ended December 31, 2025 and 2024, we recorded restructuring charges of $1.8 million and $2.4 million, respectively.
This program has resulted in ongoing cost optimization and rationalization initiatives across the organization.
The
following table summarizes the restructuring charges which are recorded in “Restructuring Expense” in the Consolidated Statement
of Comprehensive Income.
In thousands
Year Ended December 31, 2025
Year Ended December 31, 2024
Consulting and employee expense
$
239
$
803
Severance
1,255
1,112
Facility, asset impairment and other expense
288
487
Total
$
1,782
$
2,402
The
following table summarizes the changes in liabilities related to restructuring activities:
Year Ended December 31, 2025
In thousands
Consulting and employee expense
Severance
Facility, asset impairment and other expense
Total
Beginning balance:
$
—
$
110
$
—
$
110
Additions
239
1,255
288
1,782
Payments and adjustment
(239
)
(1,037
)
(288
)
(1,564
)
Ending balance:
$
—
$
328
$
—
$
328
393
Note
N — Related Party Transactions
In
the year ended December 31, 2025, the Company recorded $0.8 million related to net recovery short-swing profit from one of the Company’s
shareholders under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized the $1.1 million of gross
related party proceeds, net of $0.3 million of tax impact, as an increase to additional paid-in capital and as cash provided by financing
activities in the condensed consolidated statement of cash flows for the year ended December 31, 2025.
Note
O — Segment Reporting
Harte
Hanks is a leading global customer experience company. Based on the types of products and services we provide, we have organized our
operations into three business segments: Revenue Solutions formerly known as Marketing Services, Customer Care, and Fulfillment and Logistics.
There
are three principal financial measures reported to our President (the chief operating decision maker) for use in assessing segment performance
and allocating resources. Those measures are revenue, operating income and operating income plus depreciation and amortization (“EBITDA”),
which is a non-GAAP measure. Operating income for segment reporting, disclosed below, is revenues less operating costs and allocated
corporate expenses. Segment operating expenses are generally directly attributed to our segments and include allocations of certain centrally
incurred costs such as employee benefits, occupancy, information systems, accounting services, internal legal staff, and human resources
administration. These costs are allocated based on actual usage or other appropriate methods. Unallocated corporate expenses are corporate
overhead expenses not attributable to the operating groups. Interest income and expense are not allocated to the segments. The Company
does not allocate assets to our reportable segments for internal reporting purposes, nor does our President evaluate operating segments
using discrete asset information. The accounting policies of the segments are consistent with those described in Note B, Significant
Accounting Policies.
SEC
Regulation S-K 229.10(e)1(ii)(A) defines EBITDA as earnings before interest, taxes, depreciation and amortization. EBITDA is presented
to provide additional information to investors about the Company’s operations on a basis consistent with the measures that the
Company uses to manage its operations and evaluate its performance. Management also uses this measurement to evaluate working capital
requirements. EBITDA should not be considered in isolation or as a substitute for operating income and net income prepared in accordance
with GAAP or as a measure of the Company’s profitability.
The
following table presents financial information by segment year ended December 31, 2025:
(In thousands)
Revenue Solutions
Customer Care
Fulfillment & Logistics
Restructuring
Unallocated Corporate
Total
Operating revenue
$
35,128
$
50,067
$
74,375
$
—
$
—
$
159,570
Segment labor expense
18,058
32,567
19,445
—
10,753
80,823
Other segment operating expense
8,868
8,218
45,268
—
9,753
72,107
Restructuring expense
—
—
—
1,782
—
1,782
Contribution margin
$
8,202
$
9,282
$
9,662
$
(1,782
)
$
(20,506
)
$
4,858
Overhead Allocation
2,618
3,037
3,111
—
(8,766
)
—
EBITDA (unaudited)
$
5,584
$
6,245
$
6,551
$
(1,782
)
$
(11,740
)
$
4,858
Depreciation and amortization expense
797
266
2,214
—
1,195
4,472
Operating income (loss)
$
4,787
$
5,979
$
4,337
$
(1,782
)
$
(12,935
)
$
386
394
The
following table presents financial information by segment year ended December 31, 2024:
(In thousands)
Revenue Solutions
Customer Care
Fulfillment & Logistics
Restructuring
Unallocated Corporate
Total
Operating revenue
$
50,332
$
52,918
$
81,992
$
—
$
—
$
185,242
Segment labor expense
26,440
34,175
20,263
—
12,891
93,769
Other segment operating expense
11,468
6,260
52,770
—
8,927
79,425
Restructuring expense
—
—
—
2,402
—
2,402
Contribution margin
$
12,424
$
12,483
$
8,959
$
(2,402
)
$
(21,818
)
$
9,646
Overhead allocation
4,074
2,355
3,198
—
(9,627
)
—
Goodwill and intangible assets impairment charges
3,168
—
—
—
—
3,168
EBITDA (unaudited)
$
5,182
$
10,128
$
5,761
$
(2,402
)
$
(12,191
)
$
6,478
Depreciation and amortization expense
1,459
207
1,256
—
1,463
4,385
Operating income (loss)
$
3,723
$
9,921
$
4,505
$
(2,402
)
$
(13,654
)
$
2,093
395
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE
three and six
months
ENDED JUNE 30, 2026
Cautionary
Note Regarding Forward-Looking Statements
This
report, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),
contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified
by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section
21E of the Exchange Act. Forward-looking statements will also be included from time to time in our other public filings, press releases,
our website, and oral and written presentations by management. Statements other than historical facts are forward-looking and may be
identified by words such as “may,” “will,” “expects,” “believes,” “anticipates,”
“plans,” “estimates,” “seeks,” “could,” “intends,” or words of similar meaning.
Examples include statements regarding (1) our strategies and initiatives, including actions designed to respond to market conditions
and improve our performance, (2) our financial outlook for revenues, earnings (loss) per share, operating income (loss), expense related
to equity-based compensation, capital resources and other financial items, if any, (3) expectations for our businesses and for the industries
in which we operate, including the impact of economic conditions of the markets we serve on the marketing expenditures and activities
of our clients and prospects, (4) competitive factors, (5) acquisition and development plans, (6) expectations regarding legal proceedings
and other contingent liabilities, (7) the outcome of our pending merger with Star Equity Holdings Inc., and (8) other statements regarding
future events, conditions, or outcomes.
These
forward-looking statements are based on current information, expectations, and estimates and involve risks, uncertainties, assumptions,
and other factors that are difficult to predict and that could cause actual results to vary materially from what is expressed in or indicated
by the forward-looking statements. In that event, our business, financial condition, results of operations, or liquidity could be materially
adversely affected and investors in our securities could lose part or all of their investments. A discussion of some of these risks,
uncertainties, assumptions, and other factors can be found in our filings with the SEC, including the factors discussed under “Item
1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “2025 10-K”),
“Part II - Item 1A. Risk Factors” in this Quarterly Report, and in our other reports filed or furnished with the SEC. The
forward-looking statements included in this report and those included in our other public filings, press releases, our website, and oral
and written presentations by management are made only as of the respective dates thereof, and we undertake no obligation to update publicly
any forward-looking statement in this report or in other documents, our website, or oral statements for any reason, even if new information
becomes available or other events occur in the future, except as required by law.
Overview
The
following MD&A section is intended to help the reader understand the results of operations and financial condition of Harte Hanks,
Inc. including any material changes in the Company’s financial condition and results of operations since December 31, 2025, and
as compared with the three and six months ended June 30, 2026. This section is provided as a supplement to, and should be read in conjunction
with, our Condensed Consolidated Financial Statements and the accompanying notes included herein as well as our 2025 10-K. Our 2025 10-K
contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates,
and contractual obligations. See Note A,
Overview and Significant Accounting Polici
es, in the Notes to Condensed Consolidated
Financial Statements for further information.
Harte
Hanks, Inc. is a leading global customer experience company operating in three reportable segments: Revenue Solutions formerly referred
to as Marketing Services, Customer Care, and Fulfillment & Logistics Services. Our mission is to partner with clients to provide
them with robust customer-experience, or CX, strategy, data-driven analytics and actionable insights combined with seamless program execution
to better understand, attract, and engage their customers. Our services include strategic planning, data strategy, performance analytics,
creative development and execution; technology enablement; marketing automation; B2B and B2C e-commerce; cross-channel customer care;
and product, print, and mail fulfillment.
396
We
are affected by the general, national, and international economic and business conditions in the markets where we and our customers operate.
Marketing budgets are largely discretionary in nature and, as a consequence, are easier for our clients to reduce in the short-term than
other expenses. Our revenues are also affected by the economic fundamentals of each industry that we serve, the expansion of alternative
channels, various market factors, including the demand for services by our clients, the financial condition of and budgets available
to our clients, and regulatory factors, among other factors. Due to the recent increases in inflation and interest rates throughout the
globe, as well as the ongoing armed conflicts in multiple regions, there is continued uncertainty and volatility in the global economy.
We remain committed to executing our multichannel strategy while also continuing to adjust our cost structure to appropriately reflect
our operations and outlook.
Management
closely monitors inflation and wage pressure in the market, and the potential impact on our business. While inflation has not had a material
impact on our business, it is possible a material increase in inflation could have an impact on our clients, and in turn, on our business.
Recent
Development
On
August 14th, 2026, the company entered into a merger agreement with Star Equity under which, subject to the conditions set forth in the
merger agreement, Star Equity agreed to purchase all of the outstanding shares of Harte Hanks in a stock and cash transaction. The transaction
is expected to close in the fourth quarter of 2026. See footnote O for further information about the pending acquisition.
Results
of Operations
Operating
results were as follows:
Three months ended June 30,
Six months ended June 30,
In thousands, except per share amounts
2026
% Change
2025
2026
% Change
2025
Revenue
$
37,984
-1.7
%
$
38,631
$
75,248
-6.2
%
$
80,192
Operating expenses
42,474
10.0
%
38,597
80,506
0.4
%
80,198
Operating (loss) income
$
(4,490
)
$
34
$
(5,258
)
$
(6
)
Operating margin
(11.8
%)
0.1
%
(7.0
%)
—%
Other expenses, net
393
447
623
1,014
Income tax provision (benefit)
120
(78
)
(250
)
(293
)
Net loss
$
(5,003
)
$
(335
)
$
(5,631
)
$
(727
)
Basic and diluted EPS
$
(0.67
)
$
(0.05
)
$
(0.76
)
$
(0.10
)
Consolidated
Results
Three
months ended June 30, 2026 vs. Three months ended June 30, 2025
Revenues
Revenue
decreased $0.6 million, or 1.7%, to $38.0 million in the three months ended June 30, 2026, compared to the three months ended June 30,
2025. Revenue in our Revenue Solutions segment decreased $1.1 million, or 13.2%, to $7.5 million in the three months ended June 30, 2026,
compared to the three months ended June 30, 2025, and Revenue in our Fulfillment & Logistics Services segment decreased $0.5 million,
or 2.8%, to $17.6 million in the three months ended June 30, 2026, compared to the three months ended June 30, 2025. Revenue in our Customer
Care segment increased $1.0 million, or 8.5%, to $12.9 million in the three months ended June 30, 2026, compared to the three months
ended June 30, 2025.
397
Operating
Expenses
Operating
expenses were $42.5 million in the three months ended June 30, 2026, an increase of $3.9 million, or 10.0%, compared to $38.6 million
in the three months ended June 30, 2025.
Labor
expenses increased $0.5 million, or 2.3%, to $19.9 million in the three months ended June 30, 2026, due to higher health benefit cost
as compared to the three months ended June 30, 2025. The increase was partially offset by reduction in salary and wages as operations
were optimized to account for lower revenue.
Production
and Distribution expenses increased $0.1 million, or 0.7%, in the three months ended June 30, 2026, compared to the three months ended
June 30 2025, primarily due to higher broker shipping costs from higher broker revenue.
Advertising,
Selling, General and Administrative expenses increased $3.2 million, or 58.6%, in the three months ended June 30, 2026, compared to the
three months ended June 30, 2025, primarily due to higher professional service and legal expenses. See footnote O for further information
about the pending acquisition.
Restructuring
expense was $0.2 million in the three months ended June 30, 2026, as compared to $0.1 million in three months ended June 30, 2025 due
to higher severance expense.
The
largest components of our operating expenses are labor, transportation expenses and outsourced costs. Each of these costs is, at least
in part, variable and tends to fluctuate in line with revenues and the demand for our services. Transportation rates have increased over
the last few years due to demand and supply fluctuations within the transportation industry. Future changes in transportation expenses
will continue to impact our total production costs and total operating expenses, and in turn our margins. Postage costs for mailings
are borne by our clients and are not directly reflected in our revenues or expenses.
Other
expenses, net
Other
expenses, net, for the three months ended June 30, 2026 were $0.4 million which was consistent with the three months ended June 30, 2025.
Income
Taxes
The
income tax expense of $0.1 million for the three months ended June 30, 2026 represents an increase of income tax expense of $0.2 million
when compared to the three months ended June 30, 2025. Our effective tax rate was a negative 2.5% for the three months ended June 30,
2026, a decrease of 21.3% from the effective tax rate of a positive 18.9% for the three months ended June 30, 2025, The effective income
tax rates differ from the federal statutory rate of 21%, primarily due to the U.S. state income taxes and the impact of income earned
in foreign jurisdictions.
