HASTINGS ENTERTAINMENT INC, DEF 14A, 1999-06-01

HASTINGS ENTERTAINMENT INC
DEF 14A, 1999-06-01
MISCELLANEOUS SHOPPING GOODS STORES

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(C) or 240.14a-12

HASTINGS ENTERTAINMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

(1) Title of each class of securities to which transaction applies:

-----------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

-----------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

-----------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

-----------------------------------------------------------------------

(5) Total fee paid:

-----------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

2
<PAGE> 2

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------
(3) Filing Party:

------------------------------------------------------------------------
(4) Date Filed:

------------------------------------------------------------------------

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<PAGE> 3

HASTINGS ENTERTAINMENT, INC.
3601 PLAINS BOULEVARD
AMARILLO, TEXAS 79102

---------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 16, 1999

---------------

To the Stockholders of
HASTINGS ENTERTAINMENT, INC.

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Hastings Entertainment, Inc., a Texas corporation (the "Company"), will be held
at the corporate offices of the Company, 3601 Plains Boulevard, Amarillo, Texas,
79102, on Friday, July 16, 1999, at 10:00 a.m., Amarillo, Texas time, for the
following purposes:

1. To elect three Class II directors to hold office for a term of
three years or until their respective successors are elected and
qualified;

2. To transact such other business as properly may come before the
meeting or any adjournment thereof.

The close of business on May 27, 1999 has been fixed by the Board of
Directors as the record date for the Annual Meeting. Only stockholders of record
on that date will be entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof, notwithstanding transfer of any stock on the books of
the Company after such record date. The stock transfer books will not be closed.

A Proxy Statement, form of Proxy and copy of the Annual Report on the
Company's operations during the fiscal year ended January 31, 1999 accompany
this notice.

It is important that your shares be represented at the Annual Meeting.
If you do not expect to attend in person, please sign and date the form of Proxy
and return it in the enclosed envelope. The form of Proxy is enclosed in the
mailing envelope in which this Proxy Statement is contained. Stockholders who
attend the Annual Meeting may revoke their proxies and vote in person if they
desire.

By Order of the Board of Directors

Dennis McGill, Secretary

May 28, 1999

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<PAGE> 4

HASTINGS ENTERTAINMENT, INC.
3601 PLAINS BOULEVARD
AMARILLO, TEXAS 79102

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 16, 1999

SOLICITATION OF PROXIES

This Proxy Statement is furnished to stockholders of Hastings
Entertainment, Inc., a Texas corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors to be voted at the Annual
Meeting of Stockholders of the Company to be held at the corporate offices of
the Company, 3601 Plains Boulevard, Amarillo, Texas, on Friday, July 16, 1999,
at 10:00 a.m., Amarillo, Texas time, or at any adjournment thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
References herein to the "Company" include Hastings Entertainment, Inc. and its
predecessors and consolidated subsidiaries, unless the context otherwise
requires.

This Proxy Statement and form of Proxy are being mailed to stockholders
on or about June 14, 1999. If the enclosed form of Proxy is executed and
returned, it may nevertheless be revoked by the stockholder at any time by
filing with the Secretary of the Company a written revocation or a duly executed
Proxy bearing a later date. A stockholder who attends the meeting in person may
revoke his or her Proxy at that time and vote in person if so desired. All
proxies duly signed, dated and returned will be voted as specified therein, but
unless otherwise specified, will be deemed to grant authority to vote:

1) FOR the election of the three nominees listed under
"Election of Directors" as nominees of the Company for
election as directors;

2) at the discretion of the persons named in the enclosed form
of Proxy, on any other matter that may properly come before
the meeting or any adjournment thereof.

The enclosed Proxy is solicited by and on behalf of the Board of
Directors of the Company. The Company is unaware of any additional matters not
set forth in the Notice of Annual Meeting of Stockholders that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the Annual Meeting and presented for a vote of the stockholders,
the persons named in the Proxy will vote in accordance with their best judgment
upon such matters, unless otherwise restricted by law.

The cost of solicitation of proxies will be borne by the Company. The
Company has engaged ChaseMellon Shareholder Services, Inc. ("ChaseMellon") to
solicit proxies from beneficial owners of shares standing in the name of brokers
and other nominees. The Company has agreed to pay ChaseMellon approximately
$3,750 as ChaseMellon's fee, plus the amount of ChaseMellon's expenses for such
service. In addition to the use of the mails, proxies may also be solicited by
personal interview, facsimile transmission and telephone by directors, officers,
employees and agents of the Company. The Company will also supply brokers,
nominees or other custodians with the numbers of Proxy forms, Proxy Statements,
and Annual Reports they may require for forwarding to beneficial owners, and the
Company will reimburse such persons for their expense in so doing.

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<PAGE> 5

OUTSTANDING CAPITAL STOCK AND STOCK OWNERSHIP OF
DIRECTORS, CERTAIN EXECUTIVE OFFICERS
AND PRINCIPAL STOCKHOLDERS

The record date for the determination of the stockholders entitled to
notice of and to vote at the Annual Meeting has been established by the Board of
Directors as the close of business on May 27, 1999. As of the record date, the
Company had issued and outstanding and entitled to vote at the Annual Meeting
11,623,921 shares of common stock.

The following table sets forth information as of May 21, 1999,
regarding the beneficial ownership of the Company's common stock (i) by each
person or group known by management of the Company to own more than five percent
of the outstanding shares of common stock of the Company, (ii) by each of the
Company's executive officers named in the Summary Compensation Table under
"Executive Compensation and Other Matters," (iii) by each of the Company's
directors and nominees, and (iv) by all of its directors and executive officers
as a group.

<TABLE>
<CAPTION>
SHARES OWNED
----------------------------
NAME AND ADDRESS(1) NUMBER PERCENT (2)
-------------------------- ------------ -------------
<S> <C> <C>
John H. Marmaduke(3)(4) 3,858,946(4) 32.9%
Estate of Sam Marmaduke(4) 1,074,403 9.2%
P.O. Box 33251
Amarillo, Texas 79120
Stephen S. Marmaduke(5) 1,449,372 12.3%
Phillip Hill (6) 94,172 *
Dennis McGill (7) 31,356 *
Robert A. Berman (8) 31,729 *
Mike Woods (9) 28,701 *
Leonard L. Berry (10) 16,473 *
Peter A. Dallas (11) 21,319 *
Gaines L. Godfrey (12) 25,748 *
Craig R. Lentzsch(13) 20,909 *
Jeffrey G. Shrader(14) 30,612 *
Ron G. Stegall(15) 10,473 *
All directors and executive officers as
a group (12 persons) (2) 5,619,810 47.9%
</TABLE>

- ----------------------------
* Less than 1%.

(1) Unless otherwise indicated, the address for each of the beneficial
owners identified is c/o the Company, 3601 Plains Boulevard, Amarillo,
Texas 79102.

(2) Based on 11,736,922 shares of Common Stock outstanding and for purposes
of calculating the beneficial ownership of all directors and executive
officers as a group includes 748,281 shares subject to options
exercisable within sixty (60) days.

(3) Includes 1,074,403 shares held by the Estate of Sam Marmaduke, of which
John H. Marmaduke is the Independent Executor, and 2,255,525 shares held
by the John H. Marmaduke Family Limited Partnership, the managing
general partner of which is John H. Marmaduke Management, Inc., of which
John H. Marmaduke is president, 47,128 shares held by Martha A.
Marmaduke, Mr. John H. Marmaduke's wife, 3,051 shares held by Margaret
Hart Marmaduke, John H. Marmaduke's daughter, 10,118 shares held by Owen
M. Marmaduke, Mr. Marmaduke's son, and 535,376 shares subject to stock
options exercisable within 60 days, and excludes shares held in trusts
for John H. Marmaduke's children of which Bank of America is trustee.

