UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 13, 1996
HARVEY ELECTRONICS, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 1-4626 13-1534671
----------------- --------------------- --------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification Number)
incorporation
205 CHUBB AVENUE, LYNDHURST, NEW JERSEY 07071
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 842-0078
The Harvey Group Inc.
600 Secaucus Road, Secaucus, New Jersey 07094
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(Former name or former address, if changed since last report)
Item 1. Change in Control
Reference is made to Item 3 "Bankruptcy or Receivership" regarding the
reorganization of Harvey Electronics, Inc. and the simultaneous acquisition of
control by Harvey Acquisition Company LLC.
Item 3. Bankruptcy or Receivership
On August 3, 1995, The Harvey Group Inc. and its subsidiary, Harvey Sound,
Inc., (collectively, the "Company") filed petitions for relief under Chapter 11
of the United States Bankruptcy Code with the United States Bankruptcy Court for
the Southern District of New York (the "Court"). This filing was the result of
certain negative factors including but not limited to: (i) the negative effect
of a $2,138,000 judgement entered against the Company; (ii) liabilities arising
from The Harvey Group Inc. and its discontinued food brokerage division remained
obligations of the Company, the payment of which significantly reduced cash;
(iii) the recession of the early 1990's coupled with a soft market in the
electronics industry, all of which resulted in losses and a shortage of cash
flow; and (iv) the delisting (in June, 1995) of the Company's common stock from
the American Stock Exchange which de-listing rendered a proposed $4.2 million
equity placement untenable.
<PAGE>
On November 13, 1996 (the "Confirmation Date"), the Court confirmed the
Company's Restated Modified Amended Joint and Substantially Consolidated Plan of
Reorganization (the "Reorganization Plan"). The effective date of the
Reorganization Plan was December 26, 1996 (the "Effective Date"), at which time
the Company emerged from its Chapter 11 reorganization. At that time, Harvey
Sound, Inc., the subsidiary, merged into The Harvey Group Inc., the parent, and
the Company, as merged, changed its name to Harvey Electronics, Inc.
Pursuant to the Reorganization Plan, as of the Effective Date, all of the
shares of common and preferred stock of the Company were canceled. The Company
amended its Certificate of Incorporation authorizing the issuance of 10,010,000
shares of capital stock as follows: (a) 10,000 shares of 8.5% Cumulative
Convertible Preferred Stock with a par value of $1,000 per share (the "Preferred
Stock"); and (b) 10,000,000 shares of Common Stock with a par value of $.01 per
share (the "Common Stock").
The Reorganization Plan also provided for the distribution of the
reorganized Company's Common Stock as follows: (a) 2,000,000 shares to Harvey
Acquisition Company, L.L.C. ("HAC") in satisfaction of $2,822,500 of
subordinated secured financing provided to the Company during its bankruptcy
proceeding; (b) 187,841 shares to the Company's unsecured creditors in
satisfaction of the Company's pre-petition obligations owed to its unsecured
creditors; and (c) 22,084 shares to the Company's former shareholders. In
addition, the Reorganization Plan provided for a finder fee to be paid to
InterEquity Capital Partners, L.P. ("InterEquity"), a pre-bankruptcy
subordinated secured creditor, in cash or Common Stock. Subsequent to the
effective date of the Regoranization Plan, 51,565 shares of the Common Stock
were issued to InterEquity in satisfaction of the finder fee. Accordingly,
2,259,368 shares of Common Stock are presently issued and outstanding, and 2,122
shares of Common Stock are held in treasury.
As part of the Reorganization Plan, 875 shares of Preferred Stock were also
issued in satisfaction of $875,000 in pre-bankruptcy junior secured claims.
Other significant provisions of the Plan of Reorganization included: (a)
changing the close of the Company's fiscal year from the Saturday nearest to the
31st day of January to the Saturday nearest to the 31st day of October; and (b)
a Stock Option Plan ("Stock Option Plan"), whereby options to purchase up to
1,000,000 shares of Common Stock are authorized. To date, no option have been
granted under the Stock Option Plan.
Prepetition amounts from the subordinated secured debtholders, InterEquity
($600,000) and four individuals who purchased the indebtedness from National
Westminster Bank, USA ($275,000), were exchanged for 875 shares of Preferred
Stock, in accordance with the Reorganization Plan.
<PAGE>
As of the Confirmation Date, substantially all of the Company's vendors
have extended open lines of credit to the Company.
Item 5. Other Events
I. Existing Credit Arrangements
The Company entered into a three year revolving line of credit facility
with Congress Financial Corporation ("Congress"), in fiscal 1995 whereby the
Company could borrow up to $3,000,000, based upon a lending formula (as
defined), calculated on eligible inventory. The interest rate per annum on this
revolving line of credit facility is 2% over the prime rate of Philadelphia
National Bank. An unused line fee also exists under the line of credit. At
closing, $200,000 was required to be placed in escrow in a certificate of
deposit as additional collateral for Congress. Amendments to the Congress credit
facility were completed on January 7, 1997 and March 31, 1997, primarily
extending the facility through January 6, 2000, instituting a net worth covenant
(as defined) and increasing available borrowings by approximately $250,000, by
amending the lending formula (as defined).
Congess has a senior security interest in all of the Company's assets and
assets of a subsidiary and the stock of such subsidiary. The line of credit
facility provides Congress with rights of acceleration upon the occurrence of
certain customary events of default including, among others, the event of
bankruptcy. The Company is also restricted from paying dividends, retiring or
repurchasing its common stock and entering into additional indebtedness.
On October 5, 1995, the Company signed a letter of intent with Harvey
Acquisition Company, LLC (the "HAC"), an entity created by an investor group.
The letter of intent set forth the terms and conditions of an agreement whereby
HAC would provide secured debtor-in-possession credit support of up to
$1,500,000, subordinate only to the interests of Congress.
On October 24, 1995 in connection with the reorganization, the Company
entered into a Security Loan Agreement ("Loan Agreement") with HAC enabling the
Company to borrow up to $1,500,000. The Loan Agreement bore interest at 2% over
the prime rate of Citibank, N.A. and was subordinate only to the Company's
primary lender, Congress, as evidenced by an intercreditor agreement (between
HAC and Congress) and is secured by substantially all of the Company's assets,
including the stock of its subsidiary.
The proceeds ($1,500,000) received in installments from HAC coupled with
credit support from the Company's vendors and bank were primarily used to build
adequate inventory levels. On May 6, 1996, the Company received an additional
$50,000 from HAC to be used for general operating purposes. In September 1996,
the Loan Agreement was amended, enabling the Company to borrow up to $3,000,000
from HAC. As a result of the amendment, additional proceeds of $1,272,500 were
received from HAC, for a total aggregating $2,822,500. The net proceeds were
used for capital expenditures, including the costs to open a new retail store in
Greenwich, Connecticut, advertising, professional fees and for other working
capital purposes. On the Effective Date, this debtor-in-possession financing was
converted to 2,000,000 shares of the Common Stock in the reorganized Company.
Subsequent to the Effective Date, certain individuals, including members of
HAC, provided an additional $350,000 of financing to the Company, to be used for
working capital purposes.
<PAGE>
In October 1997, the Company received a proposal for a three year revolving
line of credit facility with Paragon Capital L.L.C. ("Paragon") whereby the
Company may borrow up to $3,300,000 based upon a lending formula (as defined),
calculated on eligible inventory. This facility will be used to repay Congress
in full to replace Congress as the Company's Lender. The Paragon facility is
expected to provide additional borrowing availability of over $800,000. The
interest rate on borrowing up to $2,500,000 will be 1% over the prime rate of
Norwest Bank Minnesota, National Association (the "Prime Rate"). The rate
charged on outstanding balances over $2,500,000 will be 1.75% above the Prime
Rate. A commitment fee of $49,500 (to be amortized over three years) will be
paid by the Company and a facility fee of three-quarters of one percent (.75%)
of the maximum credit line will be charged in each anniversary year. The line of
credit also provides for monthly maintenance charges and a termination fee.