Six
months ended June 30, 2026 vs. Six months ended June 30, 2025
Revenues
Revenue
decreased $4.9 million, or 6.2%, to $75.2 million, in the six months ended June 30, 2026, compared to the six months ended June 30, 2025
due to decreased revenue in the Fulfillment & Logistics Services and Revenue Solutions segments, which was partially offset by the
increase in Customer Care segment. The reduction in revenues in the six month period relates to the conclusion of programs, and the ordinary
turnover of customers at a higher rate than initiation of new programs and revenues from new customers.
Operating
Expenses
Operating
expenses were $80.5 million in the six months ended June 30, 2026, a decrease of $0.3 million, or 0.4%, compared to $80.2 million in
the six months ended June 30, 2025.
Labor
expense increased $0.5 million, or 1.2%, to $39.7 million in the six months ended June 30, 2026, primarily due to higher health benefit
costs which was partially offset by reduction in salary and wages as operations were optimized to account for lower revenue.
398
Production
and Distribution expenses decreased $2.6 million, or 10.0%, in the six months ended June 30, 2026, primarily due to lower transportation
costs associated with lower logistics services revenue as compared to the prior year.
Advertising,
Selling, General and Administrative expenses increased $3.0 million, or 26.7%, in the six months ended June 30, 2026, primarily due to
higher professional service and legal expenses. See footnote O for further information about the pending acquisition.
Restructuring
expense was $0.3 million in the six months ended June 30, 2026, as compared to $1.0 million in the six months ended June 20, 2025 due
to lower severance expense.
The
largest components of our operating expenses are labor, transportation expenses and outsourced costs. Each of these costs is, at least
in part, variable and tends to fluctuate in line with revenues and the demand for our services. Transportation rates have increased over
the last few years due to demand and supply fluctuations within the transportation industry. Future changes in transportation expenses
will continue to impact our total production costs and total operating expenses, and in turn our margins. Postage costs for mailings
are borne by our clients and are not directly reflected in our revenues or expenses.
Other
expenses, net
Other
expenses, net, for the six months ended June 30, 2026 were $0.6 million compared to $1.0 million, in the prior year period. The decrease
was mainly associated with changes in foreign currency gain and loss account.
Income
Taxes
The
income tax benefit of $0.3 million in the six months ended June 30, 2026 is comparable to the income tax benefit of $0.3 million in the
same period of 2025. Our effective tax rate was a positive 4.3% for the six months ended June 30, 2026, a decrease of 24.5% from the
effective tax rate of a positive 28.7% for the same period of 2025. The effective tax rate differs from the federal statutory rate of
21.0%, primarily due to the U.S. state income taxes and income earned in foreign jurisdictions.
Segment
Results
The
following is a discussion and analysis of the results of our reportable segments for the three and six months ended June 30, 2026 and
2025. There are three principal financial measures reported to our President (the chief operating decision maker) for use in assessing
segment performance and allocating resources. Those measures are revenue and operating income and operating income plus depreciation
and amortization (“EBITDA”). For additional information, see Note N,
Segment Reporting
, in the Notes to Condensed
Consolidated Financial Statements.
Revenue
Solutions:
Three months ended June 30,
Six months ended June 30,
In thousands
2026
% Change
2025
2026
% Change
2025
Revenue
$
7,521
(13.2
)%
$
8,662
15,437
(11.5
)%
$
17,443
EBITDA
999
(26.7
)%
1,362
1,978
(18.7
)%
2,434
Operating income
855
(25.3
)%
1,144
1,674
(16.3
)%
1,999
Three
months ended June 30, 2026 vs. Three months ended June 30, 2025
Revenue
Solutions segment revenue decreased $1.1 million, or 13.2%, due to customer turnover and the decline of client spending in excess of
new business. Operating income for the three months ended June 30, 2026 decreased $0.3 million, or 25.3% from the prior year quarter
due to the reduced revenue.
399
Six
months ended June 30, 2026 vs. Six months ended June 30, 2025
Revenue
Solutions segment revenue decreased $2.0 million, or 11.5%, due to customer turnover and the additional client spending reductions. This
segment is our most economically sensitive segment with regard to changes in our clients’ marketing strategy. Operating income
for the six months ended June 30, 2026 decreased $0.3 million , or 16.3% from the prior year quarter primarily due to the reduced revenue.
Customer
Care:
Three months ended June 30,
Six months ended June 30,
In thousands
2026
% Change
2025
2026
% Change
2025
Revenue
$
12,853
8.5
%
$
11,845
$
25,710
3.5
%
$
24,847
EBITDA
825
(48.6
)%
1,605
1,714
(53.2
)%
3,665
Operating income
639
(58.9
)%
1,555
1,396
(60.8
)%
3,564
Three
months ended June 30, 2026 vs. Three months ended June 30, 2025
Customer
Care segment revenue increased $1.0 million, or 8.5%, primarily driven by the revenue from our new customers. Operating income was $0.6
million for the three months ended June 30, 2026, compared to operating income of $1.6 million for the three months ended June 30, 2025.
The $0.9 million decrease in operating income was due to higher labor expenses derived from increased headcount for new business as compared
to the prior year quarter.
Six
months ended June 30, 2026 vs. Six months ended June 30, 2025
Customer
Care segment revenue increased $0.9 million, or 3.5%, primarily driven by the revenue from our new customers. Operating income was $1.4
million for the six months ended June 30, 2026, compared to operating Income of $3.6 million for the six months ended June 30, 2025 The
decrease of $2.2 million in operating income was due to higher labor expense derived from increased headcount for new business as compared
to the prior year period.
Fulfillment
& Logistics Services:
Three months ended June 30,
Six months ended June 30,
In thousands
2026
% Change
2025
2026
% Change
2025
Revenue
$
17,610
(2.8
)%
$
18,124
$
34,101
(10.0
)%
$
37,902
EBITDA
970
(32.1
)%
1,429
2,171
(30.4
)%
3,119
Operating income
450
(50.5
)%
910
1,135
(45.9
)%
2,099
Three
months ended June 30, 2026 vs. Three months ended June 30, 2025
Fulfillment
& Logistics Services segment revenue decreased $0.5 million, or 2.8%, primarily due to the lower volume from the existing customers
not being offset by growth in new programs and customers. Operating income decreased by $0.5 million primarily due to lower revenue.
Six
months ended June 30, 2026 vs. Six months ended June 30, 2025
Fulfillment
& Logistics Services segment revenue decreased by $3.8 million, or 10.0%, due to lost customers and the lower volume from existing
customers. Operating income decreased by $1.0 million, or 84.9% due to the lower revenue.
400
Liquidity
and Capital Resources
Sources
and Uses of Cash
Our
cash and cash equivalent balances were $5.2 million and $5.6 million at June 30, 2026 and December 31, 2025, respectively. As of June
30, 2026, we had the ability to borrow $21.3 million under our Credit Facility in addition to the existing letters of credit.
Our
principal sources of liquidity are cash on hand, cash provided by operating activities, and borrowings available under our Credit Facility.
Our cash is primarily used for general corporate purposes, working capital requirements, and capital expenditures. At this time, we believe
that we will be able to continue to meet our liquidity requirements and fund our fixed obligations such as finance and operating leases
and unfunded pension plan benefit payments and other needs for our operations in the short term and beyond. Although the Company believes
that it will be able to meet its cash needs for the short and medium term, if unforeseen circumstances arise the Company may need to
seek alternative sources of liquidity.
Operating
Activities
Net
cash used in operating activities for the six months ended June 30, 2026 was $2.6 million, compared to net cash used in operating activities
of $5.7 million for the six months ended June 30, 2025. The $3.0 million year-over-year increase in cash used in operating activities
was primarily due to $7.5 million change in other assets and current liabilities, which was partially offset by additional $4.9 million
net loss in the six months ended June 30, 2026 as compared to the six months ended June 30, 2025.
Investing
Activities
Net
cash used in investing activities was $0.3 million for the six months ended June 30, 2026, which was comparable to the cash used in investing
activities during the same period in 2025.
Financing
Activities
Net
cash provided by financing activities was $2.9 million for the six months ended June 30, 2026, as compared to $0.7 million of net cash
provided by financing activities during the six months ended June 30, 2025. The $2.2 million increase in cash provided by financing activities
was primarily related to the $3.0 million we borrowed under our Credit Facility during the six months ended June 30, 2026 as compared
to $0.8 million of cash we received for the recovery of short-swing profit from one shareholder in the six months ended June 30, 2025.
Foreign
Holdings of Cash
Consolidated
foreign holdings of cash as of June 30, 2026 and December 31, 2025 were $1.7 million and $2.2 million, respectively.
Debt
On
December 21, 2021, the Company entered into a three-year, $25.0 million asset-based revolving credit facility (the “Credit Facility”)
with Texas Capital Bank (“TCB”). The Company’s obligations under the Credit Facility are guaranteed on a joint and
several basis by the Company’s material subsidiaries (the “Guarantors”). The Credit Facility is secured by substantially
all of the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, among
the Company, TCB and the other Guarantors party thereto (the “Security Agreement”). On June 24, 2025, the Company entered
into a second amendment to the Credit Facility (the “Second Amendment”) with TCB which extended the maturity date for the
Credit Facility by a period of three years to June 30, 2028. The Second Amendment also includes an accordion feature that allows the
Company to seek up to a $10.0 million increase in commitments under the credit line, subject to TCB approval.
401
The
Credit Facility provides for loans up to the lesser of (a) $25.0 million, and (b) the amount available under a “borrowing base”
calculated primarily by reference to the Company’s cash and cash equivalents and accounts receivables. The Credit Facility allows
the Company to use up to $3.0 million of its borrowing capacity to issue letters of credit.
The
loans under the Credit Facility accrue interest at a variable rate equal to the Secured Overnight Financing Rate (SOFR) plus a margin
of 2.25% per annum. The latest rate was 5.99% as of June 30, 2026. The outstanding amounts advanced under the Credit Facility are due
and payable in full on June 30, 2028.
The
Company may repay and reborrow all or any portion of the loans advanced under the Credit Facility at any time, without premium or penalty.
The Credit Facility is subject to mandatory prepayments (i) from the net proceeds of asset dispositions not otherwise permitted under
the Credit Facility; (ii) if the unpaid principal balance under the Credit Facility plus the aggregate face amount of all outstanding
letters of credit exceeds the borrowing base; (iii) in an amount equal to 50% of the net proceeds of issuances of capital stock (subject
to customary exceptions); or (iv) in an amount equal to the net proceeds from any issuance of debt not otherwise permitted under the
Credit Facility. .
The
Credit Facility contains certain covenants restricting the Company’s and its subsidiaries’ ability to create, incur, assume
or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company’s stock; create, incur or
assume liens; consummate mergers or acquisitions; liquidate, dissolve, suspend or cease operations; or modify accounting
or tax reporting methods (other than as required by U.S. GAAP).
As
of June 30, 2026 and December 31, 2025, we had $3.0 million and no borrowings outstanding under the Credit Facility, respectively. At
each of June 30, 2026 and December 31, 2025, we had letters of credit outstanding in the amount of $0.7 million and $0.7 million, respectively.
No amounts were drawn against these letters of credit at June 30, 2026 and December 31, 2025. These letters of credit exist to support
insurance programs relating to workers’ compensation and general liability as well as lease obligations. We had no other off-balance
sheet financing activities at June 30, 2026 and December 31, 2025.
As
of June 30, 2026, we had the ability to borrow $21.3 million under our Credit Facility in addition to the existing letters of credit.
Dividends
We
did not pay any dividends in the three and six months ended June 30, 2026 and 2025. Any future dividend declaration can be made only
upon, and subject to, approval of our Board of Directors, and will depend on our results of operations, financial condition, cash requirements,
future business prospects, contractual and indenture restrictions and other factors deemed relevant by our Board of Directors.
Share
Repurchase
On
May 2, 2023, the Board of Directors of Harte Hanks approved a share repurchase program to maximize shareholder value with authorization
to repurchase $6.5 million of the Company’s Common Stock. As of June 30, 2026, the share repurchase program authorization availability
was $4.1 million. We did not repurchase any of the Company’s Common Stock during the three and six months ended June 30, 2026 and
2025.
Outlook
We
consider such factors as total cash and cash equivalents and restricted cash, current assets, current liabilities, total debt, revenues,
operating income, cash flows from operations, investing activities, and financing activities when assessing our liquidity. Our management
of cash is designed to optimize returns on cash balances and to ensure that it is readily available to meet our operating, investing,
and financing requirements as they arise. We believe that there are no conditions or events, considered in the aggregate, that raise
substantial doubt about our ability to continue as a going concern for the twelve months following the issuance of the Condensed Consolidated
Financial Statements.
402
Critical
and Recent Accounting Policies
Critical
accounting estimates are defined as those that, in our judgment, are most important to the portrayal of our Company’s financial
condition and results of operations and which require complex or subjective judgments or estimates. Actual results could differ materially
from those estimates under different assumptions and conditions. Refer to the 2025 10-K for a discussion of our critical accounting estimates.