6
<PAGE> 6

(4) John H. Marmaduke is the executor of the Estate of Sam Marmaduke and a
son of the late Sam Marmaduke. John H. Marmaduke and Stephen S.
Marmaduke are brothers.

(5) Includes 1,381,785 shares held by the Stephen S. Marmaduke Family
Limited Partnership, the managing general partner of which is Stephen S.
Marmaduke Management, Inc., of which Stephen S. Marmaduke is president,
60,840 shares held by Shelley R. Marmaduke, Stephen S. Marmaduke's wife,
and 6,587 shares subject to options exercisable within 60 days. Excludes
shares held directly by Stephen S. Marmaduke's adult children and shares
held in trusts for Stephen S. Marmaduke's children, of which Bank of
America is trustee. Excludes any interest attributable to Stephen S.
Marmaduke in the Estate of Sam Marmaduke, of which Stephen S. Marmaduke
is a beneficiary. Stephen S. Marmaduke is the brother of John H.
Marmaduke and a son of the late Sam Marmaduke.

(6) Includes 91,465 shares subject to options exercisable within 60 days.

(7) Includes 23,435 shares subject to options exercisable within 60 days.

(8) Includes 28,223 shares subject to options exercisable within 60 days.

(9) Includes 27,278 shares subject to options exercisable within 60 days.

(10) Includes 6,578 shares subject to options exercisable within 60 days.

(11) Includes 6,578 shares subject to options exercisable within 60 days.

(12) Includes 6,578 shares subject to options exercisable within 60 days.

(13) Includes 3,541 shares held by the Lentzsch Special Trust 1, of which
Craig R. Lentzsch is a co-trustee and 6,578 shares subject to options
exercisable within 60 days.

(14) Includes 19,857 shares held in an individual retirement account for the
benefit of Mr. Shrader and 3,086 shares held in a defined benefit plan
for the account of Mr. Shrader and 6,578 shares subject exercisable with
60 days.

(15) Includes 7,083 shares held by the Stegall Family Limited Partnership and
3,036 shares subject to options exercisable within 60 days.

QUORUM AND VOTING

The presence, in person or by proxy, of the holders of a majority of the
shares of outstanding common stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting. The affirmative vote of a plurality of the shares
of common stock represented at the meeting and entitled to vote is required for
the election of directors. A holder of shares of common stock will be entitled
to one vote per share of common stock as to each matter properly brought before
the meeting. Cumulative voting is not permitted in the election of directors.
Abstentions and broker non-votes are each included in the determination of the
number of shares present at the meeting for purposes of determining a quorum.
Abstentions and broker non-votes have no effect on determinations of plurality,
except to the extent that they affect the total votes received by any particular
candidate. For any matters requiring approval of a specified percentage of the
outstanding shares represented at the Annual Meeting and entitled to vote on
such matter, abstentions will have the effect of negative votes, but broker
non-votes will have no effect since they are not treated as shares entitled to
vote on such matter.

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<PAGE> 7

PROPOSAL 1

ELECTION OF DIRECTORS

Three directors will be elected at the Annual Meeting to serve three year
terms until the 2002 Annual Meeting of Stockholders or until a successor is
elected and qualified. Each of the nominees has committed to serve as a director
if elected at the Annual Meeting and, to the best knowledge of the Board of
Directors, is and will be able to serve if so elected. In the event that any of
the nominees listed below should be unavailable to stand for election before the
Annual Meeting and the size of Board is not reduced, the persons named in the
accompanying proxy intend to vote for such other person, if any, as may be
designated by the Board of Directors, in the place of any nominee unable to
serve.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE COMPANY'S
NOMINEES AS DIRECTORS.

The Company's Articles of Incorporation provide that the Board of Directors
is divided into three classes, designated by the Company as Class I, Class II
and Class III. Each class of directors consists of three directors who serve for
a three year period or until their successors are elected and qualified. The
directors serve staggered three-year terms. Accordingly, Phillip G. Hill,
Leonard L. Berry and Stephen S. Marmaduke presently hold office as Class II
Directors until this Annual Meeting; John H. Marmaduke, Gaines L. Godfrey and
Jeffrey G. Shrader presently hold office as Class I Directors until the 2000
annual shareholders meeting; and Peter A. Dallas, Craig R. Lentzsch and Ron G.
Stegall presently hold office as Class III Directors until the 2001 annual
shareholders meeting.

Set forth below is a brief biography of each Class II nominee for election
as a director:

PHILLIP G. HILL has served as Chief Operating Officer of the Company since
May 1996 and as Senior Vice President of the Company since October 1992. Mr.
Hill was elected a director of the Company in December 1996. From January 1990
to October 1992, Mr. Hill served as Vice President of Store Operations of the
Company. From January 1988 to January 1990, Mr. Hill served as Director of
Administration of the Company. From April 1986 to January 1988, Mr. Hill served
as a District Manager of the Company. Prior to joining the Company, Mr. Hill
served as Director of Operations for Gateway Books Inc., a 120-store chain of
bookstores, and Director of Store Operations of Hallmark Card Shops based in
Knoxville, Tennessee.

LEONARD L. BERRY has served as a director of the Company since March 1994.
Dr. Berry has served as a Professor of Marketing and the Director of the Center
for Retailing Studies in the College of Business Administration at Texas A&M
University since January 1982. Dr. Berry holds the J.C. Penney Chair of
Retailing Studies at Texas A&M, a position awarded in January 1991. From July
1986 to July 1987, Dr. Berry served as the National President of the American
Marketing Association. Dr. Berry also serves as a director of CompUSA and of
Lowe's Companies, Inc. and as a public member of the Council of Better Business
Bureaus. He is the author of the 1999 book, "Discovering the Soul of Service,"
and many other business publications.

STEPHEN S. MARMADUKE has served as a director of the Company since October
1991. From 1978 to September 1992, Mr. Marmaduke served as Vice President of
Purchasing for Western Merchandisers, Inc. ("Western"), the Company's former
parent company. Mr. Marmaduke is the brother of the President and Chief
Executive Officer of the Company, John H. Marmaduke, and a son of the late
founder of Western, Sam Marmaduke. Mr. Marmaduke is currently a private
investor.

Set forth below is a brief biography of each director not a nominee for
election:

JOHN H. MARMADUKE has served as President and Chief Executive Officer of
the Company since July 1976 and as Chairman of the Board since October 1993. Mr.
Marmaduke served as President of the Company's former parent company, Western,
from 1982 through June 1994, including the years 1991 through 1994 when Western
was a division of Wal-Mart. Mr. Marmaduke also serves on the board of directors
of the Video Software Dealers Association (VSDA). Mr. Marmaduke has been active
in the entertainment retailing industry with the Company and its predecessor
company for over 29 years.

PETER A. DALLAS has served as a director of the Company since October 1991
and its predecessor

8
<PAGE> 8

since 1970. Mr. Dallas is an officer in the Commercial Banking Group with Bank
of America, N.A. Mr. Dallas has served as an officer of Bank of America, N.A.
and its predecessors, NationsBank, N.A., Boatmen's First National Bank of
Amarillo and The First National Bank of Amarillo, since 1965.

GAINES L. GODFREY has served as a director of the Company since October
1991. Mr. Godfrey has been associated with Godfrey Ventures in the field of
financial consulting, including evaluations, financing, underwriting, purchases
and sales in a wide range of industries, since 1982 . From 1973 to 1982, Mr.
Godfrey was Vice President, Finance for Mesa Petroleum Co.