Paragon will also receive warrants to purchase up to 110,000 shares of
Common Stock at an exercise price of $5.00 per share.
Paragon will be granted a senior security interest in substantially all of
the Company's assets. The line of credit facility will provide Paragon with
rights of acceleration upon the occurrence of certain customary events of
default including, among others, the event of bankruptcy. The Company will also
be restricted from paying dividends on common stock, retiring or repurchasing
its common stock and entering into additional indebtedness (as defined).
Additionally, certain financial covenants exist.
There can be no assurance that the Paragon credit facility will be
consummated.
II. Proposed Public Offering
On September 15, 1997 the Company signed a letter of intent with an
underwriter to sell Common Stock and warrants to purchase Common Stock in a
public offering ("Offering"). The underwriter proposes to co-manage and
underwrite an offering of 850,000 shares of the Common Stock and 1,300,000
warrants ("Warrants") to acquire additional shares of Common Stock on a
firm-commitment basis.
Net proceeds from the Offering will be used for retail store expansion,
advertising and marketing, working capital, and for the payment of related
professional fees.
Each Warrant will be exercisable for one share of Common Stock at 110% of
the public offering price for a period of three years commencing two years from
the date the Offering is declared effective by the Securities and Exchange
Commission (the "Commission") ("Effectiveness of the Offering"). The Warrants
will be redeemable at a prescribed price at the Company's option, two years
after Effectiveness of the Offering if the closing bid price of the Common Stock
for 20 consecutive trading days during the two year holding period exceeds 150%
of the public offering price per share.
The underwriter may, at its election, underwrite an additional 127,500
shares and/or 195,000 Warrants if market conditions permit. The additional
shares will be sold by the Company (up to the first 27,500 shares), with the
balance of 100,000 shares to be sold by HAC, as a selling shareholder. The
additional Warrants will be sold by the Company.
<PAGE>
As compensation for the Offering, the underwriter will receive a 10%
commission, a 3% non-accountable expense allowance, and a purchase option (the
"Purchase Option") for 10% of the number of shares of Common Stock and Warrants
sold to the public. The Purchase Option will not be exercisable for one year
following Effectiveness of the Offering. Thereafter, the Purchase Option will be
exercisable for five years at an exercise price of 120% of the initial public
offering price of the Common Stock. Additionally, the Company has agreed to pay
a monthly consulting fee of $2,433 to the underwriter for a three year period
commencing on Effectiveness of the Offering. The underwriter may also, for a
period of three years, engage two designees as advisors to the Board of
Directors. Finally, the Company will pay the underwriter a commission of 5% for
any warrant sold in the Offering which are exercised more than twelve (12)
months following the effective date of the Offering.
The proposed Offering is subject to certain conditions, as defined in the
letter of intent signed by the underwriter. There can be no assurance that this
proposed transaction will be completed.
III. Filings Under Securities and Exchange Act of 1934
The Company has failed to file required forms with the Commission pursuant
to the Securities and Exchange Act of 1934 ("1934 Act") since the filing of its
Form 10-Q for the quarter ended April 29, 1995. The Company hereby undertakes to
file timely a Form 10-KSB for its year ending November 1, 1997 and thereafter to
file timely all reports required to be filed by it under the 1934 Act.
IV. Resignation of a Director
Joseph D'Amedeo resigned as a member of the Board of Directors of the
Company, effective September 17, 1997.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Not Applicable.
(b) Unaudited Financial Statements as of October 26, 1996.
Exhibits.
Restated Modified Amended Joint and Substantially Consolidated Plan of
Reorganization;
Order dated November 13, 1996 Confirming Plan of Reorganization.
Item 8. Change in Fiscal Year
In September, 1996, the Company determined to change its fiscal year from
that used in its most recent filing with the Commission. The prior fiscal year
end was the Saturday nearest to the 31th day of January. The new fiscal year end
will be the Saturday nearest to the 31st day of October. Accordingly, the
registrant's current fiscal year will end on November 1, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARVEY ELECTRONICS, INC.
By:/s/ Joseph J. Calabrese
--------------------------------------
Joseph J. Calabrese
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
Date: November 3, 1997
<PAGE>
ITEM 7(b)
THE HARVEY GROUP INC. AND SUBSIDIARIES
LIST OF UNAUDITED FINANCIAL STATEMENTS
Consolidated balance sheet - October 26, 1996............................
Consolidated statements of operations - Fiscal year ended January 27, 1996 and
Thirty-nine weeks ended October 26, 1996 and October 28, 1995...............
Consolidated statements of shareholders' (deficit) equity, - Thirty-nine weeks
ended October 26, 1996 and Fiscal year ended January 27, 1996...............
Consolidated statements of cash flows - Thirty-nine weeks ended
October 26, 1996 and Fiscal year ended January 27, 1996......................
Notes to unaudited consolidated financial statements -
October 26, 1996..........................................................
<PAGE>
The Harvey Group Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
October 26
1996
----------------------
----------------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $3,379
Trade receivables, less allowance of 305,796
$25,000
Inventories 3,008,838
Due from Harvey Acquisition Company, LLC
(received subsequent to October 1996) 605,000
Prepaid expenses and other current assets 327,451
----------------------
Total current assets 4,250,464
Property, plant, and equipment at appraised value:
Leasehold improvements 155,900
Furniture, fixtures and equipment 598,000
---------------------
753,900
Less accumulated depreciation and amortization -
---------------------
753,900
Certificate of deposit 200,000
Equipment under capital leases, less accumulated depreciation of
$300,038 115,838
Reorganization value in excess of amounts allocable to identifiable
assets 1,650,570
Other, less accumulated amortization of $157,840 196,515
---------------------
Total assets $7,167,287
=====================
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
The Harvey Group Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
(Unaudited)
<TABLE>
<CAPTION>
October 26
1996
------------------------
<S> <C>
Liabilities and shareholders' equity Current liabilities:
Trade accounts payable $1,325,818
Accrued expenses and other current liabilities 807,699
Obligations relating to Chapter 11 reorganization 491,909
Income taxes 13,212
Accrued costs related to discontinued operations 74,000
Current portion of capital lease obligations 102,112
---------------------
Total current liabilities 2,814,750
Long-term liabilities:
Long-term debt 778,217
Other liabilities 152,356
---------------------
930,573
Capital lease obligations 11,480
Commitments and contingencies
Shareholders' equity :
8 1/2% Cumulative Convertible Preferred Stock, par value $1,000 per share;
authorized 10,000 shares; issued 875 shares
318,000
Preferred stock, par value $20 per share; authorized 100,000 shares; none
issued, cancelled November 13, 1996
Common stock, par value $.01 per share; authorized 10,000,000 shares;
issued 2,261,490 shares 22,615
Common stock, par value $1 per share; authorized 5,000,000 shares;
issued 3,498,968 - 1996, cancelled November 13, 1996
-
Capital in excess of par 3,072,861
Accumulated (deficit) -
---------------------
3,413,476
Less treasury stock, at cost (2,122 shares) (2,992)
---------------------
Total shareholders' equity 3,410,484
---------------------
Total liabilities and shareholders' equity $7,167,287
========================
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
The Harvey Group Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
52 Weeks 39 Weeks 39 Weeks
Ended Ended Ended
January 27 October 26 October 28
1996 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $15,870,752 $9,263,152 $11,107,258
Interest and other income 131,169 87,657 78,487
--------------------------------------------------------------
16,001,921 9,350,809 11,185,745
--------------------------------------------------------------
Cost and expenses
Cost of sales 10,452,589 6,094,499 7,312,311
Selling, general and administrative expenses 7,557,184 4,937,316 5,782,070
Interest expense 457,419 355,922 307,015