Our
Significant Accounting policies are described in Note A,
Overview and Significant Accounting Policies
, in the Notes to Condensed
Consolidated Financial Statements.
See
Recent Accounting Pronouncements under Note B of the Notes to Condensed Consolidated Financial Statements for a discussion of certain
accounting standards that have been recently issued.
403
Harte Hanks, Inc. and Subsidiaries
Index to Unaudited Condensed Consolidated Financial
Statements
Unaudited
Interim Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025 (audited)
405
Condensed Consolidated Statements of Comprehensive Loss for the Six Months Ended June 30, 2026 and 2025
406
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2026 and 2025
407
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2026 and 2025
408
Notes to Condensed Consolidated Financial Statements
409
404
Harte
Hanks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
In thousands, except shares and per share amounts
June 30,
2026
December 31,
2025
(unaudited)
ASSETS
Current assets
Cash and cash equivalents and restricted cash
$
5,188
$
5,587
Accounts receivable (less allowance for doubtful accounts of $169 and $22 at June 30, 2026 and December 31, 2025, respectively)
27,431
27,841
Unbilled accounts receivable and contract assets
7,971
7,049
Prepaid expenses
1,537
2,363
Prepaid income taxes and income tax receivable
1,431
1,431
Other current assets
1,798
2,046
Total current assets
45,356
46,317
Property, plant and equipment, net
6,866
8,386
Operating and Financing lease right-of-use assets
18,597
19,854
Other assets
Intangible assets, net
273
370
Goodwill
295
295
Deferred tax assets, net
15,982
16,040
Other long-term assets
690
564
Total other assets
17,240
17,269
Total assets
$
88,059
$
91,826
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
$
13,238
$
13,096
Accrued expenses
6,561
5,915
Accrued payroll and related expenses
3,165
2,749
Short-term debt
3,000
—
Deferred revenue and customer advances
2,552
813
Customer postage and program deposits
693
868
Other current liabilities
1,659
3,180
Current portion of lease liabilities
4,003
3,543
Total current liabilities
34,871
30,164
Pension liabilities - Qualified plans
3,390
4,106
Pension liabilities - Nonqualified plan
16,525
16,995
Long-term lease liabilities, net of current portion
17,035
18,861
Other long-term liabilities
888
1,174
Total liabilities
72,709
71,300
Stockholders’ equity
Common stock, $1 par value, 25,000,000 shares authorized; 12,221,484 shares issued, 7,454,240 and 7,414,794 shares outstanding at June 30, 2026 and December 31, 2025, respectively
12,221
12,221
Additional paid-in capital
99,393
109,558
Retained earnings
808,181
813,812
Less treasury stock, 4,767,244 shares at cost at June 30, 2026 and 4,806,690 shares at cost at December 31, 2025
(889,526
)
(900,085
)
Accumulated other comprehensive loss
(14,919
)
(14,980
)
Total stockholders’ equity
15,350
20,526
Total liabilities and stockholders’ equity
$
88,059
$
91,826
See Accompanying Notes to Condensed Consolidated Financial Statements
405
Harte
Hanks, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
Three months ended June 30,
Six months ended June 30,
In thousands, except per share amounts
2026
2025
2026
2025
Revenue
$
37,984
$
38,631
$
75,248
$
80,192
Operating expenses
Labor
19,898
19,445
39,708
39,244
Production and distribution
12,482
12,400
23,821
26,457
Advertising, selling, general and administrative
8,785
5,538
14,426
11,382
Restructuring expenses
187
149
347
987
Depreciation and amortization expense
1,122
1,065
2,204
2,128
Total operating expenses
42,474
38,597
80,506
80,198
Operating (loss) income
(4,490
)
34
(5,258
)
(6
)
Other expenses, net
Interest expense, net
90
61
159
114
Other expenses, net
303
386
464
900
Total other expenses, net
393
447
623
1,014
Loss before income taxes
(4,883
)
(413
)
(5,881
)
(1,020
)
Income tax provision (benefit)
120
(78
)
(250
)
(293
)
Net loss
(5,003
)
(335
)
(5,631
)
(727
)
Loss per common share
Basic and diluted
$
(0.67
)
$
(0.05
)
$
(0.76
)
$
(0.10
)
Weighted average shares used to compute loss per share
Basic and diluted
7,431
7,382
7,423
7,371
Comprehensive loss, net of tax:
Net loss
$
(5,003
)
$
(335
)
$
(5,631
)
$
(727
)
Adjustment to pension liability, net
307
44
380
209
Foreign currency translation adjustment
(242
)
73
(319
)
109
Total other comprehensive income, net of tax
$
65
$
117
$
61
$
318
Comprehensive loss
$
(4,938
)
$
(218
)
$
(5,570
)
$
(409
)
See
Accompanying Notes to Condensed Consolidated Financial Statements
406
Harte
Hanks, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
In thousands
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balance at December 31, 2025
$
12,221
$
109,558
$
813,812
$
(900,085
)
$
(14,980
)
$
20,526
Stock-based compensation
—
218
—
—
—
218
Vesting of RSUs
—
(1,560
)
—
1,551
—
(9
)
Net loss
—
—
(628
)
—
—
(628
)
Other comprehensive loss
—
—
—
—
(4
)
(4
)
Balance at March 31, 2026
$
12,221
$
108,216
$
813,184
$
(898,534
)
$
(14,984
)
$
20,103
Stock-based compensation
—
221
—
—
—
221
Vesting of RSUs
—
(9,044
)
—
9,008
—
(36
)
Net loss
—
—
(5,003
)
—
—
(5,003
)
Other comprehensive income
—
—
—
—
65
65
Balance at June 30, 2026
$
12,221
$
99,393
$
808,181
$
(889,526
)
$
(14,919
)
$
15,350
In thousands
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balance at December 31, 2024
$
12,221
$
124,194
$
814,623
$
(915,752
)
$
(13,597
)
$
21,689
Stock-based compensation
—
(49
)
—
—
—
(49
)
Vesting of RSUs
—
(2,353
)
—
2,325
—
(28
)
Net loss
—
—
(392
)
—
—
(392
)
Other comprehensive income
—
—
—
—
201
201
Balance at March 31, 2025
$
12,221
$
121,792
$
814,231
$
(913,427
)
$
(13,396
)
$
21,421
Stock-based compensation
—
220
—
—
—
220
Vesting of RSUs
—
(11,006
)
—
10,985
—
(21
)
Recovery of short swing
—
838
—
—
—
838
Net loss
—
—
(335
)
—
—
(335
)
Other comprehensive income
—
—
—
—
117
117
Balance at June 30, 2025
$
12,221
$
111,844
$
813,896
$
(902,442
)
$
(13,279
)
$
22,240
See
Accompanying Notes to Condensed Consolidated Financial Statements
407
Harte
Hanks, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
In thousands
2026
2025
Cash Flows from Operating Activities
Net loss
$
(5,631
)
$
(727
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
2,204
2,128
Stock-based compensation
439
171
Net pension (payment) cost
(957
)
(1,079
)
Deferred income taxes
(58
)
(51
)
Changes in assets and liabilities:
Accounts receivable and contract assets
(512
)
(769
)
Prepaid expenses, income tax receivable and other current assets
1,007
(536
)
Accounts payable and accrued expenses
757
(3,623
)
Deferred revenue and customer advances
1,739
222
Customer postage and program deposits
(175
)
(184
)
Other accrued expenses and liabilities
(1,460
)
(1,220
)
Net cash used in operating activities
(2,647
)
(5,668
)
Cash Flows from Investing Activities
Purchases of property, plant and equipment
(306
)
(328
)
Net cash used in investing activities
(306
)
(328
)
Cash Flows from Financing Activities
Borrowings
3,000
—
Payment of finance leases
(82
)
(79
)
Recovery of short-swing profit from stockholders
—
838
Treasury stock activities
(45
)
(49
)
Net cash provided by financing activities
2,873
710
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(319
)
109
Net decrease in cash and cash equivalents and restricted cash
(399
)
(5,177
)
Cash and cash equivalents and restricted cash at beginning of period
5,587
9,934
Cash and cash equivalents and restricted cash at end of period
$
5,188
(1)
$
4,757
Supplemental disclosures
Cash paid for interest
$
123
$
110
Cash received for interest
$
(2
)
$
(28
)
Cash paid for income taxes, net
$
1,050
$
1,186
Non-cash investing and financing activities
Purchases of property, plant and equipment included in accounts payable
$
625
$
647
(1) This amount is comprised of the below balances:
Cash and cash equivalents
$
5,185
4,680
Restricted cash
3
$
77
$
5,188
$
4,757
See
Accompanying Notes to Condensed Consolidated Financial Statements
408
Harte
Hanks, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
Note
A - Overview and Significant Accounting Policies
Background
Harte
Hanks, Inc. together with its wholly-owned subsidiaries (“Harte Hanks,” “Company,” “we,” “our,”
or “us”) is a leading global customer experience company. With offices in North America, Asia-Pacific and Europe, Harte Hanks
works with some of the world’s most respected brands.
Segment
Reporting
The
Company operates three reportable segments: Revenue Solutions; Customer Care; and Fulfillment & Logistics Services. Our President
is considered to be our chief operating decision maker (CODM). Our President reviews our operating results on an aggregate basis for
purposes of allocating resources and evaluating financial performance by using the three financial measures: revenue, operating income
and operating income plus depreciation and amortization (EBITDA).
Accounting
Principles
Our
unaudited interim condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the unaudited interim condensed
consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of
the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information
included in this Form 10-Q should be read in conjunction with information included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2025 (the “2025 10-K”).
Consolidation
The
accompanying unaudited interim condensed consolidated financial statements include the accounts of Harte Hanks, Inc. and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. As used in this report, the terms “Harte
Hanks,” “the Company,” “we,” “us,” or “our” may refer to Harte Hanks, Inc., one
or more of its consolidated subsidiaries, or all of them taken as a whole, as the context may require.
Interim
Financial Information
The
condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with
the instructions to Form 10-Q and Rule 8-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required
by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
Use
of Estimates
Preparation
of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from those
estimates due to uncertainties. Such estimates include, but are not limited to, estimates related to revenue recognition; income taxes;
goodwill and intangible assets impairment as well as pension accounting. On an ongoing basis, management reviews its estimates and assumptions
based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.
409
Operating
Expense Presentation in Condensed Consolidated Statements of Comprehensive Loss
The
“Labor” line in the Condensed Consolidated Statements of Comprehensive Loss includes all employee payroll and benefits costs,
including stock-based compensation and temporary labor costs. The “Production and distribution” and “Advertising, selling,
general and administrative” lines do not include any labor, depreciation, or amortization expense. Certain labor costs are included
in restructuring expense, please see Note M - Restructuring Activities for details.
Revenue
Recognition
We
recognize revenue upon the transfer of control of promised products or services to customers in an amount that reflects the consideration
we expect to be entitled to receive in exchange for those products or services based on the relevant contract. We apply the following
five-step revenue recognition model:
●
Identification
of the contract, or contracts, with a customer
●
Identification
of the performance obligations in the contract
●
Determination
of the transaction price
●
Allocation
of the transaction price to the performance obligations in the contract
●
Recognition
of revenue when (or as) we satisfy the performance obligation
Certain
client programs provide for adjustments to billings based upon whether we achieve certain performance criteria. In these circumstances,
revenue is recognized when the foregoing conditions are met. We record revenue net of any taxes collected from customers and subsequently
remitted to governmental authorities. Any payments received in advance of the performance of services or delivery of the product are
recorded as deferred revenue until such time as the services are performed or the product is delivered. Costs incurred for search engine
marketing solutions payable to the engine host and postage costs of mailings are billed to our clients and are not directly reflected
in our revenue.
Revenue
from agency and digital services, direct mail, logistics, fulfillment and contact center is recognized when the work is performed. Fees
for these services are determined by the terms set forth in each contract. These fees are typically a set fixed price or rate by transaction
occurrence, service provided, time spent, or product delivered.
For
arrangements requiring design and build of a database, revenue is not recognized until client acceptance occurs. Up-front fees billed
during the setup phase for these arrangements are deferred and direct build costs are capitalized. Pricing for these types of arrangements
is typically based on a fixed price determined in the contract. Revenue from other database marketing solutions is recognized ratably
over the contractual service period. Pricing for these services is typically based on a fixed price per month or per contract.
Fair
Value of Financial Instruments
Financial
Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 820,
Fair Value Measurements
and Disclosures
, (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy
that prioritizes the inputs used in valuation methodologies into three levels:
Level
1
Quoted
prices in active markets for identical assets or liabilities.
Level
2
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level
3
Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Because
of their maturities and/or variable interest rates, certain financial instruments have fair values approximating their carrying values.
These instruments include cash and cash equivalents and restricted cash, accounts receivable, trade payables, and debt. The fair value
of the assets in our funded pension plan is discussed in Note H,
Employee Benefit Plans.
410
Leases
We
determine if an arrangement is a lease at its inception. Operating and finance leases are included in the lease right-of-use (“ROU”)
assets and in the current portion and long-term portion of lease liabilities on our condensed consolidated balance sheets. ROU assets
represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments
arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of each lease based on the
present value of lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental
borrowing rate based on the information available at the commencement date of each lease to determine the present value of lease payments.