CRAIG R. LENTZSCH has served as a director of the Company since April 1994.
Mr. Lentzsch is President and Chief Executive Officer of Greyhound Lines, Inc. a
position held since November 1994. On March 16, 1999, Greyhound merged with and
became a wholly owned subsidiary of Laidlaw, Inc. Mr. Lentzsch has served as a
director of Greyhound since August 1994. From November 1994 to April 1995, Mr.
Lentzsch also served as Chief Financial Officer of Greyhound. From August 1992
to November 1994, Mr. Lentzsch was employed by Motor Coach Industries
International, Inc., where he served as Executive Vice President and Chief
Financial Officer. Mr. Lentzsch is a member of the Board of Directors of the
American Bus Association, the Intermodal Transportation Institute, The Great
American Stations Foundation and Enginetech, Inc.

JEFFREY G. SHRADER has served as a director of the Company since October
1992. Mr. Shrader has served as a shareholder in the law firm of Sprouse, Smith
& Rowley, PC in Amarillo, Texas since January 1993.

RON G. STEGALL has served as a director of the Company since May 1996. Mr.
Stegall is the founder and has served as the Chief Executive Officer of
Arlington Equity Partners, Inc. since January 1992. Mr. Stegall is also the
founder of BizMart, Inc. and from October 1987 to December 1991 served as Chief
Executive Officer of BizMart. For more than 16 years prior to 1987, Mr. Stegall
was employed by Tandy Corporation/Radio Shack Division, serving as Senior Vice
President from 1983 to 1987 and Vice President from 1979 to 1983. Mr. Stegall
currently serves as Chairman of the Board of InterTAN, Inc. and as a director of
O'Sullivan Industries, Inc. and Gadzooks, Inc.

BOARD OF DIRECTORS MEETINGS AND COMMITTEES

During the fiscal year ended January 31, 1999, the Board of Directors held
three meetings. The Board of Directors has established standing Audit,
Compensation and Executive Committees.

The Audit Committee and the Compensation Committee consist solely of
independent directors. The Executive Committee has the authority, between
meetings of the Board of Directors, to take all actions with respect to the
management of the Company's business that require action by the Board of
Directors, except with respect to certain specified matters that by law must be
approved by the entire Board of Directors. The Audit Committee is responsible
for (i) reviewing the scope of, and the fees for, the annual audit, (ii)
reviewing with the independent auditors the corporate accounting practices and
policies and recommending to whom reports should be submitted within the
Company, (iii) reviewing with the independent auditors their final report, (iv)
reviewing with internal and independent auditors overall accounting and
financial controls and (v) being available to the independent auditors during
the year for consultation purposes. The Compensation Committee recommends the
compensation of the officers of the Company and performs other similar functions
and recommends grants of options under the Company's stock option plans for
consideration by the Board of Directors. See "Executive Compensation and Other
Matters." Messrs. J. Marmaduke, Godfrey, Shrader and Stegall serve on the
Executive Committee; Messrs. Dallas, Godfrey and Stegall serve on the Audit
Committee; and Messrs. Berry, Lentzsch and Shrader serve on the Compensation
Committee.

Each director attended at least 67% of the Board and Committee meetings
held during the period in which he was a director.

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<PAGE> 9

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------- --- ------------------------------------------
<S> <C> <C>
John H. Marmaduke(1).. 52 Chairman of the Board, President and
Chief Executive Officer
Phillip G. Hill....... 36 Senior Vice President, Chief Operating
Officer and Director
Dennis McGill......... 50 Vice President of Finance, Chief
Financial Officer, Treasurer and Secretary
Robert A. Berman...... 50 Vice President of Store Operations
Michael Woods......... 37 Vice President of Information Systems
</TABLE>

All executive officers are chosen by the Board of Directors and serve at
the Board's discretion. Set forth below is information concerning the business
experience of the executive officers of the Company.

DENNIS MCGILL has served as Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since November 1995. From March
1994 to October 1995 Mr. McGill served as a financial consultant to the toy
manufacturing, bedding and waste management industries. From December 1989 to
February 1994, Mr. McGill served as President and Chief Executive Officer of the
Bed Outlet, an 18-store bedroom furniture retailer in California. From August
1986 to December 1989, Mr. McGill served as the Senior Vice President-Finance
and Chief Financial Officer of San Francisco-based Lewis Galoob Toys, Inc., a
New York Stock Exchange-listed, international toy manufacturing company.

ROBERT A. BERMAN has served the Company as Vice President of Store
Operations since January 1997. From June 1995 to January 1997, Mr. Berman was
self-employed in the financial services industry. From January 1989 to June
1995, Mr. Berman served as Vice President and Senior Vice President of Store
Operations for Builders Square, Inc., a chain of 185 building material
superstores. At Builders Square, Inc., Mr. Berman was responsible for store
operations, store planning and design, purchasing and construction.

MICHAEL WOODS has served as Vice President of Information Systems of the
Company since October 1992. From August 1990 to October 1992, Mr. Woods served
as Director of Microsystems for the Company, focusing on store systems
development. From October 1989 to August 1990, Mr. Woods served as a programming
specialist and analyst for the Company.

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<PAGE> 10

EXECUTIVE COMPENSATION AND OTHER MATTERS

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain
information for fiscal 1998 and 1997 regarding the compensation awarded to,
earned by or paid to the Company's Chief Executive Officer and the four other
most highly compensated executive officers of the Company (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company during fiscal 1998 and 1997.

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
------------------- ------------------ ---------------------
NUMBER OF
NAME AND SECURITIES
PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
- ------------------------------------------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
John H. Marmaduke 1998 $164,060 $240,141 680,022
Chairman of the Board, President and 1997 156,991 239,085 470,487 (2)
Chief Executive Officer

Phillip Hill 1998 106,683 114,647 237,525
Senior Vice President, 1997 97,355 108,727 111,298
Chief Operating Officer and Director

Dennis McGill 1998 96,350 84,633 108,205
Vice President of Finance, Chief Financial 1997 91,748 83,835 50,590
Officer, Treasurer and Secretary

Robert A. Berman 1998 90,000 90,003 68,081
Vice President of Store Operations 1997 86,550 27,752 55,649

Michael Woods 1998 80,095 62,577 79,327
Vice President of Information Systems 1997 74,418 45,333 15,177
</TABLE>

- ----------

(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers that are available generally to all salaried employees
of the Company, and certain perquisites and other personal benefits
received by the Named Executive Officers that do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus disclosed in the
table.

(2) Includes 404,720 shares subject to an option granted in fiscal 1993 with
fixed annual increases in the exercise price, which option was amended in
fiscal 1997 to fix the exercise price at $11.07 for the term of the option.

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<PAGE> 11

OPTION GRANTS, EXERCISES AND HOLDINGS

Fiscal 1998 Option Grants. The following table sets forth certain
information regarding options granted during fiscal 1998 to the Named Executive
Officers.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OPTION TERM (4)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ------------------------
GRANTED(#) FISCAL YEAR(1) SHARE(2) DATE(3) 5% 10%
----------- --------------- ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John H. Marmaduke.... 17,500 2.3% $ 11.875 12/14/08 $ 130,692 $ 331,200
Phillip Hill......... 12,500 1.6% 11.875 12/14/08 93,352 236,571
Dennis McGill........ 9,000 1.2% 11.875 12/14/08 67,213 170,331
10,000 1.3% 11.875 12/14/08 74,681 189,257
Robert A. Berman..... 7,589 1.0% 11.875 12/14/08 56,676 143,627
1,411 0.2% 11.875 12/14/08 10,538 26,704
Michael Woods........ 2,032 0.3% 11.875 12/14/08 15,175 38,457
6,968 0.9% 11.875 12/14/08 52,038 131,874
</TABLE>

- ----------

(1) The Company granted options to other associates to purchase an aggregate of
673,820 shares of Common Stock during fiscal 1998. In addition, Robert A.
Berman, Dennis McGill and Michael Woods purchased Restricted Stock Units
with three-year deferrals in the amounts of 3,432, 3,201 and 923 shares
respectively. Non-employee Directors were issued a total of 17,710
non-qualified options at a price of $13.00 per share and an expiration date
of June 11, 2008.