--------------------------------------------------------------
18,467,192 11,387,737 13,401,396
---------------------------------------------------------------
(Loss) before reorganization expenses, fresh start
adjustments and extraordinary item (2,465,271) (2,036,928) (2,215,651)
Reorganization expenses (959,146) (497,206) (520,418)
Reorganization income - sale of lease - 250,000 -
---------------------------------------------------------------
Loss before fresh start adjustments
and extraordinary item (3,424,417) (2,284,134) (2,736,069)
Fresh start adjustments - 1,857,844 -
---------------------------------------------------------------
Net loss before extraordinary item (3,424,417) (426,290) (2,736,069)
Extraordinary gain on forgiveness of debt - 5,338,852 -
---------------------------------------------------------------
Net (loss) income $(3,424,417) $4,912,562 $(2,736,069)
==============================================================
Income (loss) per share:
Loss before extraordinary item $(1.08) $(.14) $(.86)
Extraordinary item - 1.69 -
--------------------------------------------------------------
===============================================================
Net income (loss) per share $(1.08) $1.55 $(.86)
===============================================================
Weighted average number of common and common equivalent
shares outstanding during the period 3,164,887 3,164,887 3,164,887
===============================================================
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
The Harvey Group Inc. and Subsidiaries
Consolidated Statements of Shareholders' (Deficit) Equity
(Unaudited)
<TABLE>
<CAPTION>
Capital Total
Preferred Stock Common Stock in Excess Accumulated Treasury Shareholders'
Shares Amount Shares Amount of Par Deficit Stock (Deficit) Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 28, 1995 - - 3,498,968 $3,498,968 $5,899,010 $(9,750,538) $(865,601) $(1,218,161)
Net (loss) for the year (3,424,417) (3,424,417)
----------------------------------------------------------------------------------------
Balance at January 27, 1996 - - 3,498,968 3,498,968 5,899,010 (13,174,955) (865,601) (4,642,578)
Net income for the thirty-nine weeks
ended October 26, 1996 4,912,562 4,912,562
Elimination of retained
earnings at the Effective Date 8,262,393 8,262,393
Cancellation of common stock
and treasury shares (3,498,968)(3,498,968)(5,899,010) 865,601 (8,532,377)
Issuance of common stock and to
record the reorganization value at
the Effective Date 2,261,490 22,615 3,072,861 (2,992) 3,092,484
Issuance of Preferred Stock 875 318,000 318,000
---------------------------------------------------------------------------------------
Balance at October 26, 1996 875 $318,000 2,261,490 $22,615 $3,072,861 - $(2,992) $3,410,484
=======================================================================================
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
The Harvey Group Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
39 weeks 52 weeks
ended ended
October 26 January 27
1996 1996
---------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 4,912,562 (3,424,417)
Adjustments to reconcile net income (loss)
to net cash (used-in) operating activities:
Extraordinary (5,338,852) -
gain
Fresh start adjustments (1,857,844) -
Reorganization expenses 149,580 404,226
Depreciation and amortization 293,278 605,355
Provision for losses on inventory (5,000) 35,000
Provision for losses on accounts receivable (5,000) 5,000
Provisions for sales tax, warranty and other reserves
39,000 38,000
Provision for deferred compensation plan - 7,013
Payments on covenant not to compete, consulting and
deferred compensation agreements
- (19,685)
Net payments relating to discontinued operations - (106,250)
Payments of restructured legal costs - (27,250)
Straight-line impact of rent escalations 1,235 3,464
Miscellaneous (22,401) -
Changes in operating assets and liabilities:
Accounts receivable 43,412 230,613
Inventories (142,850) 768,590
Prepaid expenses and other current assets (11,718) 31,594
Accounts payable 1,121,362 591,061
Accrued expenses and other current liabilities and
income taxes payable (27,717) (24,761)
------------------------------
Net cash (used in) operating activities (850,953) (882,447)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Investing activities
Proceeds from note receivable from former
officer/shareholder 125,000 -
Proceeds from Merkert Enterprises - 87,100
Purchases of property, plant and equipment (64,707) (38,146)
Purchase of other assets (125,303) (23,793)
-------------------------------
-------------------------------
Net cash (used in) provided by investing activities (65,010) 25,161
Financing activities
Debtor-in-Possession financing 717,500 1,250,000
Obligations relating to Chapter 11 reorganization 279,409 160,000
Proceeds from Revolving line of credit facility 11,250,390 18,507,276
Repayments of Revolving line of credit facility (11,226,843) (18,843,626)
Principal payments on long-term debt (90,010) (18,379)
Principal payments on note payable to bank and term loan
- (180,000)
Principal payments on capital lease obligations (39,896) (64,436)
-----------------------------
Net cash provided by financing activities 890,550 810,835
-----------------------------
-----------------------------
(Decrease) in cash and cash equivalents (25,413) (46,451)
Cash and cash equivalents at beginning of period 28,792 75,243
-----------------------------
=============================
Cash and cash equivalents at end of period $ 3,379 $ 28,792
=============================
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
1. Basis of Presentation, Plan of Reorganization and Fresh Start Reporting
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared assuming that the Company will continue as a going concern and do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.
Plan of Reorganization
On August 3, 1995, The Harvey Group Inc. and Subsidiaries (the "Company")
filed petitions for relief under Chapter 11 of the federal bankruptcy laws in
the United States Bankruptcy Court for the Southern District of New York (the
"Court").
The Company filed for protection under Chapter 11, as a result of certain
negative factors including but not limited to the following: (i) the negative
effect of a $2,138,000 judgment against the parent Company in fiscal 1992; (ii)
all of the liabilities of the Company, including the obligations of a related
food brokerage division which was sold in fiscal 1993, remained the obligations
of Harvey Electronics ("Harvey Electronics"), the payment of which significantly
reduced the Company's cash; (iii) the recession in the early 1990's coupled with
the soft market in the electronics industry contributed to the Company's net
losses and cash shortages; and (iv) the delisting of the Company's common stock
from the American Stock Exchange in June 1995 made a proposed $4.2 million
equity placement untenable.
On November 13, 1996 (the "Confirmation Date"), the Court confirmed the
Modified Amended Joint and Substantially Consolidated Plan of Reorganization of
the Company (the "Reorganization Plan"). The effective date of the
Reorganization Plan was December 26, 1996 ("the Effective Date"), at which time
the Company emerged from its Chapter 11 reorganization and changed its name from
The Harvey Group Inc. to Harvey Electronics, Inc.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
1. Plan of Reorganization and Fresh Start Reporting (cont.)
Prior to the Effective Date, all of the Company's old shares of common and
preferred stock were canceled. The Company simultaneously amended its
Certificate of Incorporation and is authorized to issue 10,010,000 shares
consisting of 10,000 shares of
8.5% Cumulative Convertible Preferred Stock (see Note 6) with a par value
of $1,000 per share (the "Preferred Stock") and 10,000,000 shares of Common
Stock with a par value of $.01 per share (the "Common Stock").
The Reorganization Plan provided for the following:
(a) Redistribution of Common Stock Prior to the Effective date, the new
shares of common stock in Harvey Electronics, Inc. were issued as follows:
2,000,000 shares were issued to Harvey Acquisition Company, L.L.C. ("HAC")
in satisfaction of the $2,822,500 of subordinated secured financing provided to
the Company during its reorganization process.
187,841 shares were issued to the Company's unsecured creditors; in
satisfaction of prepetition liabilities compromised (see below).
22,084 shares were issued to the Company's former shareholders, of which
2,122 shares are held in Treasury.
InterEquity Capital Partners, L.P. ("InterEquity"), a prereorganization
subordinated secured debtholder, received 51,565 shares of Common Stock as
payment in full of an allowed finders fee.
As a result of the above, 2,261,490 shares of Common Stock are issued and
2,259,368 shares are outstanding.