The operating lease ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options
to extend or terminate the lease, which are included in the lease ROU assets when it is reasonably certain that we will exercise that
option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease
and non-lease components, which are generally accounted for separately. For certain real estate leases, we account for the lease and
non-lease components as a single lease component.
Note
B - Recent Accounting Pronouncements
Recent
Accounting Guidance Adopted
In
July 2025, the Financial Accounting Standards Board (“FASB”) issued ASU 2025-05, which amends ASC 326-20 to provide a practical
expedient (for all entities) relating to the estimation of expected credit losses for current accounts receivable and current contract
assets that arise from transactions accounted for under ASC 606. ASU 2025-05 is effective for annual reporting periods beginning after
December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company adopted
ASU 2025-05 effective January 1, 2026. The adoption did not have a material impact on the Company’s Consolidated condensed financial
statements.
Recent
Accounting Guidance Not Yet Adopted
In
November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The ASU requires entities
to disclose the disaggregated information for specific expense categories, including purchases of inventory, employee compensation, depreciation,
and amortization, within the relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses
along with the definition of what constitutes selling expenses. The ASU is effective for annual periods beginning after December 15,
2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively
to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all
prior periods presented in the consolidated financial statements. Early adoption is also permitted. This ASU will likely result in the
required additional disclosures being included in our consolidated financial statements, once adopted. We are currently evaluating the
provisions of this ASU.
In
September 2025, the FASB issued ASU 2025-06 to target improvements to the Accounting for Internal-Use Software, which simplifies the
capitalization guidance by removing all references to software development project stages and clarifies the criteria to begin capitalizing
cost. The amendment is effective for annual and interim periods beginning after December 15, 2027, though early adoption is permitted.
The Company is currently evaluating the impact of this amendment on its Consolidated Financial Statements.
In
December 2025, the FASB issued ASU 2025-11 to improve the guidance in Topic 270, Interim Reporting, by improving the navigability of
the required interim disclosures and clarifying when that guidance is applicable. The amendment is effective for interim periods with
annual reporting periods beginning after December 15, 2027, though early adoption is permitted. The Company is currently evaluating the
impact of this amendment on its Condensed Consolidated Financial Statements.
No
other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the condensed consolidated
financial statements.
411
Note
C - Revenue from Contracts with Customers
Our
contracts with customers state the terms of sale, including the description, quantity, and price of the product sold or service provided.
Payment terms can vary by contract, but the period between invoicing and when payment is due is not significant. The Company’s
contracts with its customers generally do not include rights of return or a significant financing component.
Disaggregation
of Revenue
We
disaggregate revenue by three key revenue streams which are aligned with our reportable segments. The nature of the services offered
by each key revenue stream is different. The following table summarizes revenue from contracts with customers for the three and six months
ended June 30, 2026 and 2025 by our three reportable segments:
Three months ended June 30,
Six months ended June 30,
In thousands
2026
2025
2026
2025
Revenue Solutions
$
7,521
$
8,662
$
15,437
$
17,443
Customer Care
12,853
11,845
25,710
24,847
Fulfillment & Logistics Services
17,610
18,124
34,101
37,902
Total Revenues
$
37,984
$
38,631
$
75,248
$
80,192
During
the three and six months ended June 30, 2026, the Company recognized revenue of $0.8 million and $1.0 million, respectively, and during
the three and six months ended June 30, 2025, the Company recognized revenue of $1.6 million and $1.7 million, respectively, from performance
obligations satisfied at a point in time. The remaining revenue recognized in both 2026 and 2025 was recognized in an over time pattern.
Our contracts with customers may consist of multiple performance obligations. If the contract contains a single performance obligation,
the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations
require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (“SSP”)
basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct
good or service that forms part of a single performance obligation. For most performance obligations, we determine SSP based on the price
at which the performance obligation is sold separately. Although uncommon, if the SSP is not observable through past transactions, we
estimate the SSP taking into account available information such as market conditions and internally approved pricing guidelines related
to the performance obligations. Further discussion of other performance obligations in each of our major revenue streams follows:
Revenue
Solutions
Our
Revenue Solutions segment delivers strategic planning, data strategy, performance analytics, creative development and execution, technology
enablement, marketing automation, and database management. The customer can choose other services to supplement and support their own
in-house sales team. These services may range from leveraging data for lead generation, and outsourcing the design and testing of sales
play, to full hiring and managing of a dedicated internal sales team.
Most
revenue solutions performance obligations are satisfied over time and often offered on a per project basis. We have concluded that the
best approach to measure the progress toward completion of the project-based performance obligations is the input method, which is based
on either the costs or labor hours incurred to date depending upon whether costs or labor hours more accurately depict the transfer of
value to the customer.
412
Our
database solutions are built around centralized marketing databases with services rendered to build custom database, database hosting
services, customer or target marketing lists and data processing services.
These
performance obligations, including services rendered to build a custom database, database hosting services, customer or target marketing
lists and data processing services, may be satisfied over time or at a point in time. We provide software as a service (“SaaS”)
solutions to host data for customers and have concluded that these solutions are stand-ready obligations to be recognized over time on
a monthly basis. Our promise to provide certain data related services meets the over-time recognition criteria because our services do
not create an asset with an alternative use, and we have an enforceable right to payment. For performance obligations recognized over
time, we choose either the input (i.e., labor hour) or output method (i.e., number of customer records) to measure the progress toward
completion depending on the nature of the services provided. Some of our other data-related services do not meet the over-time criteria
and are therefore, recognized at a point-in-time, typically upon the delivery of a specific deliverable.
Our
contracts may include outsourced print production work for our clients. These contracts may include a promise to purchase postage on
behalf of our clients. In such cases, we have determined we are an agent, rather than principal and therefore recognize net consideration
as revenue.
Customer
Care
We
deliver customer care services in the United States, Asia, and Europe to provide advanced solutions such as voice, SMS/chat, email, integrated
voice response, web self-service, social cloud monitoring, and analytics.
Performance
obligations are stand-ready obligations and are satisfied over time. With regard to account management and SaaS, we use a time-elapsed
output method to recognize revenue. For performance obligations where we charge customers a transaction-based fee, we use the output
method based on transaction quantities. In most cases, our contracts provide us the right to invoice for services provided, therefore,
we generally use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations
unless significant discounts are offered in a contract and prices for services do not represent their SSPs.
Fulfillment
& Logistics Services
Our
services, delivered internally and with our partners, include: printing, lettershop, advanced mail optimization (including commingling
services), logistics and transportation optimization, monitoring and tracking, to support traditional and specialized mailings. Our print
and fulfillment centers in Massachusetts and Kansas provide custom kitting services, print on demand, product recalls, trade marketing
fulfillment, ecommerce product fulfillment, sampling programs, and freight optimization, thereby allowing our customers to distribute
literature and other marketing materials.
Performance
obligations offered within this revenue stream may be satisfied either over time or at a point time. Over time performance obligations
utilize either the input or output method, depending on the nature of the service, to measure progress toward satisfying the performance
obligation. For performance obligations where we charge customers a transaction-based fee, we utilize the output method based on the
quantities fulfilled. Services provided through our fulfillment centers are typically priced at a per transaction basis and our contracts
provide us the right to invoice for services provided and reflects the value to the customer of the services transferred to date. In
most cases, we use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations
unless significant discounts are offered in a contract and prices for services do not represent their standalone selling prices. Our
direct mail business contracts may have included a promise to purchase postage on behalf of our clients; in such cases, we have determined
we are an agent, rather than principal and therefore recognize net consideration as revenue.
413
Transaction
Price Allocated to Future Performance Obligations
We
have elected to apply certain optional exemptions that limit the disclosure requirements over remaining performance obligations at period
end to exclude the performance obligations that have an original expected duration of one year or less, transactions using the “as
invoiced” practical expedient, or when a performance obligation is a series and we have allocated the variable consideration directly
to the services performed. As of June 30, 2026, we had no transaction prices allocated to unsatisfied or partially satisfied performance
obligations.
Contract
Balances
We
record an unbilled receivable when revenue is recognized prior to invoicing when we have an unconditional right to consideration (only
the passage of time is required before payment of that consideration is due) and a contract asset when the right to payment is conditional
upon our future performance such as delivery of an additional good or service (e.g. customer contract requires customer’s final
acceptance of custom database solution or delivery of a final marketing strategy delivery presentation before customer payment is required).
If invoicing occurs prior to revenue recognition, the unearned revenue is presented on our Condensed Consolidated Balance Sheet as a
contract liability, referred to as deferred revenue.
The
following table summarizes our contract balances as of June 30, 2026 and December 31, 2025:
In
thousands
June
30, 2026
December
31, 2025
Unbilled
accounts receivable
7,823
6,728
Contract
assets
148
321
Deferred
revenue and customer advances
2,552
813
Revenue
recognized during the six months ended June 30, 2026 from amounts included in deferred revenue at the beginning of the period was approximately
$0.8 million. Revenue recognized during the six months ended June 30, 2025 from amounts included in deferred revenue at the beginning
of the period was approximately $1.0 million.
Costs
to Obtain and Fulfill a Contract
We
recognize an asset for the direct costs incurred to obtain and fulfill our contracts with customers to the extent that we expect to recover
these costs and if the benefit is longer than one year. These costs are amortized to expense over the expected period of the benefit
in a manner that is consistent with the transfer of the related goods or services to which the asset relates. We impair the asset when
recoverability is not anticipated. We capitalized a portion of commission expense, implementation and other costs that represent the
cost to obtain a contract. The remaining unamortized contract costs were $0.3 million and $0.3 million as of June 30, 2026 and December
31, 2025, respectively. They are included in other current assets and other assets on our balance sheet. For the periods presented, no
impairment was recognized.
Note
D - Leases
We
have operating and finance leases for corporate and business offices, service facilities, call centers and certain equipment. Leases
with an initial term of 12 months or less are generally not recorded on the balance sheet, unless the arrangement includes an option
to purchase the underlying asset, or an option to renew the arrangement, that we are reasonably certain to exercise (short-term lease).
Our leases have remaining lease terms of one to seven years, some of which may include options to extend the leases for up to an additional
five years.
As
of June 30, 2026, assets recorded under finance and operating leases were approximately $0.5 million and $18.1 million, respectively,
and accumulated amortization associated with finance leases was $0.3 million. As of December 31, 2025, assets recorded under finance
and operating leases were approximately $0.6 million and $19.2 million, respectively, and accumulated amortization associated with finance
leases was $0.3 million. Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based
on the present value of lease payments over the lease term. The discount rate used to determine the commencement date present value of
lease payment is the interest rate implicit in the lease, or when that is not readily determinable, we utilize our incremental borrowing
rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in
a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs
paid or incentives received.
414
There
was no impairment of leases during the three and six months ended June 30, 2026 and 2025.
The
following table presents supplemental balance sheet information related to our financing and operating leases:
As
of June 30, 2026
As
of December 31, 2025
In
thousands
Operating
Leases
Finance
Leases
Total
Operating
Leases
Finance
Leases
Total
Right-of-use
Assets
$
18,078
$
519
$
18,597
$
19,247
$
607
$
19,854
Liabilities
Current
portion of lease liabilities
3,831
172
4,003
3,376
167
3,543
Long-term
lease liabilities
16,646
389
17,035
18,400
461
18,861
Total
Lease Liabilities
$
20,477
$
561
$
21,038
$
21,776
$
628
$
22,404
For
the three and six months ended June 30, 2026 and 2025, the components of lease expense were as follows:
Three
months ended June 30,
Six
months ended June 30,
In
thousands
2026
2025
2026
2025
Operating
lease cost
$
1,167
$
1,259
$
2,340
$
2,524
Finance
lease cost:
Amortization
of right-of-use assets
43
43
86
88
Interest
on lease liabilities
11
14
23
29
Total
Finance lease cost
54
57
109
117
Variable
lease cost
321
369
651
776
Total
lease cost, net
$
1,542
$
1,685
$
3,100
$
3,417
Other
information related to leases was as follows:
In
thousands
Six
Months Ended June 30, 2026
Six
Months Ended June 30, 2025
Supplemental
Cash Flows Information
Cash
paid for amounts included in the measurement of lease liabilities:
Operating
cash flows from operating leases
$
2,457
$
2,645
Operating
cash flows from finance leases
21
27
Financing
cash flows from finance leases
82
79
Weighted
Average Remaining Lease term in years
Operating
leases
5.0
5.9
Finance
leases
3.1
4.1
Weighted
Average Discount Rate
Operating
leases
5.93
%
5.76
%
Finance
leases
7.75
%
7.77
%
The
maturities of the Company’s finance and operating lease liabilities as of June 30, 2026 are as follows:
In
thousands
Operating
Leases
Finance
Leases
Year
Ending December 31,
Remainder
of 2026
$
2,411
$
103
2027
4,714
206
2028
4,537
206
2029
4,579
114
2030
4,485
—
2031
and beyond
3,116
—
Total
future minimum lease payments
23,842
629
Less:
imputed interest
3,365
68
Total
lease liabilities
$
20,477
$
561
415
Note
E - Share Repurchase Program
On
May 2, 2023, the Board of Directors of Harte Hanks approved a share repurchase program to maximize shareholder value with authorization
to repurchase $6.5 million of the Company’s Common Stock. As of December 31, 2025, the share repurchase program authorization availability
was $4.1 million. In the three and six months ended June 30, 2026 and 2025, we did not repurchase any shares of common stock.