(2) All options were granted at the fair market value of the Common Stock on
the date of grant and for a term of 10 years, unless otherwise noted. Fair
market value is based upon the closing price on The Nasdaq Stock Market as
of the date of grant.

(3) Options may terminate before their expiration date if the optionee's status
as an employee is terminated or upon the optionee's death.

(4) In accordance with the rules of the Commission, shown are the gains or
"option spreads" that would exist for the respective options granted. These
gains are based on the assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the option was granted over the
full option term. These assumed annual compound rates of stock price
appreciation are mandated by the rules of the Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.

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<PAGE> 12

Fiscal 1998 Option Holdings. The following table sets forth certain
information regarding options held at January 31, 1999. There were no options
exercised during fiscal 1998 by the Named Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS AT FISCAL MONEY OPTIONS AT
YEAR-END FISCAL YEAR-END
------------------------------ --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
John H. Marmaduke.......... 530,317 149,705 $6,993,821 $ 1,974,310
Phillip Hill............... 83,876 153,649 1,106,157 2,026,323
Dennis McGill.............. 18,882 92,524 249,016 1,220,207
Robert A. Berman........... 14,562 56,951 192,044 751,070
Michael Woods.............. 25,507 54,743 336,386 721,951
</TABLE>

STOCK PLANS

1996 Incentive Stock Plan

Scope. The Board of Directors and shareholders of the Company have approved
the Company's Amended 1996 Incentive Stock Plan (the "1996 Plan"). The 1996 Plan
authorizes the granting of stock options to purchase Common Stock, stock
appreciation rights, restricted stock, dividend equivalent rights, stock awards
and other stock-based awards to officers, other associates, directors and
consultants of the Company. The purpose of the 1996 Plan is to attract, retain
and provide incentives to officers, other associates, directors and consultants
of the Company and to thereby increase overall shareholder value.

The 1996 Plan authorizes the award of 632,375 shares of Common Stock,
representing 5.4% of outstanding shares of Common Stock, to be used for stock
options, stock appreciation rights or restricted or unrestricted stock. If an
award made under the 1996 Plan expires, terminates or is forfeited, canceled or
settled in cash without issuance of shares of Common Stock covered by the award,
those shares will be available for future awards under the 1996 Plan. The 1996
Plan will terminate on May 18, 2006. As of January 31, 1999, options for 515,674
shares of Common Stock were outstanding under the 1996 Plan.

Administration. The 1996 Plan is administered by the Board of Directors or,
if directed by the Board of Directors, the Compensation Committee of the Board
of Directors or another committee designated by the Board of Directors (in each
event, the "Compensation Committee"). The Compensation Committee makes
determinations with respect to the participation of employees, officers,
directors and consultants in the 1996 Plan and, except as otherwise required by
law or the 1996 Plan, the grant terms of awards, including vesting schedules,
retirement and termination rights, payment alternatives such as cash, stock,
contingent award or other means of payment consistent with the purposes of the
1996 Plan, and such other terms and conditions as the Board or the Compensation
Committee deems appropriate. The Compensation Committee has the authority at any
time to provide for the conditions and circumstances under which awards shall be
forfeited. The Compensation Committee has the authority to accelerate the
vesting of any award and the time at which any award becomes exercisable.

Eligibility. Officers, other associates, directors and consultants of the
Company may be selected by the Compensation Committee to receive awards under
the 1996 Plan. At the discretion of the Compensation Committee, an eligible
person may receive an award in the form of a stock option, stock appreciation
right, restricted stock award, dividend equivalent right, stock award or other
stock-based award, or any combination thereof, and more than one award may be
granted to an eligible employee.

Stock Options. The 1996 Plan authorizes the award of both non-qualified and
incentive stock options ("ISO's"). Under the 1996 Plan and pursuant to awards
made thereunder, Common Stock may be purchased at a fixed exercise price during
a specified time. Unless otherwise provided in the award agreement, the exercise
price of each share of Common Stock covered by a stock option shall not be less

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<PAGE> 13

than the fair market value of the Common Stock on the date of the grant of such
stock option, and 20% of the shares covered by the stock option shall become
exercisable on the first anniversary of its grant and an additional 20% of such
shares shall become exercisable on each of the second, third, fourth and fifth
anniversaries of its grant.

Under the 1996 Plan, an ISO may be exercised at any time during the exercise
period established by the Compensation Committee, except that (i) no ISO may be
exercised prior to the expiration of six months from the date of grant; (ii) no
ISO may be exercised more than three months after employment with the Company
terminates by reason other than death or disability; and (iii) no ISO may be
exercised more than one year after employment with the Company terminates by
reason of death or disability. The aggregate fair market value (determined at
the time of the award) of the Common Stock with respect to which ISO's are
exercisable for the first time by any employee during any calendar year may not
exceed $100,000. The term of each ISO is determined by the Compensation
Committee, but in no event may such term exceed 10 years from the date of grant
(or five years in the case of ISO's granted to shareholders owning 10% or more
of the Company's outstanding shares of Common Stock). The exercise price of
options is determined by the Compensation Committee, but the exercise price of
ISO's cannot be less than the fair market value of the Common Stock on the date
of the grant (or 110% of the fair market value of the Common Stock on the date
of grant in the case of ISO's granted to shareholders owning 10% or more of the
Company's outstanding shares of Common Stock). The exercise price of options may
be paid in cash, in shares of Common Stock through a cashless exercise program
with previously owned Common Stock or by such other methods as the Compensation
Committee deems appropriate.

Stock Appreciation Rights. The 1996 Plan authorizes the grant of stock
appreciation rights ("SAR's"). The SAR's may be granted either separately or in
tandem with options. A SAR entitles the holder to receive an amount equal to the
excess of the fair market value of a share of Common Stock at the time of
exercise of the SAR over the option exercise price or other specified amount (or
deemed option price in the event of an SAR that is not granted in tandem with an
option), multiplied by the number of shares of Common Stock subject to the
option or deemed option as to which the SAR is being exercised (subject to the
terms and conditions of the option or deemed option). An SAR may be exercised at
any time when the option or deemed option to which it related may be exercised
and will terminate no later than the date on which the right to exercise the
tandem option (or deemed option) terminates (or is deemed to terminate).

Restricted Stock. Restricted stock awards are grants of Common Stock made to
eligible persons subject to restrictions, terms and conditions as established by
the Compensation Committee. An eligible person will become the holder of shares
of restricted stock free of all restrictions if he or she complies with all
restrictions, terms and conditions. Otherwise, the shares will be forfeited. The
eligible persons will not have the right to vote the shares of restricted stock
until all restrictions, terms and conditions are satisfied.

Other Stock-Based Awards. The Compensation Committee may allow a director,
officer or other associate to elect to exchange annual retainers, fees or
compensation for stock options. The Compensation Committee also may award rights
to receive dividends or the equivalent. Additionally, the Compensation Committee
may make an unrestricted transfer of ownership of Common Stock. Furthermore, the
Compensation Committee may make other stock-based awards that are related to or
serve a similar function as other awards.

Adjustments. In the event of any changes in the outstanding shares of Common
Stock by reason of any stock dividend, split, spin-off, recapitalization,
merger, consolidation, combination, exchange of shares or other similar change,
the aggregate number of shares with respect to which awards may be made under
the 1996 Plan, and the terms and the number of shares of any outstanding option,
restricted stock or other stock-based award, may be equitably adjusted by the
Compensation Committee in its sole discretion.