(b)Issuance of Preferred Stock (see Note 6) Prior to the Effective Date,
875 shares of the Company's Preferred Stock were issued to the Company's
prereorganization subordinated secured debt holders in exchange for $875,000 of
such debt. The reorganization carrying value of the Preferred Stock has been
estimated to be $318,000 based on a sale of such security, independent of the
Company, for 36% of stated value. The difference between the carrying amount of
the prereorganization debt and the reorganization carrying value has been
included with the extrordinary gain on forgiveness of debt in the accompanying
statement of operations for the thirty-nine weeks ended October 26, 1996.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
1. Basis of Presentation, Plan of Reorganization and Fresh Start Reporting
(cont.)
(c) Convenience Claims/Miscellaneous Convenience claims of $1,000 or less
were paid in cash approximating $20,000. The Reorganization Plan also provided
for cash distributions ($452) of $1.00 to any former shareholders holding 100 or
fewer shares of old common stock.
(d) Agreement and Plan of Merger
Pursuant to the Reorganization Plan, the Company's Board of Directors
approved the Agreement and Plan of Merger effective December 26, 1996 by and
between the Company and its 100% wholly owned subsidiary, Harvey Sound, Inc.
("Sound"), pursuant to which Sound was merged with and into the Company.
(e) Change in Fiscal Year The Company's Board of Directors approved an
amendment to its By-Laws, to reflect the change in the Company's fiscal year
from the Saturday closest to the last day in January to the Saturday closest to
the last day in October.
(f) Stock Option Plan
The Company's Board of Directors approved the Harvey Electronics, Inc.
Stock Option Plan ("Stock Option Plan"). The Stock Option Plan provides for the
grant of options to purchase up to 1,000,000 shares of Common Stock of the
Company (see Note 6).
(g) Prepetition Liabilities Subject to Compromise
Under Chapter 11, certain claims against the Company in existence prior to
the filing of the petitions for relief under the Code were stayed while the
Company continued its operations as a debtor-in-possession. The Company's
estimate of the ultimate amount of these claims are reflected in the
accompanying balance sheet as "Liabilities Subject to Compromise."
As a result of the operational restructuring, the Company recorded
reorganization expenses of $247,206 and $959,146 for the thirty-nine weeks ended
October 26, 1996 and for the year ended January 27, 1996. Such charges consisted
of costs associated with professional fees, severance costs and the write-off or
discount of property, plant and equipment and certain receivables. Additionally,
such charges were offset by $250,000 of income from the sale of a lease during
the thirty-nine weeks ended October 26, 1996.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
1. Basis of Presentation, Plan of Reorganization and Fresh Start Reporting
(cont.)
Liabilities subject to compromise consisted of the following at October
26,1996:
Trade payables and miscellaneous claims $2,624,000
10% Convertible subordinated debentures 732,000
11% subordinated debentures 276,000
10%subordinated debentures 115,000
Reserve for discontinued operations 213,000
Deferred legal fees 342,000
Deferred compensation plans 162,000
Prepetition rents and miscellaneous 318,000
-------------
$4,782,000
The above claims were satisfied with the issuance of common stock as noted
above and the related forgiveness of debt has been recorded as an extraordinary
gain in the accompanying statement of operations for the thirty-nine weeks ended
October 26, 1996.
Fresh Start Reporting
The balance sheet as of October 26, 1996 presented herein has been prepared
based on Fresh Start Reporting which was adopted on the Effective Date and
applied at October 26, 1996. The Company has adopted Fresh Start Reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7 -- "Financial Reporting by Entitles in Reorganization under the
Bankruptcy Code." Fresh Start Reporting has resulted in changes to the
consolidated balance sheet, including valuation of assets and liabilities at
fair market value and valuation of equity based on the reorganization value of
the ongoing business.
The reorganization value of the Company is primarily based on the
consideration received from HAC to obtain its ownership in the Company. A
carrying value of $318,000 was also assigned to the Preferred Stock (see Note
6). Subsequent to the Effective Date, the Company issued an additional 51,565
shares of Common Stock to InterEquity, as authorized by the Court for an
approved finders fee. The excess of the reorganization value over the fair value
of net assets and liabilities ($1,650,570) is reported as "Reorganization value
in excess of amounts allocable to identifiable assets", and will be amortized
over a twenty-five year period.
The revaluation of the Company's assets and liabilities resulted in the
following Fresh Start adjustments:
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
1. Basis of Presentation, Plan of Reorganization and Fresh Start Reporting
(cont.)
Increase in property plant and equipment $292,236
Decrease/increase in other assets and liabilities, net (84,962)
Reorganization value in excess of amounts allocable
to identifiable assets 1,650,570
$1,857,844
2. Summary of Significant Accounting Policies
Description of Business
Harvey Electronics, the operating entity of The Harvey Group Inc. and
subsidiaries (the "Company"), is a specialty retailer of high quality
audio/video consumer electronics and home theater products in the Metropolitan
New York area. Revenue is recognized at the time goods are delivered or services
are performed.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost (average-cost method, which
approximates the first-in, first-out method) or market.
Depreciation and Amortization
Depreciation of property, plant and equipment, including equipment acquired
under capital leases, is provided for by the straight-line method over the
estimated useful lives of the related equipment. Leasehold improvements are
amortized over the lease term or estimated useful life of the improvements,
whichever is shorter.
Loss Per Share
The income (loss) per common share for the thirty-nine weeks ended October
26, 1996 and for the 1996 fiscal year was computed based on the weighted average
number of common shares outstanding; common equivalent shares were not
considered since their inclusion would have been antidilutive. Per share data
for all years presented, on a fully diluted basis, is the same as amounts shown.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
2. Summary of Significant Accounting Policies (cont.)
Statement of Cash Flows
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Total interest paid for the thirty-nine weeks ended October 26, 1996 and
during fiscal 1996 was $269,000 and $478,000, respectively.
Concentration of Credit Risk
The Company's operations consist of the retail sale, service and custom
installation of advanced consumer electronic equipment, specifically audio,
video and home theater equipment in the New York Metropolitan area. The Company
performs ongoing credit evaluations of its customers financial condition and
payment history but does not require collateral. Generally, accounts receivable
are due within 30 days and credit losses have historically been immaterial.
3. Debtor-in-Possession Financing
On October 5, 1995, the Company announced it had signed a letter of intent
with HAC, an entity created by an investor group, which set forth the terms and
conditions of an agreement to provide secured debtor-in-possession credit
support of $1,500,000.
On October 24,1995, in connection with the Reorganization Plan, the Company
entered into a Security Loan Agreement ("Loan Agreement") with HAC, enabling the
Company to borrow up to $1,500,000. The Loan Agreement bore interest at 2% over
the prime rate at Citibank, N.A. and was subordinate only to the Company's
primary lender, Congress Financial Corporation ("Congress"), as evidenced by a
intercreditor agreement between HAC and Congress (see Note 4).
The proceeds ($1,500,000) received in installments from HAC coupled with
credit support from the Company's vendors and bank were primarily used to build
inventory levels. On May 6, 1996, the Company received an additional $50,000
from HAC to be used for general operating purposes. In September 1996, the Loan
Agreement was amended, enabling the Company to borrow up to $3,000,000. As a
result of the amendment, additional proceeds of $1,272,500 were received from
HAC ($605,000 of such proceeds were received subsequent to October 26, 1996),
for a total aggregating $2,822,500. The proceeds were used for capital
expenditures, to build a new retail store in Greenwich, Connecticut,
advertising, professional fees and for working capital purposes. This
debtor-in-possession financing, at the Effective Date was converted to 2 million
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
3. Debtor-in-Possession Financing (cont.)
shares of the Common Stock of the reorganized Company in accordance with
the Plan of Reorganization.
Under the Loan Agreement, the Company paid $5,000 per month representing a
loan servicing fee to HAC. Such amounts aggregated $45,000 and $20,000 for the
nine months ended October 26, 1996 and for the year ended January 27, 1996,
respectively.
Subsequent to the Effective Date, certain individuals including members of
HAC provided an additional $350,000 of long-term financing to the Company, to be
used for working capital purposes.