Note
F — Debt - Credit Facility
On
December 21, 2021, the Company entered into a three-year, $25.0 million asset-based revolving credit facility (the “Credit Facility”)
with Texas Capital Bank (“TCB”). The Company’s obligations under the Credit Facility are guaranteed on a joint and
several basis by the Company’s material subsidiaries (the “Guarantors”). The Credit Facility is secured by substantially
all of the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, among
the Company, TCB and the other Guarantors party thereto (the “Security Agreement”). On June 24, 2025, the Company entered
into a second amendment to the Credit Facility (the “Second Amendment”) with TCB which extended the maturity date for the
Credit Facility by a period of three years to June 30, 2028. The Second Amendment also includes an accordion feature that allows the
Company to seek up to a $10.0 million increase in commitments under the credit line, subject to TCB approval.
The
Credit Facility provides for loans up to the lesser of (a) $25.0 million, and (b) the amount available under a “borrowing base”
calculated primarily by reference to the Company’s cash and cash equivalents and accounts receivable. The Credit Facility allows
the Company to use up to $3.0 million of its borrowing capacity to issue letters of credit.
The
loans under the Credit Facility accrue interest at a variable rate equal to the Secured Overnight Financing Rate (SOFR) plus a margin
of 2.25% per annum. The interest rate was 5.99% as of June 30, 2026. The outstanding amounts advanced under the Credit Facility are due
and payable in full on June 30, 2028. As of June 30, 2026 and December 31, 2025, we had letters of credit outstanding in the amount of
$0.7 million. No amounts were drawn against these letters of credit at June 30, 2026. These letters of credit exist to support insurance
programs relating to worker’s compensation and general liability as well as lease obligations. Unused commitment balances accrue
fees at a rate of 0.25%.
As
of June 30, 2026 and December 31, 2025, we had $3.0 million and no borrowings outstanding under the Credit Facility, respectively. We
had the ability to borrow $21.3 million and $24.3 million on June 30, 2026 and December 31, 2025, respectively, under the Credit Facility.
Note
G — Stock-Based Compensation
We
maintain stock incentive plans for the benefit of certain officers, directors, and employees. Our stock incentive plans provide for the
ability to issue stock options, cash stock appreciation rights, performance stock units, phantom stock units and cash performance stock
units. Our cash stock appreciation rights, phantom stock units and cash performance stock units settle solely in cash and are treated
as the current liability, which are adjusted each reporting period based on changes in our stock price.
Compensation
expense for stock-based awards is based on the fair values of the awards on the date of grant and is recognized on a straight-line basis
over the vesting period of the entire award in the “Labor” line of the Condensed Consolidated Statements of Comprehensive
Loss. We recognized $0.2 million and $0.2 million of stock-based compensation expense during the three months ended June 30, 2026 and
2025, respectively. We recognized $0.4 million and $0.2 million of stock-based compensation expense during the six months ended June
30, 2026 and 2025, respectively.
416
Note
H — Employee Benefit Plans
Prior
to January 1, 1999, we provided a defined benefit pension plan for which most of our employees were eligible to participate (the “Qualified
Pension Plan”). In conjunction with significant enhancements to our 401(k) plan, we elected to freeze benefits under the Qualified
Pension Plan as of December 31, 1998.
In
1994, we adopted a non-qualified, unfunded, supplemental pension plan (the “Restoration Pension Plan”) covering certain employees,
which provides for incremental pension payments so that total pension payments equal those amounts that would have been payable from
the principal pension plan were it not for limitations imposed by income tax regulation. The benefits under the Restoration Pension Plan
were intended to provide benefits equivalent to our Qualified Pension Plan as if such plan had not been frozen. We elected to freeze
benefits under the Restoration Pension Plan as of April 1, 2014.
At
the end of 2020, the Board of Directors of the Company approved the division of the Qualified Pension Plan into two distinct plans, “Qualified
Pension Plan I” and “Qualified Pension Plan II.” The assets and liabilities of the Qualified Pension Plan that were
attributable to certain participants in Qualified Pension Plan II were spun off and transferred into Qualified Pension Plan II effective
as of the end of December 31, 2021, in accordance with Internal Revenue Code section 414(I) and ERISA Section 4044. In 2024, Qualified
Pension Plan I was terminated with the transfer of our obligations under this pension plan to a third-party provider.
The
overfunded or underfunded status of our defined benefit post-retirement plans is recorded as an asset or liability on our condensed consolidated
balance sheets. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation.
Periodic changes in the funded status are recognized through other comprehensive income in the Condensed Consolidated Statements of Comprehensive
Loss. We currently measure the funded status of our defined benefit plans as of December 31, the date of our year-end Consolidated Balance
Sheets.
Net
pension cost for both plans included the following components:
Three
Months Ended June 30,
Six
Months Ended June 30,
In
thousands
2026
2025
2026
2025
Interest
cost
$
681
$
776
$
1,420
$
1,478
Expected
return on plan assets
(490
)
(604
)
(1,027
)
(1,074
)
Recognized
actuarial loss
129
61
228
198
Net
periodic benefit cost
$
320
$
233
$
621
$
602
Based
on current estimates, we will be required to make a $1.7 million contribution to the Qualified Pension Plan in 2026. We made $0.6 million
of such $1.7 million aggregate contribution in the six months ended June 30, 2026.
We
are not required to make, and do not intend to make, any contributions to our Restoration Pension Plan in 2026 other than to the extent
needed to cover benefit payments. We made benefit payments under this supplemental plan of $0.9 million in both the six months ended
June 30, 2026 and 2025.
Note
I - Income Taxes
The
income tax expense was $0.1 million and income tax benefit was $0.1 million for the three months ended June 30, 2026 and 2025, respectively.
The provision for income taxes resulted in a negative effective tax rate of 2.5% for the three months ended June 30, 2026 and a positive
18.9% for the three months ended June 30, 2025. The effective income tax rate for the three months ended June 30, 2026 and 2025 differs
from the federal statutory rate of 21%, primarily due to the U.S. state income taxes and the impact of income earned in foreign jurisdictions.
The
income tax benefit was $0.3 million and $0.3 million for the six months ended June 30, 2026 and 2025, respectively. The provision for
income taxes resulted in a positive effective tax rate of 4.3% for the six months ended June 30, 2026 and a positive 28.7% for the six
months ended June 30, 2025. The effective income tax rate for the six months ended June 30, 2026 and 2025 differs from the federal statutory
rate of 21%, primarily due to the U.S. state income taxes and the impact of income earned in foreign jurisdictions.
Harte
Hanks, or one of our subsidiaries file income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state,
federal and foreign returns, we are no longer subject to tax examinations for years prior to 2020. The Company has reviewed all of its
tax positions in order to determine whether all, a portion, or none of any related tax benefit should be recognized and has not identified
or recorded any ASC 740-10 reserve.
We
have elected to classify any interest expense and penalties related to income taxes within income tax expense in our Condensed Consolidated
Statements of Comprehensive Loss. We did not have a significant amount of interest or penalties accrued at June 30, 2026 or December
31, 2025.
417
Note
J - Loss Per Share
Basic
income (loss) per share (“EPS”) is calculated using income (loss) available to common stockholders, divided by the weighted
average number of shares outstanding during the period. Diluted earnings per share is calculated using income available to common stockholders
divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in
connection with restricted common stock awards and stock options under our stock incentive plans.
Reconciliations
of basic and diluted EPS were as follows:
Three
months ended June 30,
Six
months ended June 30,
In
thousands, except per share amounts
2026
2025
2026
2025
Numerator:
Net
loss
$
(5,003
)
$
(335
)
$
(5,631
)
$
(727
)
Denominator:
Basic
and diluted EPS denominator: weighted-average common shares outstanding
7,431
7,382
7,423
7,371
Basic
and diluted loss per Common Share
$
(0.67
)
$
(0.05
)
$
(0.76
)
$
(0.10
)
For
the three months ended June 30, 2026 and 2025, respectively, the following shares have been excluded from the calculation of shares used
in the diluted EPS calculation: 166,602 and 186,734 shares of anti-dilutive market price options; 137,931 and 79,178 of anti-dilutive
unvested restricted shares.
For
the six months ended June 30, 2026 and 2025, respectively, the following shares have been excluded from the calculation of shares used
in the diluted EPS calculation: 166,602 and 223,675 shares of anti-dilutive market price options; 148,445 and 33,496 of anti-dilutive
unvested restricted shares.
Note
K — Comprehensive Income (Loss)
Comprehensive
income (loss) for a period encompasses net income (loss) and all other changes in equity other than from transactions with our stockholders.
Changes
in accumulated other comprehensive loss by component were as follows:
In
thousands
Defined
Benefit
Pension
Items
Foreign
Currency
Items
Total
Balance
at December 31, 2025
$
(11,197
)
$
(3,783
)
$
(14,980
)
Other
comprehensive loss, net of tax, before reclassifications
—
(319
)
(319
)
Amounts
reclassified from accumulated other comprehensive loss, net of tax, to other, net, on the condensed consolidated statements of comprehensive
loss
380
—
380
Net
current period other comprehensive income (loss), net of tax
380
(319
)
61
Balance
at June 30, 2026
$
(10,817
)
$
(4,102
)
$
(14,919
)
418
In
thousands
Defined
Benefit
Pension
Items
Foreign
Currency
Items
Total
Balance
at December 31, 2024
$
(10,183
)
$
(3,414
)
$
(13,597
)
Other
comprehensive income, net of tax, before reclassifications
—
109
109
Amounts
reclassified from accumulated other comprehensive income, net of tax, to other, net, on the condensed consolidated statements of
comprehensive loss
209
—
209
Net
current period other comprehensive income, net of tax
209
109
318
Balance
at June 30, 2025
$
(9,974
)
$
(3,305
)
$
(13,279
)
Reclassification
amounts related to the defined pension plans are included in the computation of net periodic pension benefit cost (see Note H,
Employee
Benefit Plans
).
Note
L — Litigation and Contingencies
In
the normal course of our business, we are obligated under some agreements to indemnify our clients as a result of third party claims
that we infringe on the proprietary rights of third parties, or third party claims relating to other
ad hoc
contract obligations.
The terms and duration of these commitments vary and, in some cases, may be indefinite, and some of these contractual commitments do
not limit the maximum amount of future payments we could become obligated to make thereunder; accordingly, our actual aggregate maximum
exposure related to these types of commitments is not reasonably estimable. Historically, we have not been obligated to make significant
payments for obligations of this nature, and no liabilities have been recorded for these obligations in our consolidated financial statements.
We
are also subject to various claims and legal proceedings in the ordinary course of conducting our businesses and, from time to time,
we may become involved in additional claims and lawsuits incidental to our businesses. We routinely assess the likelihood of adverse
judgments or outcomes to these matters, as well as ranges of probable losses; to the extent losses are reasonably estimable. Accruals
are recorded for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse
outcome occur, is reasonably estimable.
In
the opinion of management, appropriate and adequate accruals for legal matters have been made, and management believes that the probability
of a material loss beyond the amounts accrued is remote. Nevertheless, we cannot predict the impact of future developments affecting
our pending or future claims and lawsuits. We expense legal costs as incurred, and all recorded legal liabilities are adjusted as required
as better information becomes available to us. The factors we consider when recording an accrual for contingencies include, among others:
(i) the opinions and views of our general counsel and outside legal counsel; (ii) our previous experience with similar claims; and (iii)
the decision of our management as to how we intend to respond to the complaints.
Note
M — Restructuring Activities
During
the second half of 2023, we engaged a consulting firm to help review and analyze the structure and operations of the Company. The program
named “Project Elevate” involved the optimization and rationalization of our business resources as well as the partial reinvestment
of savings into the Company’s sales and marketing team, technology, and strategy. Reorganization cost reductions from Project Elevate
during 2024 through 2026 are estimated to be $16.0 million. We incurred total restructuring charges of $10.2 million through June 30,
2026.
For
the three months ended June 30, 2026 and 2025, we recorded restructuring charges of $0.2 million and $0.1 million, respectively. For
six months ended June 30, 2026 and 2025, we recorded restructuring charges of $0.3 million and $1.0 million, respectively.
419
The
following table summarizes the restructuring charges which are recorded in “Restructuring Expense” in the Condensed Consolidated
Statement of Comprehensive Loss.
Three
months ended June 30,
Six
months ended June 30,
In
thousands
2026
2025
2026
2025
Consulting
and employee expense
$
45
$
45
$
113
$
93
Severance
142
99
234
790
Facility
and other expenses
—
5
—
104
Total
$
187
$
149
$
347
$
987
The
following table summarizes the changes in liabilities related to restructuring activities, these liabilities are included in the Accrued
expenses line in our Condensed Consolidated Balance Sheet:
Six
months ended June 30, 2026
In
thousands
Consulting
and
Employee
Expense
Severance
Total
Beginning
balance:
$
—
$
328
$
328
Additions
113
234
347
Payments
and adjustment
(113
)
(355
)
(468
)
Ending
balance:
$
—
$
207
$
207
Note
N — Segment Reporting
Harte
Hanks is a leading global customer experience company. Based on the types of products and services we provide, we have organized our
operations into three reportable segments: Revenue Solutions, formerly known as Marketing Services, Customer Care, and Fulfillment and
Logistics.
