SKUL Skullcandy, Inc. (MM)

On August 23, 2016, Skullcandy, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MRSK Hold Co., a Delaware corporation (“Parent”), and MRSL Merger Co., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, and on the terms and subject to the conditions thereof, among other things, Merger Sub will commence a tender offer (the “Offer”) to acquire all of the outstanding shares (the “Company Shares”) of common stock of the Company, at a purchase price of $6.35 per Company Share, net to the holder thereof in cash, subject to reduction for any applicable withholding taxes, without interest (the “Offer Price”). The Offer is not subject to any financing condition.

The execution by the Company of the Merger Agreement followed a determination by the Company’s Board of Directors (the “Company Board”) that the proposal from Parent reflected in the Merger Agreement constituted a Superior Proposal, as defined in the previously announced Agreement and Plan of Merger dated as of June 23, 2016 (as amended, the “Incipio Merger Agreement”) with Incipio, LLC, a Delaware limited liability company (“Incipio”), and Powder Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of Incipio (“Incipio Merger Sub”), and the termination by the Company, on August 23, 2016, of the Incipio Merger Agreement in accordance with its terms.

Merger Sub’s obligation to purchase the Company Shares validly tendered pursuant to the Offer is subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, including (i) that the number of Company Shares validly tendered and not withdrawn in accordance with the terms of the Offer, together with the Company Shares then owned by Parent, Merger Sub and their respective Affiliates, represents at least a majority of all then outstanding Company Shares (not including Company Shares tendered pursuant to guaranteed delivery procedures unless and until such Company Shares are actually “received” in accordance with the terms of the Offer), (ii) the expiration or termination of any waiting period (and extensions thereof) applicable to the transactions contemplated by the Merger Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the absence of any law or order by any governmental authority that would make illegal or otherwise restrict or prohibit the Offer, the acquisition of Company Shares by Parent or Merger Sub or the Merger (as defined below), (iv) the accuracy of the representations and warranties of the Company contained in the Merger Agreement, subject to customary exceptions, (v) the Company’s material compliance with its covenants contained in the Merger Agreement, (vi) there not having been a material adverse effect on the Company following the execution of the Merger Agreement that is continuing and (vii) other customary conditions.

The Merger Agreement contains certain customary termination rights in favor of each of the Company and Parent, including, under certain circumstances, the requirement for the Company to pay to Parent a termination fee of approximately $6.9 million, or 3.5% of the aggregate equity value of the transaction. Until the Acceptance Time (as defined in the Merger Agreement), the Company has agreed, in each case subject to the fulfillment of certain fiduciary obligations of the Company Board, (i) to cease any existing, and not to solicit or initiate any additional, discussions with third parties regarding other proposals to acquire the Company, (ii) not to recommend any other acquisition proposal, furnish non-public information to, participate or engage in negotiations or take any action to make any takeover statute inapplicable to the transaction with any third parties in connection with other proposals to acquire the Company and (iii) to certain other restrictions on its ability to respond to such proposals. However, subject to the satisfaction of certain conditions, the Company and the Company Board, as applicable, are permitted to take certain actions which may, as more fully described in the Merger Agreement, include changing the recommendation of the Company Board following receipt of a superior proposal if the Company Board has concluded in good faith after consultation with its outside counsel that the failure to effect a change of recommendation would be inconsistent with the fiduciary duties owed by the Company Board to the stockholders of the Company under applicable law.

Following the completion of the Offer and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent, pursuant to the procedure provided for under Section 251(h) of the General Corporation Law of the State of Delaware without the vote of the stockholders (the “Merger”). At the effective time of the Merger (the “Effective Time”), by virtue of the Merger and without any action on the part of the holders of any Company Shares, each outstanding Company Share, excluding any shares owned by Parent, Merger Sub, or the

1

Company or any of their respective wholly owned subsidiaries, or any stockholders who are entitled to and who properly exercise appraisal rights under Delaware law, will be canceled and converted into the right to receive an amount in cash equal to the Offer Price, subject to reduction for any applicable withholding taxes, without interest.

At the Effective Time, each outstanding Company stock option will be cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the excess, if any, of (1) the Offer Price minus (2) the per share exercise price per share of such option, and (B) the number of Company Shares underlying such option. To the extent any stock option is unvested immediately prior to the Effective Time, the vesting of such stock option will be accelerated in full.

At the Effective Time, each outstanding Company restricted stock unit award will be cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of the Offer Price and the number of Company Shares underlying such Company restricted stock unit award. To the extent any Company restricted stock unit award is unvested immediately prior to the Effective Time, the vesting of such restricted stock unit award will be accelerated in full (which, if such restricted stock unit award vests in whole or in part on the basis of achievement of performance goals, will be determined as if performance were 100% of targeted performance).

The Merger Agreement contains customary representations, warranties and covenants, including covenants obligating the Company to continue to conduct its business in the ordinary course and to cooperate in seeking regulatory approvals.

The Company Board has (i) determined that it is in the best interests of the Company and its stockholders to enter into, and approved and declared advisable, the Merger Agreement, (ii) approved the execution and delivery by the Company of the Merger Agreement, the performance by the Company of its covenants and agreements contained in the Merger Agreement and the consummation of the Offer and the Merger upon the terms and subject to the conditions contained in the Merger Agreement and (iii) resolved, subject to the terms and conditions set forth in the Merger Agreement, to recommend that the holders of Company Shares accept the Offer and tender their Company Shares to Merger Sub pursuant to the Offer. The board of directors of Parent has also approved the Merger Agreement and the transactions contemplated thereby.

The foregoing description of the Merger Agreement is not complete and is qualified in its entirety by the text of the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference. The Merger Agreement and the foregoing description of the Merger Agreement have been included to provide investors and stockholders with information regarding the terms of the Merger Agreement. They are not intended to provide any other factual information about the Company. The representations, warranties and covenants contained in the Merger Agreement were made only as of specified dates for the purposes of such agreement, were solely for the benefit of the parties to such agreement and may be subject to qualifications and limitations agreed upon by such parties. In particular, in reviewing the representations, warranties and covenants contained in the Merger Agreement and discussed in the foregoing description, it is important to bear in mind that such representations, warranties and covenants were negotiated with the principal purpose of allocating risk between the parties, rather than establishing matters as facts. Such representations, warranties and covenants may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the U.S. Securities and Exchange Commission (the “SEC”), and are also qualified in important part by a confidential disclosure letter delivered by the Company to Parent in connection with the Merger Agreement. Investors and stockholders should not rely on such representations, warranties and covenants as characterizations of the actual state of facts or circumstances described therein. Information concerning the subject matter of such representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the parties’ public disclosures.