4. Revolving Lines of Credit Facilities, Note Payable to Bank and Long-Term
Debt
Revolving Lines of Credit Facilities
In October 1997, the Company received a proposal for a three-year revolving
line of credit facility with Paragon Capital L.L.C. ("Paragon") whereby the
Company may borrow up to $3,300,000 based upon a lending formula (as defined),
calculated on eligible inventory. Proceeds from Paragon will be used to pay down
and cancel the existing credit facility with Congress, reduce trade payables and
pay related costs of the refinancing. The Paragon facility will provide
additional financing of over $800,000. The interest rate on borrowings up to
$2,500,000 will be 1% over the prime rate. The rate charged on outstanding
balances over $2,500,000 will be 1.75% above the prime rate. A commitment fee of
$49,500 (to be amortized over three years) will be paid by the Company at
closing and a facility fee of three-quarters of one percent (.75%) of the
maximum credit line will be charged on each anniversary date. Monthly
maintenance charges and a termination fee also exist under the line of credit.
Paragon will receive 110,000 warrants to purchase common stock at an
exercise price of $5.00 per share.
Paragon will be granted a senior security interest in all of the Company's
assets. The line of credit facility provides Paragon with rights of acceleration
upon the occurrence of certain customary events of default including, among
others, the event of bankruptcy. The Company will also be restricted from paying
dividends on common stock, retiring or repurchasing its common stock and
entering into additional indebtedness (as defined). Additionally, certain
financial covenants exist.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
4. Revolving Lines of Credit Facilities, Note Payable to Bank and Long-Term
Debt (continued)
In fiscal 1995, the Company entered into a three year revolving line of
credit facility with Congress, whereby the Company could borrow up to
$3,000,000, based upon a lending formula (as defined) calculated on eligible
inventory. Amendments to the Congress revolving line of credit facility were
completed on January 7, 1997 and March 31, 1997, primarily extending the
facility through January 6, 2000, instituting a net worth covenant (as defined)
and increasing available borrowings by approximately $250,000, by amending the
lending formula (as defined). The interest rate per annum on this credit
facility was 2% over the prime rate of Philadelphia National Bank. An unused
line fee of one quarter of one percent per annum and prescribed early
termination fees also existed under the line of credit. At closing, $200,000 was
required to be placed in escrow in a certificate of deposit as additional
collateral for Congress. As mentioned above, this credit facility is expected to
be canceled and replaced by a new revolving credit facility with Paragon. As a
result, the Company will pay an early termination fee of $30,000 to Congress.
Congress has a senior security interest in all of the Company's assets and
an intercreditor agreement existed between Congress and HAC, (See Note 3).
Note Payable to Bank
In fiscal 1995, the Company completed a refinancing which included the
prepayment and discounting of a receivable from Merkert Enterprises, Inc.
("Merkert"), the purchaser of certain assets and the business of the Company's
previous food brokerage division (The Boerner Company) in fiscal 1993, (See
Notes 9 and 10). At closing, the Company received $2,150,000 from Merkert, of
which $2,100,000 was used to substantially reduce the amount due to National
Westminster Bank, USA ("NatWest") (from $2,600,000 outstanding at such time to
$500,000). The remaining $500,000 obligation was converted to a two year term
loan bearing interest at NatWest's prime rate plus 5% per annum and the existing
credit facility from NatWest was canceled.
NatWest and InterEquity, an entity which provided term loans to the Company
had entered into an intercreditor agreement whereby both shared equally in a
subordinate second position to the Company's previous lender, Congress.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
4. Revolving Lines of Credit Facilities, Note Payable to Bank and Long-Term
Debt (continued)
Long-Term Debt
Long-term debt consisted of the following: October 26 1996
------------------
Debtor-in-possession financing from HAC (b) $0
Congress revolving line of credit facility (a) 778,217
------------------
778,217
Less current portion -
------------------
$778,217
==================
(a) The balance outstanding at October 26, 1996 ($778,217) includes
advances from Congress to the Company against HAC cash collateral of $250,000.
As a result of the reorganization, the $250,000 was converted to equity by HAC
and became the Company's cash, and the loan balance was reduced by this amount.
(b) Interest expense relating to the HAC debtor-in-possession financing was
$149,000 and $53,000 for the thirty-nine weeks ended October 26, 1996 and for
and for the fiscal year ended January 27, 1997, respectively. Interest payable
to HAC at October 26, 1996 and January 27, 1996 was $34,000 and $11,000,
respectively.
5. Proposed Initial Public Offering
On September 15, 1997 the Company signed a letter of intent with an
underwriter to sell common stock and warrants to purchase common stock in a
public offering ("the Offering") . The underwriter proposes to co-manage and
underwrite an offering of 850,000 shares of the Company's common stock and
1,300,000 of warrants ("Warrants") to acquire additional shares of Common Stock.
The net proceeds from the Offering will be used for retail store expansion
and working capital purposes.
Each Warrant shall be exerisable for one share of common stock at 110% of
the public offering price, for a period of three years commencing two years from
the Effective Date of the Offering. The Warrants are also redeemable, (at a
prescribed price) at the Company's option, two years after the Effective Date of
the Offering if the closing bid price of the common stock for 20 consecutive
trading days during the two years holding period, exceeds 150% of the public
offering price per share.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
5. Proposed Initial Public Offering (continued)
At the underwriter's election, it may underwrite an additional 127,500
shares and or 195,000 Warrants if market conditions permit. The first 27,500 of
such shares would be sold by the Company and any additional shares will be sold
by HAC with the proceeds to be received by HAC.
As compensation for the Offering, the underwriters will receive a 10%
commission; a 3% non-accountable expense allowance and Warrants for 10% of the
number of shares of common stock and Warrants sold to the public. These Warrants
shall be non-exerisable for one year following the effective date and will be
exerisable thereafter for a period of five years at 120% of the initial public
offering price. Additionally, the Company has agreed to pay a monthly consulting
fee of $2,433 to the underwriters for a three year period commencing on the
effective date of the Offering. The underwriters will also, for a period of
three years, engage two designees as advisors to the Board of Directors.
Finally, the Company will compensate the underwriters a commission of 5% for any
Warrant sold in the Offering which are exercised more than twelve (12) months
following the effective date.
The proposed Offering is subject to certain conditions, as defined in the
letter of intent. There can be no assurance that this proposed transaction will
be completed.
6. Stock Option Plans and Preferred Stock (cont.)
Stock Option Plans
In conjunction with the Reorganization Plan, the Company's Board of
Directors approved the Harvey Electronics, Inc. Stock Option Plan ("Stock Option
Plan"). The Stock Option Plan is subject to shareholder approval and provides
for the granting of up to 1,000,000 shares of incentive and non-qualified common
stock options and stock appreciation rights to certain directors, officers and
key employees.
In fiscal 1988, the shareholders of the Company approved the 1988 Stock
Option Plan which provides for the grant of incentive and non qualified stock
options to certain directors, officers and key employees. The Company had
reserved 200,000 shares for issuance under this plan. The stock options were
excisable at prices not less than the fair market value of the Company's common
stock on the date of grant. At October 26, 1996 and January 27, 1996, the
Company had reserved 200,000 shares of common stock, for issuance in connection
with stock options. As of the Effective Date, these options were canceled.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
6. Stock Option Plans and Preferred Stock (cont.)
Transactions during the fiscal years ended January 27, 1996 and nine months
ended October 26, 1996 were as follows:
<TABLE>
<CAPTION>
Shares Shares Under Option
------------------------------------------
Available Option Price Number
for Granting Per Share of Shares
-------------------------------------------------------
<S> <C> <C> <C>
Balance at January 28, 1995 37,000 163,000
Canceled 36,000 $1.00 (36,000)
Granted - -
Expired - -
----------- -------------
Balance at January 27, 1996 73,000 127,000
Canceled 55,000 $1.00 (55,000)
Granted - -
Expired - -
----------- -------------
Balance at October 26, 1996 128,000 72,000
=========== =============
</TABLE>
Of the options outstanding at October 26, 1996 and January 27, 1996, 72,000
options were exercisable. As of Effective Date, such options have been canceled.