There
are three principal financial measures reported to our President (the chief operating decision maker) for use in assessing segment performance
and allocating resources. Those measures are revenue, operating income and operating income plus depreciation and amortization (“EBITDA”),
which is a non-GAAP measure. Operating income for segment reporting, disclosed below, is revenues less operating costs and allocated
corporate expenses. Segment operating expenses are generally directly attributed to our segments and include allocations of certain centrally
incurred costs such as employee benefits, occupancy, information systems, accounting services, internal legal staff, and human resources
administration. These costs are allocated based on actual usage or other appropriate methods. Unallocated corporate expenses are corporate
overhead expenses not attributable to the operating groups. Interest income and expenses are not allocated to the segments. The Company
does not allocate assets to our reportable segments for internal reporting purposes, nor does our President evaluate operating segments
using discrete asset information. The accounting policies of the segments are consistent with those described in Note A, Overview and
Significant Accounting Policies.
SEC
Regulation S-K 229.10(e)1(ii)(A) defines EBITDA as earnings before interest, taxes, depreciation and amortization. EBITDA is presented
to provide additional information to investors about the Company’s operations on a basis consistent with the measures that the
Company uses to manage its operations and evaluate its performance. Management also uses this measurement to evaluate working capital
requirements. EBITDA should not be considered in isolation or as a substitute for operating income and net income prepared in accordance
with U.S. GAAP or as a measure of the Company’s profitability.
420
The
following table presents financial information by segment for the three months ended June 30, 2026:
In
thousands
Revenue
Solutions
Customer
Care
Fulfillment
&
Logistics
Services
Restructuring
Expense
Unallocated
Corporate
Total
Revenue
$
7,521
$
12,853
$
17,610
$
—
$
—
$
37,984
Segment
labor expense
4,127
9,321
3,965
—
2,485
19,898
Other
segment operating expense
1,723
1,966
11,934
—
5,644
21,267
Restructuring
expense
—
—
—
187
—
187
Contribution
margin (loss)
$
1,671
$
1,566
$
1,711
$
(187
)
$
(8,129
)
$
(3,368
)
Overhead
allocation
672
741
741
—
(2,154
)
—
EBITDA
$
999
$
825
$
970
$
(187
)
$
(5,975
)
$
(3,368
)
Depreciation
and amortization
144
186
520
—
272
1,122
Operating
income (loss)
$
855
$
639
$
450
$
(187
)
$
(6,247
)
$
(4,490
)
The
following table presents financial information by segment for the three months ended June 30, 2025:
In
thousands
Revenue
Solutions
Customer
Care
Fulfillment
&
Logistics
Services
Restructuring
Expense
Unallocated
Corporate
Total
Revenue
$
8,662
$
11,845
$
18,124
$
—
$
—
$
38,631
Segment
labor expense
4,459
7,511
4,732
—
2,743
19,445
Other
segment operating expense
2,189
1,992
11,224
—
2,533
17,938
Restructuring
expense
—
—
—
149
—
149
Contribution
margin (loss)
$
2,014
$
2,342
$
2,168
$
(149
)
$
(5,276
)
$
1,099
Overhead
allocation
652
737
739
—
(2,128
)
—
EBITDA
$
1,362
$
1,605
$
1,429
$
(149
)
$
(3,148
)
$
1,099
Depreciation
and amortization
218
50
519
—
278
1,065
Operating
income (loss)
$
1,144
$
1,555
$
910
$
(149
)
$
(3,426
)
$
34
The
following table presents financial information by segment for the six months ended June 30, 2026:
In
thousands
Revenue
Solutions
Customer
Care
Fulfillment
&
Logistics
Services
Restructuring
Expense
Unallocated
Corporate
Total
Revenue
$
15,437
$
25,710
$
34,101
$
—
$
—
$
75,248
Segment
labor expense
8,581
18,332
7,931
—
4,864
39,708
Other
segment operating expense
3,531
4,152
22,458
—
8,106
38,247
Restructuring
expense
—
—
—
347
—
347
Contribution
margin (loss)
$
3,325
$
3,226
$
3,712
$
(347
)
$
(12,970
)
$
(3,054
)
Overhead
allocation
1,347
1,512
1,541
—
(4,400
)
—
EBITDA
$
1,978
$
1,714
$
2,171
$
(347
)
$
(8,570
)
$
(3,054
)
Depreciation
and amortization
304
318
1,036
—
546
2,204
Operating
income (loss)
$
1,674
$
1,396
$
1,135
$
(347
)
$
(9,116
)
$
(5,258
)
421
The
following table presents financial information by segment for the six months ended June 30, 2025:
In
thousands
Revenue
Solutions
Customer
Care
Fulfillment
&
Logistics
Services
Restructuring
Expense
Unallocated
Corporate
Total
Revenue
$
17,443
$
24,847
$
37,902
$
—
$
—
$
80,192
Segment
labor expense
8,946
15,527
9,294
—
5,477
39,244
Other
segment operating expense
4,700
4,092
23,868
—
5,179
37,839
Restructuring
expense
—
—
—
987
—
987
Contribution
margin (loss)
$
3,797
$
5,228
$
4,740
$
(987
)
$
(10,656
)
$
2,122
Overhead
allocation
1,363
1,563
1,621
—
(4,547
)
—
EBITDA
$
2,434
$
3,665
$
3,119
$
(987
)
$
(6,109
)
$
2,122
Depreciation
and amortization
435
101
1,020
—
572
2,128
Operating
income (loss)
$
1,999
$
3,564
$
2,099
$
(987
)
$
(6,681
)
$
(6
)
Note
O - Subsequent Event
On
August 14th, 2026, the company entered into a merger agreement with Star Equity under which, subject to the conditions set forth in the
merger agreement, Star Equity Holdings, Inc. (Nasdaq: STRR, STRRP) agreed to purchase all of the outstanding shares of Harte Hanks in
a stock and cash transaction. Under the terms of the merger agreement, at the effective time of the acquisition, each share of Harte
Hanks common stock will be converted into the right to receive either (i) cash in an amount equal to $5.00 per share or (ii) the equivalent
shares of preferred stock of Star Equity. Stockholders of Harte Hanks will have the right to elect whether to receive cash or preferred
stock in the transaction, subject to a cap of 50% on the aggregate cash consideration.
The
parties estimated the total consideration expected to be issued and paid to Harte Hanks stockholders in the acquisition to consist of
approximately 1.92 million shares of Star Equity preferred stock and approximately $19.2 million to be paid in cash. Star Equity intends
to finance the acquisition through a combination of cash on hand, issuance of preferred stock and debt financing. Star Equity intends
to finance the cash component of the acquisition partly by drawing up to $15 million on the company’s existing revolving credit
facility, with the balance of the cash consideration being funded from Star Equity’s cash on hand.
The
merger agreement has been approved by both companies’ Board of Directors. The closing of the transaction is subject to adoption
of the merger agreement by our stockholders and certain other conditions specified in the merger agreement. The closing of the transaction
is expected to occur in the fourth quarter of 2026.
422
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
20.
Indemnification of Directors and Officers
Subsection
(a) of Section 145 of the General Corporation Law of the State of Delaware (referred to as the “
DGCL
”) empowers a
corporation to indemnify any person who was or is a party or who is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.
Subsection
(b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that
the person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section
145 further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred
by such person in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; and the indemnification provided for by Section 145 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person’s heirs, executors and administrators. Section 145 also empowers the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify such person against such liabilities under Section 145.
Section
102(b)(7) of the DGCL provides that a corporation’s certificate of incorporation may contain a provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit.
Our
amended and restated certificate of incorporation provides that we shall indemnify our directors and officers, and may indemnify our
employees and other agents, to the maximum extent permitted by the DGCL.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to the court of
appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
II-
1
Item
21.
Exhibits and Financial Statement Schedules
(a)
The following exhibits are filed herewith or incorporated herein by reference:
Exhibit
No.
Description
2.1
Agreement and Plan of Merger by and among Star Equity Holdings, Inc., Merger Sub - R, Inc. and Harte Hanks, Inc., dated as of August 14, 2026 (Attached as Annex A to the proxy statement/prospectus forming a part of this Registration Statement).
3.1
Amended and Restated Certificate of Incorporation of Star Equity Holdings, Inc. (formerly Hudson Global, Inc.) (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated June 15, 2015 (File No. 0-50129)).
3.2
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Star Equity Holdings, Inc. (formerly Hudson Global, Inc.) (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-38704)).
3.3
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Star Equity Holdings, Inc. (formerly Hudson Global, Inc.) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 10, 2019 (File No. 001-38704)).
3.4
Certificate of Amendment to the Amended and Restated Certificate of Incorporation, as Amended, of Star Equity Holdings, Inc. (formerly Hudson Global, Inc.) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 4, 2025 (File No. 001-38704)).
3.5
Certificate of Designations of the Board of Directors Establishing the Series and Fixing the Relative Rights and Preferences of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated February 2, 2005 (File No. 0-50129)).
3.6
Certificate of Designation of Series B Junior Participating Preferred Stock of Star Equity Holdings, Inc. (formerly Hudson Global, Inc.) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated October 15, 2018 (File No. 0-50129)).
3.7
Certificate of Designations, Rights, and Preferences of 10% Series A Cumulative Perpetual Preferred Stock of Star Equity Holdings, Inc. (formerly Hudson Global, Inc.) (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 dated July 3, 2025 (File No. 333-288531)).
3.8
Amended and Restated By-laws of Star Equity Holdings, Inc. (formerly Hudson Global, Inc.) (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K dated June 15, 2015 (File No. 0-50129)).
3.9
Amendment to the Amended and Restated Bylaws of Star Equity Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 11, 2025).
4.1
Description of Star Equity Holdings, Inc. Registered Securities (incorporated by reference to Exhibit 4.1 to the Star Equity Holdings, Inc. Annual Report on Form 10-K filed on March 20, 2026).
5.1
Opinion of Baker & Hostetler LLP regarding the legality of the securities being issued.
10.1
Employment Letter by and between David A. Garrison and Harte Hanks, Inc., dated August 14, 2026, incorporated herein by reference from Exhibit 10.4 of Harte Hank, Inc.’s Quarterly Report on Form 10-Q filed on August 14, 2026.
10.2
Employment Letter by and between David Fisher and Harte Hanks, Inc., dated August 14, 2026, incorporated herein by reference from Exhibit 10.3 of Harte Hank, Inc.’s Quarterly Report on Form 10-Q filed on August 14, 2026.
21.1
Subsidiaries of Star Equity Holdings, Inc. (incorporated by reference to Exhibit 21.1 to the Star Equity Holdings, Inc. Annual Report on Form 10-K filed on March 20, 2026).
23.1
Consent of Baker & Hostetler LLP (included as part of its opinion filed as Exhibit 5.1).
23.2
Consent of Wolf & Company, P.C., relating to Star Equity Holdings, Inc.’s financial statements.
23.3
Consent of Wolf & Company, P.C., relating to Harte Hanks, Inc.’s financial statements.
24.1
Power of Attorney (included on the signature page to Form S-4).
99.1
Form of Proxy Card for Special Meeting of Harte Hanks, Inc.
99.2
Opinion of Citizens JMP Securities, LLC (included as Annex B to this proxy statement/prospectus).
99.3
Consent of Citizens JMP Securities, LLC.
99.4
Form
of Voting and Support Agreement, dated as of August 14, 2026, by and among Star Equity Holdings, Inc. and directors and executive
officers of Harte Hanks, Inc., incorporated herein by reference from Exhibit 10.1 of Harte Hanks, Inc.’s Current
Report on Form 8-K filed on August 19, 2026.
99.5
Form
of Indemnification Agreement for Directors and Officers, by and among Harte Hanks, Inc. and directors and certain officers of Harte
Hanks, Inc., incorporated herein by reference from Exhibit 10.1 of Harte Hanks, Inc.’s Quarterly Report on Form
10-Q filed on August 14, 2026.
99.6
Form of Election.
107
Filing Fee Table.
II-
2
Item
22.
Undertakings
The
undersigned registrant hereby undertakes:
(1)
To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
to
include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “
Securities Act
”);
(ii)
to
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission
(the “
SEC
”) pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table, in the
effective registration statement;
(iii)
to
respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration
statement through the date of responding to the request;
(iv)
to
supply all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective; and
(iii)
to
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided,
however
, that: paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”), that are incorporated by reference
in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration
statement.
(2)
That,
for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3)
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-
3
(4)
That,
for the purpose of determining liability under the Securities Act to any purchaser:
(i)
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in the registration statement; and
(ii)
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule
430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required
by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier
of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in
the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at
that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities
in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed
to be the initial
bona fide
offering thereof.
Provided, however,
that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract
of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document immediately prior to such effective date.
(5)
That,
for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution
of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant
to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)
Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule
424;
(ii)
Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by
the undersigned registrant;
(iii)
The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6)
That,
for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(7)
To
file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the
Trust Indenture Act in accordance with the rules and regulations prescribed by the SEC under Section 305(b)(2) of the Trust Indenture
Act.