Change of Control. Upon a Change in Control, which is defined in the 1996
Plan to include certain third-party acquisitions of 30% or more of the
then-outstanding Company Common Stock or the combined voting power of the
then-outstanding Common Stock entitled to vote generally in the election

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<PAGE> 14

of directors, changes in the composition of the Board of Directors, shareholder
approval of certain significant corporate transactions such as a reorganization,
merger, consolidation, sale of assets or the liquidation or dissolution of the
Company, all outstanding awards vest and become immediately exercisable and
cease to be subject to the risk of forfeiture.

Termination and Amendment. The 1996 Plan may be terminated, modified or
amended by the affirmative vote of the holders of a majority of the outstanding
shares of the capital stock of the Company present or represented and entitled
to vote at a duly held meeting of the Company's shareholders. The Board may at
any time terminate the 1996 Plan or from time to time make such modifications or
amendments of the 1996 Plan as it may deem advisable; provided, however, that
the Board shall not make any material amendments to the 1996 Plan which require
shareholder approval under applicable law, rule or regulation unless approved by
the requisite vote of the Company's shareholders. No termination, modification
or amendment of the 1996 Plan may adversely affect the rights conferred by an
award without the consent of the recipient thereof.

1991 and 1994 Stock Option Plans

Scope. The Board of Directors and shareholders of the Company have approved
the Company's 1991 Stock Option Plan (the "1991 Plan") and 1994 Stock Option
Plan (the "1994 Plan") (collectively, the "Plans"). The Plans are substantially
identical and authorize the granting of ISO's and non-qualified stock options to
purchase Common Stock. Options may be granted to officers, other associates and
directors of the Company.

Each of the Plans authorizes the issuance of 505,900 shares of Common Stock,
each representing 4.3% of outstanding shares of Common Stock, under stock option
agreements. Shares of Common Stock issued under the Plans shall be authorized
and unissued or treasury shares of Common Stock of the Company. The 1991 Plan
will terminate on October 21, 2001, and the 1994 Plan will terminate on April
20, 2004. As of January 31, 1999, 492,685 of the shares authorized for issuance
under the 1991 Plan were subject to options and 438,609 of the shares authorized
for issuance under the 1994 Plan were subject to options.

Administration. The Plans are administered by the Board of Directors or
another committee designated by the Board of Directors of the Company (in each
event, the "Compensation Committee"). Subject to the provisions of the Plans,
the Compensation Committee has the authority to select eligible persons to
receive awards, determine the time or times of receipt and determine the types
of awards and the number of shares covered by the awards. The Compensation
Committee is authorized to interpret the Plans, establish, amend and rescind any
rules and regulations relating to the Plans, determine the terms and provisions
of any agreements made pursuant to the Plans and make all other determinations
that may be necessary or advisable for the administration of the Plans.

Eligibility. Executive officers, directors and other key employees of the
Company may be selected by the Compensation Committee to receive awards under
the Plans. In the discretion of the Compensation Committee, an eligible person
may receive an award in the form of ISO's or non-qualified stock options. More
than one award may be made to eligible persons.

Stock Options. The Plans authorize the award of non-qualified stock options.
Under the Plans and pursuant to awards made thereunder, an option may be
exercised at any time during the exercise period established by the Compensation
Committee. Generally, the exercise period is 10 years from the date of grant.
The Compensation Committee determines the exercise price of options per share of
Common Stock and whether the exercise price may be paid in cash or previously
owned shares of Common Stock.

Incentive Stock Options. The Plans authorize the award of ISO's. Under the
Plans and pursuant to awards made thereunder, an ISO may be exercised at any
time during the exercise period established by the Compensation Committee except
that (i) no ISO may be exercised after employment with the Company terminates by
reason other than retirement, death or disability; (ii) no ISO may be exercised
more than one year after employment with the Company terminates by reason of
death or disability; and

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<PAGE> 15

(iii) no option may be exercised more than three months after retirement from
the Company. The term of each option is determined by the Compensation
Committee. Generally, the term will not exceed 10 years from the date of grant
and may not exceed five years in the case of ISO's granted to shareholders
owning 10% or more of the Company's outstanding shares of Common Stock. The
aggregate fair market value (determined at the time of the award) of the Common
Stock with respect to which ISO's are exercisable for the first time by an
employee during any calendar year may not exceed $100,000. The exercise price of
options as determined by the Compensation Committee shall be 100% of the fair
market value of a share of Common Stock on the date the ISO is granted, provided
the ISO granted to any owner of 10% or more of the total combined voting power
of the Company shall be 110% of the fair market value of the share of Common
Stock on the date of grant. The exercise price of options may be paid in cash or
in shares of previously owned Common Stock.

Adjustments. In the event of any changes in the outstanding shares of Common
Stock by reason of any stock dividend, split-up, recapitalization, merger,
consolidation, combination, exchange of shares or other similar change, the
aggregate number of shares with respect to which awards may be made under the
Plans, and the terms and the number of shares of any outstanding option may be
equitably adjusted by the Compensation Committee in its sole discretion.

Change of Control. All options granted under the Plans are immediately
exercisable upon a Change of Control, which is deemed to occur upon any merger,
transfer of assets or transfer of voting shares of the Company resulting in
members of the Marmaduke family owning, directly or indirectly, less than 50% of
the voting shares of the Company.

Termination and Amendment. The Compensation Committee may, without approval
by the shareholders and without receiving further consideration from the
participants, amend, condition or modify awards under the Plans except for
amendments which under applicable law or regulation require such approval by the
shareholders.

401(k) Savings Plan

The Company presently sponsors a retirement plan called the Hastings
Entertainment, Inc. Associates' 401(k) Plan and Trust (the "401(k) Plan"). The
total 401(k) Plan assets as of January 31, 1999 were valued at approximately
$9.3 million. The trustee for the 401(k) Plan is Amarillo National Bank.
Amarillo National Bank became the trustee for the 401(k) Plan on August 1, 1996
at which time associates were permitted to direct investments of their accounts
among a selection of investments, including the Common Stock of the Company.
Associates, including members of management, are eligible to make voluntary
contributions of up to twelve percent (12%) of their annual compensation under
the 401(k) Plan. The Company is permitted to make a discretionary contribution
to the 401(k) Plan each fiscal year which will be calculated as a percentage
(determined prior to the beginning of the plan year) of Elective Deferrals (as
defined in the 401(k) Plan) made during the plan year by each participant
eligible to receive discretionary contribution. Contributions in excess of 6% of
compensation shall not be included in this calculation. If the Company does not
change the percentage rate that may be contributed for a plan year, the rate
determined for the prior year shall remain in effect.

The 401(k) Plan is intended to qualify as a profit sharing plan under
Sections 401(a) and 401(k) of the Internal Revenue Code.

Associate Stock Ownership Plan

The Company maintains an Associate Stock Ownership Plan (the "ASOP") for
associates completing one year of service (defined as 1,000 hours in a
consecutive 12-month period) under which contributions are made by the Company
in amounts determined annually by the Board of Directors. The trustee for the
ASOP is Amarillo National Bank. At January 31, 1999, approximately 1,329
associates were eligible to participate and were participating in the ASOP.
Company contributions may be made in cash, in shares of Common Stock or other
property. Allocation among participants of the Company's contributions to the
ASOP is based upon the employee's compensation. Participants vest in their ASOP
accounts at 20%,

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40%, 60%, 80% and 100% after the completion of three, four, five, six and seven
years of service, respectively, with the Company. Participants become fully
vested upon retirement, death or disability.