8.5% Cumulative Convertible Preferred Stock
The Company's new Preferred Stock has no voting rights and is redeemable at
the option of the Company's Board of Directors in whole or in part at face value
plus any accrued dividends. The Fresh Start carrying value of the Preferred
Stock was $318,000 at October 26, 1996. The reorganization carrying value of the
Preferred Stock has been estimated to be $318,000 based on a sale of such
security, independent of the Company, for 36% of stated value.
In the event of liquidation of the Company, the holders of the Preferred
Stock shall receive preferential rights and shall be entitled to receive face
value plus any outstanding dividends, prior to any distributions to common
shareholders The holders of the Preferred Stock shall receive a semiannual 8.5%
cumulative dividend (or $85 per share annually), payable on the last business
day in June and December. The Company may elect to defer only the first year's
dividend at a preference rate of $105 per share annually. This deferred amount
plus interest at 8.5% per annum would be payable in three (3) equal annual
installments from December 31, 1998 through 2000.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
6. Stock Option Plans and Preferred Stock (cont.)
The Preferred Stock may be convertible at the option of the holder in whole
or in part if the following occurs: (i) a public offering of the Company's
Common Stock, (ii) a sale of substantially all of the assets of the Company or
(iii) a merger of the Company. Each share of Preferred Stock may be convertible
into shares of common stock which is determined by dividing $1,000 by, (i) the
per share public offering price, (ii) the value received per share of common
stock in the event of a sale or (iii) or total consideration of the merger on a
per share basis (as defined), and multiplying the result by two-thirds (2/3).
The Company has reserved an appropriate estimate of common stock for such future
issuance.
7. Income Taxes
At October 26, 1997 and January 27, 1996, the Company has available net
operating loss carryforwards of approximately $14,000,000 and $12,000,000 which
expire in various years through fiscal 2012. As a result of the Company's
Reorganization Plan and significant ownership change under Section 382 of the
IRS Code, it is estimated that the net operating loss carryforward and other tax
attributes will be severely restricted and limited to approximately $150,000 -
$180,000 per year.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
7. Income Taxes (continued)
Federal, state and local income tax returns have not been filed for any
period subsequent to January 1994, as the Company was operating under Chapter 11
for such periods. All relevant tax returns are expected to be filed prior to
November 30, 1997. The Company has provided estimated tax liabilities for
minimum taxes, interest and penalties for all outstanding minimum tax
obligations.
8. Pension and Profit Sharing Plan
The Harvey Group Inc. Savings and Investment Plan (the "Plan") includes
profit sharing, defined contribution and 401(k) provisions and is available to
all eligible employees of the Company. There were no contributions to the Plan
for the thirty-nine weeks ended October 26, 1996 and for fiscal year 1996.
Effective January 1, 1995 the Company's Board of Directors temporarily elected
to eliminate the employer 401(k) match on employee contributions. Subsequent to
the Effective Date, the Plan's name was amended and changed to Harvey
Electronics, Inc. Savings and Investment Plan.
9. Commitments and Contingencies
Commitments
The Company's financial statements reflect the accounting for equipment
leases as capital leases recording the asset and liability for the lease
obligation. Additional capital leases for the thirty-nine week period ended
October 26, 1996 totaled $101,000. Future minimum rental commitments, by year
and in the aggregate, under the capital lease and noncancelable operating leases
with initial or remaining terms of one year or more consisted of the following
at October 26, 1996:
Operating Leases Capital Leases
-----------------------------------------
Fiscal 1997 1,023,000 114,000
Fiscal 1998 956,000 5,000
Fiscal 1999 992,000 4,000
Fiscal 2000 1,018,000 4,000
Fiscal 2001 1,027,000 2,000
Thereafter 2,267,000 -
-----------------------------------------
Total minimum lease payments $7,283,000 129,000
=====================
Less amount representing interest 15,000
----------------
Present value of net minimum lease payments 114,000
Less current portion 102,000
----------------
$ 12,000
================
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
9. Commitments and Contingencies (continued)
Minimum rental commitments are offset by sublease income of $93,000 per
annum through fiscal 2001.
The Company's minimum annual commitment of $180,000 relating to the retail
store opened in fiscal 1994 and located within ABC Carpet and Home has not been
presented in the above total minimum lease payments as this lease is currently
on a month to month basis.
In fiscal 1993, the Company entered into termination agreements with the
landlord of its previous headquarters located in Roslyn Heights, and Merkert the
purchaser of The Boerner Company (See Note 4), relating to the original prime
lease and sublease agreements. Pursuant to the agreement with the landlord, the
Company was released from all obligations under the prime lease for
consideration approximating $885,000. Of this amount, approximately $661,000 had
been paid by the Company through January 27, 1996. The remaining amounts owed
were reclassified as Liabilities Subject to Compromise. In conjunction with the
termination agreements, the Company assigned the remaining amounts to be
received from Merkert to the landlord (see Note 10). Remaining amounts due to
the landlord under the assignment are included in the balance sheet caption
"Accrued Costs Related to Discontinued Operations."
Total rental expense for operating leases was $1,234,000 and $1,507,000,
for the thirty-nine weeks ended October 26, 1996 and for the fiscal year ended
January 27, 1996, respectively. Certain leases provide for the payment of
insurance, maintenance charges and taxes and contain renewal options.
Contingencies
The Company or its subsidiaries are defendants in certain legal actions
which arose in the normal course of business. The outcome of these legal
actions, in the opinion of management, will not have a material effect on the
Company's financial position or operations.
The Company had available standby letters of credit outstanding at October
26, 1996, aggregating $100,000.
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
10. Other Information
Accrued Expenses and Other Current Liabilities
Included in accrued expenses and other current liabilities were the
following:
October 26 1996
----------------
Salaries, severance, vacation and incentives $125,959
Accrued professional fees - other 134,178
Customer layaways 357,311
Sales tax 19,085
Prepetition rent 14,189
Other 156,977
----------------
================
$807,699
================
Other Long-Term Liabilities
October 26, 1996
----------------
Straight-line impact of lease escalations $75,356
Sales tax and warranty reserves 77,000
----------------
$152,356
================
<PAGE>
THE HARVEY GROUP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1996
10. Other Information (cont.)
Other
In fiscal 1995, the Company's previous chief executive officer/chairman
("Officer") purchased from the Company certain life insurance policies and their
related cash surrender values ($153,371). In consideration, the Company received
a promissory note bearing interest at 6% from such Officer, which was to be
repaid in six equal installments beginning January 1, 1997. Interest and
principal payments on the note were pledged to Congress by the Company and, in
addition, the Officer provided a limited guarantee of up to $150,000 to Congress
relating to the revolving credit facility.
On July 11, 1996, as part of the reorganization, the Officer agreed to
prepay the promissory note and the Company received $125,000 (including interest
of $10,000). As a result, the $125,000 was classified as a current asset and the
discount of $38,371 on such note was recorded to reorganization expense at
January 27, 1996. The $150,000 limited guarantee provided by the Officer, was
then canceled by Congress.
The financial statement caption, "Interest and Other Income" includes
$45,605 and $88,427 of interest, consulting and other income relating to
proceeds of the sale of the Boerner Division, for the thirty-nine weeks ended
October 26, 1996 and for fiscal 1996, respectively.
In accordance with the prepayment agreement, the remaining installments to
be received from Merkert Enterprises, Inc. (included in the balance sheet
caption, "prepaid expenses and other current assets") are as follows:
Fiscal Year Installment Date Payment Interest Principal
- ------------------------------------------------------------------------------
October 26, 1996 1/1/97 $74,000 $5,670 $ 68,330
==============================================================================
Remaining installment payments to be received will be used to pay
outstanding obligations under a lease termination agreement (See Note 9).
Advertising expense for the thirty-nine weeks ended October 26, 1996 and
for fiscal year 1996 were $358,000 and $63,000, respectively. Prepaid
advertising at October 26, 1996 was $183,000.