(8)
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-
4
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Old Greenwich, State of Connecticut, on October 19, 2026.
STAR
EQUITY HOLDINGS, INC.
By:
/s/
Jeffrey E. Eberwein
Name:
Jeffrey
E. Eberwein
Title:
Chief
Executive Officer
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Jeffrey E. Eberwein and
Matthew K. Diamond, and each of them, as the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution,
for the undersigned in any and all capacities, to sign any or all amendments to this Registration Statement on Form S-4 (including all
post-effective amendments), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as the undersigned might
or could do in person, hereby and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agent, proxy
and agent, or their substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, as amended, the following persons in the capacities and on the dates indicated have
signed this Registration Statement below.
Signature
Title
Date
/s/
Jeffrey E. Eberwein
Chief
Executive Officer and Director (Principal Executive Officer)
October
19, 2026
Jeffrey
E. Eberwein
/s/
Matthew K. Diamond
Chief
Accounting Officer (Principal Financial Officer and Principal Accounting Officer)
October
19, 2026
Matthew
K. Diamond
/s/
Mimi K. Drake
Chairman
of the Board of Directors
October
19, 2026
Mimi
K. Drake
/s/
Todd Michael Fruhbeis
Director
October
19, 2026
Todd
Michael Fruhbeis
/s/
Connia M. Nelson
Director
October
19, 2026
Connia
M. Nelson
/s/
Jennifer Palmer
Director
October
19, 2026
Jennifer
Palmer
/s/
Louis A. Parks
Director
October
19, 2026
Louis
A. Parks
/s/
Robert G. Pearse
Director
October
19, 2026
Robert
G. Pearse
II-
5

----- ex107.htm -----
Calculation of Filing Fee Tables
S-4
Star Equity Holdings, Inc.
Table 1: Newly Registered and Carry Forward Securities
☐Not Applicable
Security Type
Security Class Title
Fee Calculation or Carry Forward Rule
Amount Registered
Proposed Maximum Offering Price Per Unit
Maximum Aggregate Offering Price
Fee Rate
Amount of Registration Fee
Carry Forward Form Type
Carry Forward File Number
Carry Forward Initial Effective Date
Filing Fee Previously Paid in Connection with Unsold Securities to be Carried Forward
Newly Registered Securities
Fees to be Paid
1
Equity
10% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share
Other
3,836,801
$
33,765,598.40
0.000087
$
2,937.61
Fees Previously Paid
Carry Forward Securities
Carry Forward Securities
Total Offering Amounts:
$
33,765,598.40
$
2,937.61
Total Fees Previously Paid:
$
0.00
Total Fee Offsets:
$
0.00
Net Fee Due:
$
2,937.61
Offering Note
1
Represents the estimated maximum number of shares of 10% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share, of Star Equity Holdings, Inc. ("Star") issuable upon completion of the merger of Merger Sub - R, Inc., a wholly owned subsidiary of Star, with and into Harte Hanks, Inc. ("Harte Hanks"), with Harte Hanks surviving as a wholly owned subsidiary of Star (the "Merger"), pursuant to the Agreement and Plan of Merger, dated as of August 14, 2026, by and among Star, Merger Sub - R, Inc. and Harte Hanks, as described in the proxy statement/prospectus included in this Registration Statement. The amount registered is based on (i) 7,454,240 outstanding shares of Harte Hanks common stock and 216,446 shares underlying eligible restricted stock units, multiplied by the exchange ratio of 0.50, and (ii) 1,458 additional shares issuable in settlement of an eligible option to purchase 32,400 shares of Harte Hanks common stock at an exercise price of $4.55 per share. The option's preferred stock exchange ratio is calculated by multiplying 32,400 by the excess of $5.00 over $4.55 and dividing the resulting $14,580 net consideration by $10.00. The combined amount assumes that all eligible holders elect to receive preferred stock consideration. Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Rules 457(c) and 457(f) under the Securities Act.
The proposed maximum aggregate offering price of $33,765,598.40 consists of (i) $33,751,018.40, calculated by multiplying 7,670,686 shares of Harte Hanks common stock, including shares underlying eligible restricted stock units, by $4.40, the average of the high and low prices of Harte Hanks common stock as reported on Nasdaq on October 13, 2026, a date within five business days prior to the filing of this Registration Statement, and (ii) $14,580 attributable to the cancellation of the eligible option, representing its net merger consideration after deduction of the applicable exercise price. The calculation assumes that all eligible holders elect to receive preferred stock consideration.
Calculated by multiplying the proposed maximum aggregate offering price of $33,765,598.40 by 0.0000870.
Table 2: Fee Offset Claims and Sources
☑Not Applicable
Registrant or Filer Name
Form or Filing Type
File Number
Initial Filing Date
Filing Date
Fee Offset Claimed
Security Type Associated with Fee Offset Claimed
Security Title Associated with Fee Offset Claimed
Unsold Securities Associated with Fee Offset Claimed
Unsold Aggregate Offering Amount Associated with Fee Offset Claimed
Fee Paid with Fee Offset Source
Rules 457(b) and 0-11(a)(2)
Fee Offset Claims
Fee Offset Sources
Rule 457(p)
Fee Offset Claims
Fee Offset Sources
Table 3: Combined Prospectuses
☑Not Applicable
Security Type
Security Class Title
Amount of Securities Previously Registered
Maximum Aggregate Offering Price of Securities Previously Registered
Form Type
File Number
Initial Effective Date

----- ex23-2.htm -----
EX-23.2
3
ex23-2.htm
EX-23.2
Exhibit
23.2
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the use in this Registration Statement on Form S-4 of Star Equity Holdings, Inc., of our report dated March 20, 2026, relating
to the consolidated financial statements of Star Equity Holdings, Inc., appearing in the Prospectus, which is part of this Registration
Statement.
We
also consent to the reference to our firm under the caption “Experts” in such Registration Statement.
Boston,
Massachusetts
October 19,
2026

----- ex23-3.htm -----
EX-23.3
4
ex23-3.htm
EX-23.3
Exhibit
23.3
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the use in this Registration Statement on Form S-4 of Star Equity Holdings, Inc., of our report dated March 17, 2026, relating
to the consolidated financial statements of Harte Hanks, Inc., appearing in the Prospectus, which is part of this Registration Statement.
We
also consent to the reference to our firm under the caption “Experts” in such Registration Statement.
Boston,
Massachusetts
October 19,
2026

----- ex5-1.htm -----
EX-5.1
2
ex5-1.htm
EX-5.1
Exhibit
5.1
October
19, 2026
Star
Equity Holdings, Inc.
53
Forest Avenue, Suite 101
Old
Greenwich, CT 06870
Ladies
and Gentlemen:
We
have acted as counsel to Star Equity Holdings, Inc., a Delaware corporation (the “
Company
”), in connection with the
filing of the Company’s Registration Statement on Form S-4 (the “
Registration Statement
”) with the Securities
and Exchange Commission (the “
Commission
”) under the Securities Act of 1933, as amended (the “
Securities
Act
”), relating to the registration of up to 3,836,801 shares of the Company’s 10.0% Series A Cumulative Perpetual
Preferred Stock, $0.001 par value per share (the “
Preferred Stock
”). The securities described in the foregoing
clause shall be referred to herein as the “
Registered Securities
”, and are to be issued pursuant to the terms
of the Agreement and Plan of Merger dated as of August 14, 2026 (the “
Merger Agreement
”), by and among the
Company, Merger Sub - R, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“
Merger Sub
”),
and Harte Hanks, Inc., a Delaware corporation (“
Harte Hanks
”), pursuant to which, among other matters, and
subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Harte
Hanks, with Harte Hanks continuing as the surviving corporation of the merger (the “
Merger
”), and a wholly
owned subsidiary of the Company. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in
the Merger Agreement.
The
Registered Securities consist of shares of Preferred Stock to be issued as merger consideration in respect of shares of common stock,
par value $1.00 per share, of Harte Hanks (the “
Harte Hanks Common Stock
”) and certain Harte Hanks equity awards
pursuant to the Merger Agreement. The number of Registered Securities is subject to adjustment in accordance with the Merger Agreement,
and the term “Registered Securities” shall include any additional shares of Preferred Stock registered by the Company pursuant
to Rule 462(b) under the Securities Act in connection with the offering contemplated by the Registration Statement.
The
Merger is subject to satisfaction or waiver of a number of closing conditions, including receipt of the requisite approval of the Harte
Hanks stockholders.
This
opinion letter is being delivered in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
We
have examined the Registration Statement, the Merger Agreement, the Company’s Certificate of Designations, Rights and Preferences
for the Preferred Stock, the Company’s certificate of incorporation and bylaws and the resolutions adopted by the Company’s
board of directors relating to the Registration Statement, the Merger Agreement, and the issuance of the Registered Securities by the
Company, and such other instruments, documents, certificates and records that we have deemed relevant and necessary for the basis of
our opinions hereinafter expressed.
In
such examination, we have assumed: (i) the authenticity of original documents and the genuineness of all signatures; (ii) the conformity
to the originals of all documents submitted to us as copies; (iii) the truth, accuracy and completeness of the information, representations
and warranties contained in the instruments, documents, certificates and records we have reviewed; (iv) that the Registration Statement,
as finally amended, shall have become effective and remain effective under the Securities Act at the time of issuance and sale of the
Registered Securities; (v) that the Registered Securities will be issued and sold in compliance with applicable U.S. federal and state
securities laws and in the manner stated in the Registration Statement; (vi) that the consummation of the Merger shall have been approved
by the stockholders of Harte Hanks; (vii) that the Merger shall have become effective under the General Corporation Law of the State
of Delaware (the “
DGCL
”) and (viii) the legal capacity of all natural persons. As to any facts material to
the opinions expressed herein that were not independently established or verified, we have relied upon oral or written statements and
representations of officers and other representatives of the Company.
Based
on such examination, we are of the opinion that the Registered Securities have been duly authorized and, upon issuance and delivery as
merger consideration in respect of shares of Harte Hanks Common Stock and certain Harte Hanks equity awards in accordance with the terms
of the Merger Agreement, the Registered Securities will be validly issued, fully paid and non-assessable.
Our
opinions are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent transfer and other similar
laws relating to or affecting creditors’ rights generally and to general equitable principles (regardless of whether considered
in a proceeding in equity or at law), including concepts of commercial reasonableness, good faith and fair dealing and the possible unavailability
of specific performance or injunctive relief.
We
express no opinion as to the laws of any other jurisdiction, other than the federal laws of the United States of America and the DGCL.
We do not express any opinion as to the effect on the matters covered by this letter of the laws of any other jurisdiction. The opinion
expressed above is as of the date hereof only, and we express no opinion as to, and assume no responsibility for, the effect of any fact
or circumstance occurring, or of which we learn, subsequent to the date of this opinion letter, including, without limitation, legislative
and other changes in the law or changes in circumstances affecting any party. We assume no responsibility to update this opinion letter
for, or to advise you of, any such facts or circumstances of which we become aware, regardless of whether or not they affect the opinion
expressed in this opinion letter.
We
hereby consent to the filing of this letter as Exhibit 5.1 to the Registration Statement. We further consent to the incorporation by
reference of this letter and consent into any registration statement or post-effective amendment to the Registration Statement filed
pursuant to Rule 462(b) under the Securities Act with respect to the Registered Securities. In giving such consent, we do not hereby
admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations
of the Commission.
Very
truly yours,
BAKER
& HOSTETLER LLP

----- ex99-1.htm -----
EX-99.1
5
ex99-1.htm
EX-99.1
Exhibit 99.1

----- ex99-3.htm -----
EX-99.3
6
ex99-3.htm
EX-99.3
Exhibit
99.3
CONSENT
OF CITIZENS JMP SECURITIES, LLC
We
hereby consent to the use of our opinion letter, dated August 12, 2026, to the Board of Directors of Harte Hanks, Inc., included as Annex
B to the proxy statement/prospectus which forms a part of the Registration Statement on Form S-4 of Star Equity Holdings, Inc., to be
filed on the date hereof, and to the references to such opinion in such proxy statement/prospectus under the captions: “Summary
– Opinion of Harte Hanks’ Financial Advisor,” “Risk Factors – Risks Relating to the Consummation of the
Merger,” “The Merger – Background of the Merger,” “The Merger – Harte Hanks’ Reasons for the
Merger; Recommendation of Board of Directors of Harte Hanks” and “The Merger – Opinion of Harte Hanks’ Financial
Advisor.” In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section
7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder, nor do
we thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term “expert”
as used in the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder.
Additionally, such consent does not cover any amendments to the Registration Statement.
/s/
CITIZENS JMP SECURITIES, LLC
New
York, New York
October
19, 2026

----- ex99-6.htm -----
EX-99.6
7
ex99-6.htm
EX-99.6
EXHIBIT
99.6
FORM
OF ELECTION
Harte
Hanks, Inc.