As soon as practicable after a participant's retirement, death, disability
or termination of employment for any other reason, such participant's vested
accrued benefit will be distributed to the participant or the participant's
beneficiary in shares of the Company's Common Stock or cash at the election of
the participant. The ASOP permits participants to direct the voting of shares
allocated to their account and permits current distribution to participants of
cash dividends paid on Common Stock allocated to their accounts. During fiscal
year 1998, the Company contribution to the ASOP for the accounts of the Named
Executive Officers as a group, the distribution or unconditional vesting of
which are not subject to future events, was $9,713.

Chief Executive Officer Stock Option

In April 1993, the Board of Directors and shareholders approved a
non-qualified stock option for 404,720 shares of Common Stock for John H.
Marmaduke, President and Chief Executive Officer of the Company. The stock
option grants Mr. Marmaduke the right to purchase 404,720 shares of Common Stock
and terminates by its terms on January 31, 2007. The option is fully
exercisable. The option was granted at the initial price of $7.75 per share of
Common Stock and was to increase at a rate of 12% per annum. As amended in
fiscal 1997, the exercise price per share of the option was fixed at $11.07 for
the life of the option. Payment for shares received upon exercise of the option
must be made in cash at the time of exercise.

Corporate Officer Incentive Plan, Management Incentive Plan and Salary Incentive
Plan

Scope. The Board of Directors and shareholders of the Company have approved
the Company's Corporate Officer Incentive Plan, the Management Incentive Plan
and the Salary Incentive Plan (each an "Incentive Plan" and collectively the
"Incentive Plans"). The Incentive Plans authorize the award of incentive cash
payments to eligible employees if certain performance goals are met.

Administration. The Incentive Plans are administered by the Chief Executive
Officer and the Compensation and Benefits Department of the Company, with final
approval for all performance goals and award targets resting with the
Compensation Committee or, with respect to participants in the Management
Incentive Plan and Salary Incentive Plan, the Chief Executive Officer. After the
size of any award has been determined based upon performance achievement, the
Chief Executive Officer has the authority to reduce an award by no more than 30%
based upon individual performance contributions.

Eligibility. Award eligibility is determined by the Chief Executive Officer
at the beginning of each performance period. A participant must be an employee
of the Company on the day the Incentive Plan award is finalized and approved for
payment in order to receive such award.

Awards. The Incentive Plans provide for incentive cash payments based on
incentive targets expressed as a percentage of a participant's base salary if
certain performance goals are met. Each fiscal year is divided into two separate
six-month performance periods. Awards are made for each performance period.

At the beginning of each performance period, each participant in the
Incentive Plans is assigned an incentive target amount expressed as a percentage
of base salary. The incentive target for a performance period can then be
increased to not more than 125% of the targeted amount or decreased to not less
than 50% of the targeted amount based upon performance achievement. At the
beginning of each performance period, the Compensation Committee or, in the case
of the Management Incentive Plan and the Salary Incentive Plan, the Chief
Executive Officer, establishes in writing the performance goals that will
determine the size of the Incentive Plan awards. As of January 31, 1999, the
performance measures for all Incentive Plan participants are based upon sales
and return on equity as defined in the Company's annual business plan. Return on
equity is defined as the after-tax rate of return on beginning shareholders'
equity for the performance period.

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Within 90 days after the end of each performance period, each participant's
base salary rate will be multiplied by the earned Incentive Plan award
percentage to determine the dollar value of the award for the performance period
in question. The maximum award payable under the Corporate Officer Incentive
Plan is the lesser of 250% of the participant's most recent annualized base
salary or $1,000,000.

Adjustments and Amendments. The Board of Directors and the Compensation
Committee retain the right to adjust, amend or suspend any current payments in
the Corporate Officer Incentive Plan and the Management Incentive Plan for any
given performance period if, in the good faith determination of the Board of
Directors or the Compensation Committee, the payments of amounts thereunder
would result in a material adverse change to, or a material decline, in the
financial condition or prospects of the Company.

Form and Payment of Awards. Award calculations under the Incentive Plans are
finalized and paid within 90 days after the end of each performance period. A
participant may elect to voluntarily defer a portion of an award. Additionally,
participants under the Corporate Officer Incentive Plan and the Management
Incentive Plan may elect to apply a portion of an award to purchase discounted
Common Stock of the Company pursuant to the Management Stock Purchase Plan (see
"Management Stock Purchase Plan").

Management Stock Purchase Plan

Scope. The Board of Directors and shareholders of the Company have approved
the Management Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan
authorizes the issuance of up to 227,655 shares of Common Stock, representing
2.0% of outstanding shares of Common Stock after the Offering, pursuant to
agreements providing for the purchase of Restricted Stock Units ("RSU's"). The
cost of each RSU is equal to 75% of the fair market value of the Common Stock of
the Company on the date the RSU is awarded. Shares of stock underlying any
canceled RSU's are added back to the shares of Common Stock available for
issuance under the Purchase Plan. As of January 31, 1999, 8,025 RSU's were
outstanding.

Administration. The Purchase Plan is administered by the Board of Directors
or the Compensation Committee (in each event, the "Compensation Committee").

Eligibility. The Compensation Committee designates the management employees
of the Company who are eligible to participate in the Purchase Plan.

Participation. Each participant in the Purchase Plan may elect to purchase
RSU's. Each RSU awarded to a participant is credited to a bookkeeping account
established and maintained for that participant.

Each participant may elect to receive an award of RSU's by completing a
subscription agreement. A subscription agreement provides that the participant
may elect to receive RSU's in lieu of a specified portion of any incentive bonus
paid to such participant. During each performance period, a participant may
elect to use the lesser of 50% of the actual bonus amount for such performance
period or $50,000 to purchase RSU's.

A participant is fully vested in each RSU three years after the RSU is
awarded. Once vested, the Company will issue to the participant one share of
Common Stock at the end of each deferral period specified in the subscription
agreement pertaining to each RSU, or upon the participant's termination of
employment or the termination of the Purchase Plan, if sooner.

If a participant voluntarily terminates his employment with the Company for
reasons other than death or permanent disability, the participant's nonvested
RSU's shall be canceled and he shall receive a cash payment pursuant to the
terms of the Purchase Plan. If a participant's employment is terminated by the
Company, or if the participant's employment terminates as a result of death or
permanent disability, the participant's nonvested RSU's shall be canceled and he
shall receive RSU's pursuant to the terms of the Purchase Plan.

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<PAGE> 18

Whenever dividends (other than dividends payable only in shares of stock)
are paid with respect to Common Stock, each participant shall be paid an amount
in cash equal to the number of his vested RSU's multiplied by the dividend value
per share. In addition, each participant's account shall be credited with an
amount equal to the number of such participant's nonvested RSU's multiplied by
the dividend value per share. Amounts credited with respect to each nonvested
RSU shall be paid, without interest, on the date the participant becomes vested
in such RSU, or when the participant receives payment of his nonvested RSU's.

Adjustments. In the event of a stock dividend, stock split or similar change
in capital structure of the Company, the Compensation Committee shall make
appropriate adjustments in the number and kinds of shares of Common Stock with
respect to which RSU's will thereafter be granted, the number and kinds of
shares remaining subject to the outstanding RSU's, the number of RSU's credited
to each participant's account, and the method of determining the cost of RSU's.
In the event of any proposed merger, consolidation, dissolution or liquidation
of the Company, all nonvested RSU's shall become fully vested on the effective
date of such merger, consolidation, sale, dissolution or liquidation and the
Compensation Committee in its sole discretion may, as to any outstanding RSU's,
make such substitution or adjustment in the aggregate number of shares to
reserve for issuance under the Purchase Plan and the number of shares subject to
each RSU as it may determine on an equitable basis and as may be permitted by
the terms of such transaction, or terminate such RSU's upon such terms and
conditions as it shall provide.