Exhibit A
ANGEL & FRANKEL, P.C.
Attorneys for Debtors and
Debtors-in-Possession
460 Park Avenue
New York, New York 10022-1906
(212) 752-8000
Joshua J. Angel, Esq. (JA-3288)
Kevin R. Toole, Esq. (KT-7700)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK - - - - - -x
In re: Chapter 11
THE HARVEY GROUP INC. AND Case Nos. 95 B 43360 and
HARVEY SOUND, INC. d/b/a 95 B 43361 (BRL)
HARVEY ELECTRONICS,
Debtors Jointly Administered
- - - - - - - - - - - - - - - - - - - - - -x
DEBTORS' RESTATED MODIFIED AMENDED JOINT AND
SUBSTANTIVELY CONSOLIDATED PLAN OF REORGANIZATION
November 6, 1996
<PAGE>
iii
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION....................................................................5
ARTICLE II 22
CLASSIFICATION OF CLAIMS AND STOCK INTERESTS............................................................22
2.01. Division of Classified Claims.........................................................22
2.02. Allowed Claims and Interests..........................................................22
2.03. Classification........................................................................22
2.04. Non-Classified Claims.................................................................23
ARTICLE III........................................................................................................
IDENTIFICATION OF CLASSES OF CLAIMANTS AND INTEREST HOLDERS IMPAIRED AND UNIMPAIRED UNDER THE PLAN......23
ARTICLE IV.........................................................................................................
PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS UNDER THIS PLAN........................................25
4.01. Unclassified Claims...................................................................25
4.02. Allowed Priority Claims (Class 1).....................................................26
4.03. Allowed Congress Claim (Class 2)......................................................27
4.04. Allowed HAC Claim (Class 3)...........................................................28
4.05. Allowed InterEquity Claim (Class 4)...................................................28
4.06. Allowed NatWest Claim (Class 5).......................................................29
4.07. Allowed Convenience Claims (Class 6)..................................................30
4.08. Allowed Unsecured Claims (Class 7)....................................................30
4.09. Allowed Affiliate Claims (Class 8)....................................................30
4.10. Existing Equity Interests (Class 9)...................................................30
4.11. Existing Liens and Security Interests.................................................31
ARTICLE V
ACCEPTANCE OR REJECTION OF PLAN; EFFECT OFREJECTION BY ONE OR MORE CLASS OF CLAIMS......................32
ARTICLE VI
MEANS FOR EXECUTION OF THIS PLAN........................................................................34
6.01. Plan Implementation...................................................................34
6.02. Plan Funding..........................................................................34
6.03. Creation of New Equity and Execution of Related Documents.............................35
6.04. Cancellation of Existing SecuritiesInstruments and Agreements.........................36
6.05. Setoffs. 36
6.06. Corporate Action......................................................................36
ARTICLE VII
PROVISIONS CONCERNING DISTRIBUTIONS.....................................................................38
7.01. Time and Manner of Distributions Under this Plan......................................38
7.02. Fractional Cents......................................................................40
7.03. Calculation of Distribution Amounts of New Equity.....................................40
7.04. Unclaimed Property....................................................................40
7.05. Payment Dates.........................................................................41
7.06. De Minimus Distributions..............................................................41
ARTICLE VIII
PROVISIONS CONCERNING DISCHARGE AND PROPERTY............................................................42
8.01. Discharge of Claims and Interests.....................................................42
8.02. Vesting of Property in Reorganized Harvey.............................................42
<PAGE>
ARTICLE IX.......................................................................................................43
9.01. Injunction............................................................................43
ARTICLE X
REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS.........................................................44
10.01. Assumption of Executory Contracts/Leases..............................................44
10.02. Disputes Regarding Contract Cures.....................................................45
10.03. Rejection Claims......................................................................46
ARTICLE XI.........................................................................................................
PROCEDURES FOR RESOLVING DISPUTED CLAIMSOR DISPUTED INTERESTS...........................................47
11.01. Time Limit for Objections to Claims...................................................47
11.02. Resolution of Disputed Claims and Interests...........................................47
11.03. Payments..............................................................................47
ARTICLE XII
SUBSTANTIVE CONSOLIDATION...............................................................................48
12.01. Substantive Consolidation.............................................................48
12.02. Terms of Consolidation................................................................49
12.03. Corporate Consolidation. .............................................................50
ARTICLE XIII
CONDITIONS PRECEDENT....................................................................................51
13.01. Conditions to Occurrence The Effective Date...........................................51
ARTICLE XIV
ADMINISTRATIVE PROVISIONS...............................................................................52
14.01. Further Documents and Action..........................................................52
14.02. Committees............................................................................52
14.03. Post-Confirmation Management..........................................................52
14.04. Post Confirmation Board of Directors..................................................53
ARTICLE XV
RETENTION OF JURISDICTION...............................................................................55
15.01. Retention of Jurisdiction.............................................................55
ARTICLE XVI
MISCELLANEOUS...........................................................................................58
16.01. Modification Of This Plan.............................................................58
16.02. Revocation and Withdrawal of Plan.....................................................58
16.03. Nonconsensual Confirmation............................................................59
16.04. Notices to Debtors....................................................................59
16.05. Notice And Entry Of Confirmation Order................................................60
16.06. Post Confirmation Date Service List -
Persons Entitled To Notice...................................................60
16.07. Headings..............................................................................61
16.08. Severability..........................................................................61
16.09. Governing Law.........................................................................61
16.10. Change of Corporate Name..............................................................61
16.11. Stock Option Plan. ...................................................................62
16.12. State of Incorporation................................................................62
16.13. Successors and Assigns. ..............................................................62
16.14. Reservation of Rights.................................................................62
16.15. Disbursing Agent......................................................................62
16.16. Fees and Expenses Post-Effective Date.................................................63
</TABLE>
<PAGE>
ANGEL & FRANKEL, P.C.
Attorneys for Debtors and
Debtors-in-Possession
460 Park Avenue
New York, New York 10022-1906
(212) 752-8000
Joshua J. Angel, Esq. (JA-3288)
Kevin R. Toole, Esq. (KT-7700)
Robert A. Abrams, Esq. (RA-6051)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - -x
In re: Chapter 11
THE HARVEY GROUP INC. AND Case Nos. 95 B 43360 and
HARVEY SOUND, INC. d/b/a 95 B 43361 (BRL)
HARVEY ELECTRONICS,
Debtors. Jointly Administered
- - - - - - - - - - - - - - - - - - - - - - - - - x
DEBTORS' MODIFIED AMENDED JOINT AND SUBSTANTIVELY
CONSOLIDATED PLAN OF REORGANIZATION
The Harvey Group Inc. and Harvey Sound, Inc., New York corporations,
debtors and debtors-in-possession ("Debtors"), propose the following modified
amended joint plan of reorganization ("Plan") pursuant to Chapter 11 of Title
11, United States Code, 11 U.S.C. section 1121(a) (the "Bankruptcy Code").
<PAGE>
31
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
For the purposes of this Plan, the following terms shall have the
respective meanings as hereinafter set forth (such meanings to be equally
applicable to the singular and plural forms of the terms defined, unless the
context otherwise requires). Capitalized terms used in this Plan shall at all
times refer to the terms as defined in this Article I or as otherwise defined in
this Plan. A term used in this Plan which is not defined herein but is defined
in the Bankruptcy Code or the Bankruptcy Rules shall have the meaning ascribed
to such term in the Bankruptcy Code or Bankruptcy Rules. Accounting terms, if
any, not otherwise defined in this Plan shall have the meanings assigned to them
in accordance with generally accepted accounting principles (GAAP) currently in
effect. The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Plan as a whole, including all exhibits and schedules, if
any, annexed hereto, as the same may from time to time be amended or
supplemented, and not to any particular article, section or subdivision
contained in this Plan. All exhibits to the Disclosure Statement referred to in
this Plan shall be deemed incorporated in and are deemed exhibits to this Plan
by reference.