This
Form of Election is being delivered pursuant to the Agreement and Plan of Merger, dated as of August 14, 2026 (as it may be amended,
supplemented or otherwise modified, the “
Merger Agreement
”), by and among Star Equity Holdings, Inc. (“
Star
”),
Merger Sub - R, Inc. and Harte Hanks, Inc. (“
Harte Hanks
”). Pursuant to the Merger Agreement, Merger Sub - R, Inc.
will merge with and into Harte Hanks, with Harte Hanks surviving as a wholly owned subsidiary of Star (the “
Merger
”).
Capitalized terms used but not defined in this Form of Election have the meanings assigned to them in the Merger Agreement.
BY
MAIL
PAYMENT AGENT
[PAYMENT AGENT NAME / LOGO]
BY
HAND OR OVERNIGHT COURIER
[Payment Agent]
[Address]
Attn: [__________]
To
be effective, this Form of Election and the required accompanying materials must be received no later than 5:00 p.m., New York City
time, on [__________], 2026 (the “Election Date”).
[Payment Agent]
[Address]
Attn: [__________]
DO
NOT DELIVER THIS FORM OF ELECTION TO STAR OR HARTE HANKS.
Questions
may be directed to the Payment Agent at [__________].
Delivery
to an address other than an address shown above will not constitute valid delivery.
1.
ABOUT YOU AND YOUR SHARES
Complete
this section for all shares of Harte Hanks common stock, par value $1.00 per share (“
Harte Hanks Common Stock
”), and
any Award Company Shares covered by this Form of Election. If additional space is needed, attach a schedule containing the same information.
If
this Form of Election covers a Company Option, the number of Award Company Shares and the amount of Merger Consideration payable in respect
of that option will be determined in accordance with Section 2.9(a) of the Merger Agreement, including the applicable exercise price.
Company PSUs and any
company
Options not entitled to consideration under Section 2.9 of the Merger Agreement are not eligible
to make an election.
Name(s)
and Address of Record Holder(s)
Certificate
Number or Book-Entry Account Number
Number
of Shares
Type
(Certificate / Book-Entry / Award)
TOTAL
2.
ELECTION
You
may elect to receive one of the following forms of Merger Consideration for all or a portion of your shares of Harte Hanks Common Stock
or Award Company Shares. All elections are subject to the proration, allocation and adjustment provisions of the Merger Agreement, including
the Maximum Cash Amount described below.
SELECT
ELECTION
NUMBER
OF SHARES
☐
CASH ELECTION
I elect to receive $5.00 in cash, without interest, with respect to the shares or Award Company Shares designated for this election, subject to the applicable option exercise price, if any, and the proration and adjustment provisions of the Merger Agreement.
________________
☐
PREFERRED STOCK ELECTION
I elect to receive 0.50 shares of Star’s 10% Series A Cumulative Perpetual Preferred Stock, par value $0.001 per share (“
Star Preferred Stock
”), with respect to the shares or Award Company Shares designated for this election, subject to the applicable option exercise price, if any, and the proration and adjustment provisions of the Merger Agreement.
________________
☐
MIXED ELECTION
I elect Cash Consideration for the number of shares entered in the Cash Election row above and Preferred Stock Consideration for the number of shares entered in the Preferred Stock Election row above, in each case subject to the applicable option exercise price, if any, and the proration and adjustment provisions of the Merger Agreement.
________________
IMPORTANT:
If you make a Mixed Election, the total number of shares entered in the Cash Election and Preferred Stock Election rows may not exceed
the total number of shares covered by this Form of Election. All elections must be made with respect to whole shares.
If
no election is properly made, an election is revoked, or the Payment Agent determines that an election was not properly completed, signed
or timely received, the affected shares will be treated as Non-Electing Company Shares and will receive Cash Consideration, Preferred
Stock Consideration or a combination of both as provided in the Merger Agreement.
3.
IMPORTANT PRORATION AND FRACTIONAL-SHARE INFORMATION
The
aggregate amount of cash payable in respect of Harte Hanks Common Stock and Award Company Shares, together with cash payable in lieu
of fractional shares of Star Preferred Stock, may not exceed $19,200,000 (the “
Maximum Cash Amount
”). If Cash Elections
are oversubscribed, each Preferred Stock Electing Company Share and each Non-Electing Company Share will receive the Preferred Stock
Consideration. Each Cash Electing Company Share will receive (i) a prorated portion of the Cash Consideration, determined by multiplying
the Cash Consideration by a fraction, the numerator of which is the Maximum Cash Amount and the denominator of which is the aggregate
cash that would have been payable if all Cash Electing Company Shares received the Cash Consideration in full, and (ii) the Preferred
Stock Consideration in respect of the remaining portion of such Cash Electing Company Share. If Cash Elections are undersubscribed, Cash
Electing Company Shares will receive Cash Consideration, Preferred Stock Electing Company Shares will receive Preferred Stock Consideration,
and Star may allocate Cash Consideration, Preferred Stock Consideration or both to Non-Electing Company Shares, subject to the Maximum
Cash Amount.
No
fractional shares of Star Preferred Stock will be issued. Cash, without interest, will be paid in lieu of a fractional share in an amount
equal to the fractional share multiplied by $10.00.
THE
FORM AND AMOUNT OF MERGER CONSIDERATION ACTUALLY RECEIVED MAY DIFFER FROM THE FORM AND AMOUNT ELECTED.
4.
CERTIFICATES, BOOK-ENTRY SHARES AND GUARANTEED DELIVERY
To
make a valid election, this Form of Election must be properly completed, signed and timely received by the Payment Agent and must be
accompanied by the materials required below:
●
Certificates:
Enclose all certificates representing shares covered by this Form of Election, duly endorsed
in blank or otherwise in form acceptable for transfer, or provide an appropriate guarantee
of delivery of such certificates in accordance with the guaranteed-delivery procedures specified
by the Payment Agent.
●
Book-Entry
Shares: Follow the procedures specified by the Payment Agent and provide any agent’s
message, transfer instruction or other evidence requested by the Payment Agent.
●
Award
Company Shares: Provide any additional documents or instructions required by the Payment
Agent. No stock certificate is required for an Award Company Share.
Delivery
will be effected, and risk of loss and title to any certificate will pass, only upon proper delivery of this Form of Election and the
applicable certificate to the Payment Agent.
☐
Certificates are enclosed. ☐ Shares are held in book-entry form. ☐ Election relates to Award Company Shares. ☐ Guaranteed
delivery is being used.
5.
REQUIRED SIGNATURES
By
signing below, the undersigned represents that the undersigned has full power and authority to make the election set forth above and
agrees to the terms, conditions and instructions contained in this Form of Election, the proxy statement/prospectus and the Merger Agreement.
Signature of Holder
Date
Signature of Joint Holder, if any
Date
Printed Name
Capacity,
if applicable
Printed Name
Capacity, if applicable
Address
City / State / ZIP
Daytime Telephone
Email Address
Taxpayer Identification Number: ____________________
If
signing in a fiduciary or representative capacity, attach evidence of authority unless already on file with the Payment Agent.
6.
MEDALLION SIGNATURE GUARANTEE (IF REQUIRED)
A
signature guarantee is required if this Form of Election is signed by a person other than the registered holder, or if any payment or
book-entry position is to be issued in a name other than that of the registered holder, except as otherwise waived by the Payment Agent.
Authorized
Signature of Eligible Institution
Name
of Eligible Institution
___________________________________
___________________________________
Name
and Title
Address
and Telephone
___________________________________
___________________________________
Place Medallion Guarantee Stamp Here
INSTRUCTIONS
FOR COMPLETING THE FORM OF ELECTION
Please
read these instructions, the proxy statement/prospectus and the Merger Agreement carefully before completing this Form of Election.
1.
ELECTIONS.
Complete Sections 1, 2 and 5. You may make a Cash Election, Preferred Stock Election or Mixed Election. For a Mixed Election,
specify the number of whole shares allocated to each election. The total number of shares elected may not exceed the number of shares
covered by this Form of Election. Elections are subject to the proration, allocation and adjustment provisions of the Merger Agreement.
2.
ELECTION DATE.
The Payment Agent must receive this Form of Election, properly completed and signed, together with all required certificates
or other materials, by 5:00 p.m., New York City time, on the Election Date. The Election Date will be the date of the Harte Hanks stockholder
meeting or, if the Closing Date is more than four Business Days after that meeting, the date that is two Business Days before the Closing
Date, unless Star and Harte Hanks mutually agree upon and publicly announce another date. Star and Harte Hanks will publicly announce
the anticipated Election Date at least five Business Days before the anticipated Closing Date. If the Closing Date is delayed, the Election
Date will be similarly delayed, and Star and Harte Hanks will announce the delay and, when determined, the rescheduled Election Date.
3.
DELIVERY OF CERTIFICATES; BOOK-ENTRY SHARES; AWARD COMPANY SHARES.
For certificated shares, deliver the certificates with this Form
of Election, duly endorsed in blank or otherwise in form acceptable for transfer, or use the guaranteed-delivery procedures in Instruction
4. For book-entry shares or Award Company Shares, follow all additional procedures specified by the Payment Agent. Do not send certificates
to Star or Harte Hanks.
4.
GUARANTEED DELIVERY.
If certificates cannot be delivered by the Election Date, an election may be made only if the Payment Agent
receives by the Election Date a properly completed Form of Election and a properly completed notice or other appropriate guarantee of
delivery in the form required by the Payment Agent from an eligible guarantor institution. The related certificates must then be delivered
within the period specified by the Payment Agent.
5.
REVOCATION OR CHANGE OF ELECTION.
An election may be revoked with respect to all or a portion of the shares covered by it by written
notice received by the Payment Agent before 5:00 p.m., New York City time, on the Election Date. An election may be changed before that
deadline by submitting a properly completed and signed revised Form of Election in accordance with the Payment Agent’s procedures.
Any shares subject to a revoked election will become Non-Electing Company Shares unless a new, properly completed and signed Form of
Election is timely received. All elections automatically will be revoked if the Merger Agreement is terminated.
6.
SIGNATURES.
Signatures must correspond exactly with the name shown on the applicable certificate or stock records, without alteration,
enlargement or other change. Joint holders must all sign. A trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity must indicate that capacity and submit satisfactory evidence of authority.
7.
TRANSFER OF OWNERSHIP OR PAYMENT TO ANOTHER NAME.
If ownership has been transferred but the transfer is not registered in Harte Hanks’
records, or if the Merger Consideration is to be issued or paid in a name other than that of the registered holder, the certificate must
be properly endorsed or accompanied by an appropriate stock power or, in the case of book-entry shares, a proper transfer instruction
must be presented, the signature must be guaranteed by an eligible institution and any applicable transfer taxes must be paid or satisfactory
evidence of non-applicability must be provided.
8.
LOST, STOLEN OR DESTROYED CERTIFICATES.
If a certificate has been lost, stolen or destroyed, contact the Payment Agent promptly.
The holder must provide an affidavit of that fact and, if requested by Star or the Payment Agent, post a customary indemnity bond before
receiving Merger Consideration.
9.
NOMINEES AND BENEFICIAL HOLDERS.
Only record holders of Harte Hanks Common Stock and holders of Award Company Shares may submit this
Form of Election directly. A broker, bank, trustee or other nominee may make separate elections on behalf of different beneficial owners,
provided that the nominee follows the Payment Agent’s procedures and supplies any required supporting schedules or instructions.
Beneficial owners should provide election instructions to their broker, bank or other nominee.
10.
TAX FORMS; WITHHOLDING.
The holder should provide a properly completed IRS Form W-9 or applicable IRS Form W-8, as requested by the
Payment Agent. The Payment Agent, Star, Merger Sub, Harte Hanks and the surviving corporation may deduct and withhold amounts required
by applicable tax law. Withholding with respect to Preferred Stock Consideration may be satisfied from cash otherwise payable or by withholding
a portion of the Star Preferred Stock otherwise deliverable.
11.
DETERMINATIONS; DEFECTS.
The Payment Agent will determine whether an election has been properly made, revoked or lost and will perform
the proration computations. Absent manifest error, those determinations and computations will be conclusive and binding.
12.
NO VOTE.
Completing and returning this Form of Election does not constitute a vote on the proposal to adopt the Merger Agreement.
Voting instructions are contained in the proxy statement/prospectus.
13.
NO INTEREST; FRACTIONAL SHARES.
No interest will be paid on Cash Consideration or cash paid in lieu of fractional shares. No fractional
shares of Star Preferred Stock will be issued; cash will be paid in lieu of a fractional share as described in Section 3 of this Form
of Election.
14.
ADDITIONAL COPIES AND QUESTIONS.
Additional copies of this Form of Election may be obtained from the Payment Agent. Questions concerning
completion or delivery should be directed to the Payment Agent at the contact information on the first page.
THE
MERGER AGREEMENT AND PROXY STATEMENT/PROSPECTUS GOVERN. If this Form of Election conflicts with the Merger Agreement or the proxy statement/prospectus,
the Merger Agreement and proxy statement/prospectus, as applicable, will control.
NOTICE
OF GUARANTEED DELIVERY (IF APPLICABLE)
This
section is to be completed only by an eligible guarantor institution if certificates cannot be delivered to the Payment Agent by the
Election Date.
Name(s)
of Record Holder(s)
Certificate
Number(s)
Number
of Shares
Name
of Eligible Guarantor Institution
Authorized
Signature / Name / Title
Address
/ Telephone / Date