Amendment or Termination. The Company reserves the right to amend or
terminate the Purchase Plan at any time, by action of its Board of Directors,
provided that no such action shall adversely affect a participant's right under
the Purchase Plan with respect to RSU's awarded and vested before the date of
such action.

Employment Agreements

The Company is a party to employment agreements with each of Messrs.
Marmaduke, Hill, McGill, Berman and Woods (each, an "Executive"). Each
employment agreement provides that the Executive's salary shall be determined by
the Board of Directors and that the Executive's employment shall continue until
terminated by either the Executive or the Company. Either the Company or the
Executive has the right to terminate the employment at any time with or without
cause (as defined in each agreement) by delivering written notice of termination
to the other party. Each agreement provides for a severance payment if the
agreement is terminated by the Company without cause. Under such circumstances,
Mr. Marmaduke would receive his base annual salary and bonus for a period of 36
months, Messrs. Hill and McGill each would receive their base annual salary and
bonus for a period of 24 months, and Messrs. Berman and Woods each would receive
their base annual salary and bonus for a period of 18 months following the date
of termination, payable over such period at such times as executives of the
Company receive their regular salary and bonus payments, and any benefits under
any plans of the Company in which the Executive is a participant to the full
extent of such Executive's rights under such plans. If the agreements are
terminated either voluntarily by the Executive or by the Company with cause, or
by reason of death or disability, then the Executive will not be entitled to
payments under his employment agreement.

Upon a change in control of the Company, each Executive will receive a
payment to compensate him for the loss of long-term capital gains treatment of
certain options granted to the Executive. Each employment agreement provides
that, in the event the Executive terminates employment with the Company, the
Executive may not, for a period of 18 months following termination, work for or
assist a competitor of the Company, use certain information obtained from the
Company, or induce any other employees of the Company to terminate their
relationship with the Company.

Director Compensation

The Company reimburses all directors for expenses incurred in connection
with their activities as directors. Non-employee directors of the Company
receive an annual cash retainer of $15,000 and a grant

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of shares of Common Stock valued at $5,000 for service as directors, and a fee
of $750 for each director meeting and $500 for each committee meeting attended
in person or by telephone. The Company has adopted a Stock Option Plan for
Outside Directors (the "Directors Option Plan") for its non-employee directors
and has reserved 101,180 shares of Common Stock for issuance thereunder and in
February 1998 adopted a Stock Grant Plan for its non-employee directors and has
reserved 25,295 shares of Common Stock for issuance thereunder. The Directors
Option Plan provides that each non-employee director receives an initial option
for 2,530 shares of Common Stock upon election as a director, and an annual
grant of 2,530 shares thereafter. Each option is granted at the fair market
value of the Common Stock of the Company at the time of the grant. All initial
and annual stock options granted pursuant to the Directors Option Plan are
nonqualified stock options and are generally exercisable for a period of 10
years from the date of grant or one year after the optionee ceases to be a
director of the Company. As of January 31, 1999, options covering 17,710 shares
have been granted under the Directors Option Plan. The Stock Grant Plan for
Outside Directors provides for a grant as of May 1 of each year to each
non-employee director of Common Stock with a fair market value of $5,000 on the
date of grant. As of January 31, 1999, 2,530 shares of Common Stock have been
granted to non-employee directors under the Stock Grant Plan for Outside
Directors. The Company also granted options covering 7,811 shares under a
previous director compensation plan that was terminated in fiscal 1997, of which
options covering 4,037 shares remain outstanding.

Compensation Committee Interlocks and Insider Participation

Messrs. Berry, Lentzsch and Shrader presently serve as the members of the
Compensation Committee. See "Certain Transactions." Mr. Shrader is a shareholder
in the law firm of Sprouse, Smith & Rowley, PC in Amarillo, Texas, which has
provided legal services to the Company since 1993.

CERTAIN TRANSACTIONS

Gaines Godfrey, a director of the Company, is a limited partner in certain
limited partnerships that lease land and improvements to the Company under
triple net leases. During fiscal years 1996, 1997 and 1998, the Company made
aggregate lease payments of $479,659, $500,427 and $531,091, respectively, to
such limited partnerships. The Company believes that these leases are on terms
as favorable as those which the Company could have obtained from a
non-affiliated third party.

Jeffrey G. Shrader, a director of the Company, is a shareholder in the law
firm of Sprouse, Smith & Rowley, PC, Amarillo, Texas, which has provided legal
services to the Company since 1993. The Company believes that these services
have been provided on terms as favorable as those which the Company could have
obtained from a non-affiliated third party.

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BOARD COMPENSATION COMMITTEE REPORT

ON EXECUTIVE COMPENSATION

The Company's compensation program is designed to motivate, reward and
retain the management talent the Company needs to achieve its business goals.
This program makes a significant portion of officers' compensation dependent
upon increases in shareholder value.

The Compensation Committee of the Board of Directors (the "Compensation
Committee") supervises the Company's compensation program. The Compensation
Committee is made up of non-employee Directors who do not participate in any of
the compensation plans they administer. The Compensation Committee recommends
the salary and other incentives packages of the executive officers of the
Company to the Board of Directors, which in turn actually approves the
compensation packages.

The Company's success depends on attracting and retaining executives who
have developed the skills and expertise required to lead and manage a multimedia
entertainment retailer. The Company's philosophy is to do this with (1)
competitive base salaries, (2) rewards for performance and accomplishments on an
annual basis, and (3) incentives to meet long-term objectives.

The Company pays for performance based on an individual's level of
responsibility. For this purpose, performance means both individual and
corporate performance. The Company motivates performance by recognizing the
year's results and by providing incentives for improvement in the future. The
three major components of the Company's compensation program are base salary,
incentive bonus awards made on an annual basis, and long-term incentive awards.

BASE SALARY

The Company's salaries are reviewed annually based on competitive
positioning (comparing the Company's salary structure with salaries paid by
other companies) and the Company's business performance. Initially, the
Company's Chief Executive Officer recommends base salary amounts to the
Compensation Committee. In reviewing these recommendations, the Compensation
Committee uses a number of surveys to determine competitive salary positions.
Primarily, the Compensation Committee compares salary structure with both
entertainment and non-entertainment retailing companies.

The Company's general headquarters and most of its retail operations are
not located in large metropolitan areas. Accordingly, salary ranges are targeted
at the median level of the survey data. Within these ranges, the Compensation
Committee determines each individual executive officer's salary based on
performance, responsibility, experience and results.

INCENTIVE AWARDS MADE ON AN ANNUAL BASIS

A significant portion of an executive officer's income is based upon the
Corporate Officer Incentive Program ("COIP"). This program provides for
incentive cash payments based upon incentive targets expressed as a percentage
of a participant's base salary if certain performance goals are met. Each fiscal
year is divided into two separate six-month performance periods, and awards are
made for each performance period. Amounts payable under COIP are not guaranteed,
and thus a significant portion of each officer's annual compensation is
essentially at risk.

At the beginning of each performance period, each officer is assigned an
incentive target amount expressed as a percentage of base salary. Generally, the
higher the level an officer's responsibility is with the Company, the greater
the percentage of his overall annual compensation is subject to being earned
under COIP. The incentive target for a performance period can then be increased
to not more than 125% of the targeted amount or decreased to not less than 50%
of the targeted amount based upon performance achievement. At the beginning of
each performance period, the Compensation Committee establishes in

21
<PAGE> 21

writing the performance goals that will determine the size of the Incentive Plan
awards. As of January 31, 1999, the performance measures for all incentive plan
participants are based upon sales and return on equity as defined in the
Company's annual business plan. Return on equity is defined as the after-tax
rate of return on beginning shareholders' equity for the performance period.

Within 90 days after the end of each performance period, each participant's
base salary rate is multiplied by the earned incentive plan award percentage to
determine the dollar value of the award for the performance period in question.
The maximum award payable under the COIP is the lesser of 250% of the
participant's most recent annualized base salary or $1,000,000. A portion of any
bonus may be used to purchase Restricted Stock Units ("RSU's") of the Company.

In fiscal 1998, in the first six-month performance period the Company
realized 98% of the incentive target and in the second six-month performance
period the Company realized 100% of the incentive target.

LONG-TERM INCENTIVE REWARDS

Long-term incentive rewards are intended to develop and retain strong
management through share ownership. Stock options are the primary long-term
incentive granted to officers, as well as other key employees of the Company.
The Compensation Committee believes that a significant portion of officers'
compensation should depend on value created for the shareholders. Options are an
excellent way to accomplish this because they tie the officers' interest
directly to the shareholders' interest.

The number of options granted to officers is based upon individual
performance and level of responsibility. Option grants must be of sufficient
size to provide a strong incentive for executives who work for long-term
business interests and become significant owners of the business. The
Compensation Committee reviews market studies for long-term compensation awards,
and endeavors to make option grants to provide the necessary incentive to
attract and retain qualified executives.

DEDUCTIBILITY OF COMPENSATION

The Compensation Committee has reviewed the impact of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), which limits the
deductibility of certain otherwise deductible compensation in excess of $1
million paid to the Chief Executive Officer or other named executive officers.
It is the policy of the Company to attempt to have its executive compensation
plans treated as tax deductible compensation wherever, in the judgment of the
Compensation Committee, to do so would be consistent with the objectives of that
compensation plan.

CHIEF EXECUTIVE OFFICER COMPENSATION

The total compensation of John H. Marmaduke, the Company's Chairman,
President and Chief Executive Officer, was $404,201 during fiscal 1998,
representing a base salary of $164,060 and a bonus, pursuant to the COIP, of
$240,141. Mr. Marmaduke's compensation was based upon a comparison to the
compensation of officers in similar positions of other retailers, taking into
consideration the Company's size, performance and business philosophy. In
December 1998, Mr. Marmaduke was granted a non-qualified option to acquire
17,500 shares of common stock at an exercise price of $11.875 per share.

22
<PAGE> 22

PERFORMANCE GRAPH

The following graph compares the annual cumulative total stockholder return
on an investment of $100 on June 12, 1998 (the first day of public trading) in
the Company's common stock, based on the market price of the common stock, with
the cumulative total return of a similar investment in the Nasdaq National
Market Retail Trade Stocks Index and in the S&P 500 Market Index.

Hastings Entertainment, Inc.
Plot Points for Performance Graph

<TABLE>
<CAPTION>
Nasdaq Retail Stocks Hastings Ent. S&P 500
<S> <C> <C> <C>
6/12/98 100 100 100
7/1/98 97.62944221 102.0202 101.9866
8/1/98 72.12857808 71.7172 87.1173
9/1/98 76.16279211 69.697 92.5531
10/1/98 84.62732881 80.8081 99.9845
11/1/98 96.77969779 154.5455 105.8963
12/1/98 104.2543286 113.1313 111.8662
1/1/99 106.3245751 106.5657 116.4537
</TABLE>

23
<PAGE> 23

INDEPENDENT ACCOUNTANTS

KPMG LLP served as independent accountants for the Company for the fiscal
year ended January 31, 1999. Representatives of KPMG LLP will be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions presented at
the Annual Meeting.

STOCKHOLDER PROPOSALS

Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
stockholder proposals to be presented at the 2000 Annual Meeting of Stockholders
("2000 Annual Meeting"), for inclusion in the Company's Proxy Statement and form
of Proxy relating to that meeting, must be received by the Company at its
offices in Amarillo, Texas, addressed to the Secretary of the Company, not later
than February 16, 2000. With respect to any stockholder proposal submitted
outside of Rule 14a-8, persons acting as proxies shall have discretionary
authority to vote against any such proposal presented at the 2000 Annual Meeting
unless notice is received by the Company not later than April 27, 2000 that such
proposal is to be presented at the 2000 Annual Meeting and certain other
requirements are met. Such proposals must comply with applicable Texas law, the
Bylaws of the Company and the requirements of Regulation 14A of the Act.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are required by SEC regulation to furnish
the Company with copies of all Sections 16(a) forms they file.

Based solely on its review of the copies of such forms received by it with
respect to fiscal 1998, or written representations from certain reporting
persons, to the best of the Company's knowledge, all reports were filed on a
timely basis.

OTHER MATTERS

At the date of this Proxy Statement, management was not aware that any
matters not referred to in this Proxy Statement would be presented for action at
the meeting. If any other matters should come before the meeting, the persons
named in the accompanying form of Proxy will have discretionary authority to
vote all proxies in accordance with their best judgment, unless otherwise
restricted by law.

REPORT ON FORM 10-K

The Company's Annual Report on Form 10-K for the fiscal year ended January
31, 1999, filed with the Securities and Exchange Commission, is available to
stockholders, without charge, upon written request. Exhibits to the Form 10-K
will be furnished upon payment of $.50 per page, with a minimum charge of
$10.00, to cover the cost of reproduction. Requests for copies should be
directed to Hastings Entertainment, Inc., 3601 Plains Boulevard, Amarillo,
Texas, 79102, Attention: Investor Relations.

By Order of the Board of Directors

Dennis McGill, Secretary

Dated: May 28, 1999

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<PAGE> 24

PROXY

HASTINGS ENTERTAINMENT, INC.

This Proxy is solicited by the Board of Directors of Hastings
Entertainment, Inc. (the "Company") for the Annual Meeting of Shareholders to be
held on July 16, 1999, at 10:00 a.m. Amarillo, Texas time at the Company's
corporate offices, 3601 Plains Boulevard, Amarillo, Texas, 79102. The
undersigned hereby appoint(s) Dennis McGill and Jeffrey G. Shrader, or either of
them, with full power of substitution, and with discretionary authority, the
proxies of the undersigned to vote all shares of Common Stock the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of the Company
to be held on July 16, 1999, and at any adjournment thereof, upon the matters
listed below, and in accordance with his best judgment with respect to any other
matters which may properly come before the meeting.

The proxy, when duly executed, will be voted in the manner directed herein,
and in the absence of specific directions to the contrary, this proxy will be
voted (i) for the election of the three Class II nominees for director, and (ii)
in the discretion of the proxy holders on any other matters that may properly
come before the meeting and any adjournments thereof.

This proxy is solicited on behalf of the Board of Directors of the Company
and may be revoked prior to its exercise. The Board of Directors of the Company
requests that you promptly execute and mail this Proxy.

Dated this day of , 1999
--------- ----------

-------------------------------------

(Please sign exactly as your name
appears on the stock certificate.
If shares are held jointly, each
Shareholder should sign. When
signing as executor, administrator,
trustee, guardian, or other capacity,
please give title as such.)

<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C>
1. Election of Directors of the three nominees listed below (except as indicated
to the contrary below):

FOR all WITHHOLD AUTHORITY INSTRUCTION: To withhold authority to vote
nominees to vote one or more nominees for any individual nominee, check the withhold
listed to the listed to the right, but vote FOR box and write the nominee's name on the space
right. the remaining nominees. provided opposite his name.

[ ] [ ] Phillip G. Hill
---------------------

[ ] Stephen S. Marmaduke
---------------------

[ ] Leonard L. Berry
---------------------

2. With the discretionary authority as to such other matters as may properly
come before the Annual Meeting or the adjournment thereof.
</TABLE>