<PAGE>
1.01. "Administrative Claim" means a claim for any cost or expense of
administration in connection with the Bankruptcy Case of a kind specified in
section 503(b) of the Bankruptcy Code and referred to in sections 507(a)(1) and
1114(e)(2) of the Bankruptcy Code, including, without limitation, any actual and
necessary costs and expenses incurred after the Petition Date and up to the
Effective Date of preserving the Estate of the Debtors, any indebtedness or
obligation incurred or assumed by the Debtors, as debtors-in-possession, in
connection with the conduct of their business or businesses, allowances of
compensation for legal or other services and reimbursement of costs and expenses
under sections 330(a) or 331 of the Bankruptcy Code or otherwise allowed by the
Court, all costs of making distributions and providing notices and ballots with
respect to the Plan and all fees and charges assessed against the Estate under
Chapter 123, Title 28, United States Code.
1.02. "Affiliate" means an affiliate, as such term is defined in section
101(2) of the Bankruptcy Code.
1.03. "Affiliate Claim" means any Claim of Group or Sound as against the
other, or of any Affiliate against Group, Sound or the Debtors jointly.
<PAGE>
1.04. "Allowed" or "Allows" means a Claim or Existing Equity Interest or
portion thereof: (i) which is scheduled by the Debtors pursuant to sections
521(1) and 1106(a)(2) of the Bankruptcy Code, other than a Claim or Existing
Equity Interest which is scheduled by the Debtors as disputed, contingent,
unliquidated or unknown; or (ii) proof of which has been filed, pursuant to
section 501(a) of the Bankruptcy Code, on or before the date designated by the
Court as the last date for the timely filing of proofs of claim or proofs of
interest (generally December 4, 1995, the "Bar Date" as defined in Section 1.14
of this Plan, unless otherwise fixed by Final Order of the Court), and with
respect to which Claim or Interest no objection to the allowance thereof has
been interposed prior to the final date for filing such objections set forth in
a Final Order of the Court or provided by this Plan; or (iii) which, after
objection thereto, has been allowed, in whole or in part, by a Final Order; or
(iv) which has been allowed pursuant to a Final Order. Unless otherwise
specified in this Plan, "Allowed Claim" or "Allowed Interest" shall not,
include, for any purpose, interest on the amount of such Claim (except for
certain Administrative Claims and Priority Claims) or Existing Equity Interest
from and after the Petition Date.
1.05. "Allowed Administrative Claim" means all or that portion of any
Administrative Claim that either has been Allowed by a Final Order or has not
been objected to within any time period which might be established by this Plan
or by a Final Order of the Bankruptcy Court.
1.06. "Allowed Affiliate Claim" means an Affiliate Claim to the extent it
is or has become an Allowed Claim.
1.07. "Allowed Congress Claim" means the Congress Claim to the extent it is
or has become an Allowed Claim.
<PAGE>
1.08. "Allowed Consumer Deposit Claim" means a Consumer Deposit Claim to
the extent it is or has become an Allowed Claim.
1.09. "Allowed Convenience Claim" means a Convenience Claim to the extent
it is or has become an Allowed Claim.
1.10. "Allowed HAC Claim" means the HAC Claim to the extent it is or has
become an Allowed Claim.
1.11. "Allowed InterEquity Claim" means the InterEquity Claim to the extent
it is or has become an Allowed Claim.
1.12. "Allowed NatWest Claim" means the NatWest Claim to the extent it is
or has become an Allowed Claim.
1.13. "Allowed Priority Claim" means a Priority Claim to the extent it is
or has become an Allowed Claim.
1.14. "Allowed Unsecured Claim" means an Unsecured Claim to the extent it
is or has become an Allowed Claim. Interest accrued after the Petition Date
shall not be part of any Allowed Unsecured Claim.
1.15. "Assets" means all property and assets of the Debtors, of any nature
whatsoever, including claims of right and property, real and personal, tangible
and intangible, including without limitation, all property of the estate
provided for under section 541 of the Bankruptcy Code and all property acquired
by the Debtors subsequent to the Petition Date.
1.16. "Bankruptcy Case" means the Chapter 11 reorganization cases of the
Debtors commenced by the filing of voluntary petitions by the Debtors on August
3, 1995.
<PAGE>
1.17. "Bankruptcy Code" means Title I of the Bankruptcy Reform Act of 1978,
(11 U.S.C. Sections 101, et. seq.) as amended.
1.18. "Bankruptcy Court" or "Court" means the United States District Court
for the Southern District of New York, having jurisdiction over the Bankruptcy
Case and to the extent of any references made pursuant to 28 U.S.C. section 157,
the United States Bankruptcy Court for the Southern District of New York.
1.19. "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure
and the Local Rules of the Bankruptcy Court, together with all amendments and
modifications from time to time made thereto as prescribed under 28 U.S.C.
section 2075 (1978).
1.20. "Bar Date" means the deadline for filing Claims as fixed by the
Court; provided, however, that if the Court extends the time for filing any
given Claim, the date so set shall be the Bar Date only with respect to such
given Claim.
1.21. "Business Day" means any day other than a Saturday, Sunday or legal
holiday (as such term is defined in Bankruptcy Rule 9006).
1.22. "Cash" means cash and cash equivalents, including but not limited to,
bank deposits, checks and other similar items. 1.23. "Chapter 11" means Chapter
11 of the Bankruptcy Code.
<PAGE>
1.24. "Claim" means a claim against the Debtors, whether or not asserted,
contingent, or unliquidated, as defined in section 101(5) of the Bankruptcy
Code, and shall include, but is not limited to, any Claim against the Debtors
for pre-petition interest, post-petition interest or contingent interest, any
contingent Claim, any Claim against the Debtors arising out of the rejection of
any Executory Contract, any Claim arising from the recovery of property under
sections 550 or 553 of the Bankruptcy Code, and any Claim for a tax whether or
not the Claim is entitled to priority under section 507(a) of the Bankruptcy
Code.
1.25. "Claimant" means the holder of a Claim and "Holder" means a Claimant.
1.26. "Class" means a category of holders of Allowed Claims or Allowed
Existing Equity Interests as provided for in Article II of this Plan.
1.27. "Confirmation" means entry of an order by the Court confirming this
Plan in accordance with Chapter 11.
1.28. "Confirmation Date" means the date which the Confirmation Order
becomes a Final Order.
1.29. "Confirmation Hearing" means the hearing held before the Court with
respect to the Confirmation of this Plan.
1.30. "Confirmation Order" means the order to be entered by the Court
confirming this Plan in accordance with Chapter 11.
1.31. "Congress" means Congress Financial Corporation.
<PAGE>
1.32. "Congress Claim" means the Secured Claim of Congress as a result of
pre-Petition Date loans and advances ("Pre-Petition Congress Loans") made by
Congress to the Debtors pursuant to certain loan and security agreements
executed and delivered by Debtors with, to or in favor of Congress as same now
exist (the "Congress Financing Agreements") and post-Petition Date loans and
advances made by Congress to the Debtors (the "DIP Financing") pursuant to
interim and final orders of the Court authorizing financing, granting senior
liens and priority administrative expense status and granting related relief,
dated August 8, 1995 and August 28, 1995, respectively (the "Congress Financing
Order"), and a certain Ratification and Amendment Agreement, dated as of August
8, 1995 (the "Ratification Agreement"), by which Debtors ratified, extended,
assumed, adopted and amended the Congress Financing Agreements and agreed to be
bound by and comply with said agreements with respect to the Pre-Petition
Congress Loans and the DIP Financing.
<PAGE>
1.33. "Contract Cures" mean the amounts set forth on Exhibit "1" to this
Plan evidencing all arrearages or monetary defaults with regard to the
respective Executory Contracts, including those for the Debtors' remaining
retail store locations, the assumption, rejection and/or modification of which
are not the subject of Final Orders previously entered by the Court (i.e.
Westbury, NY) to be assumed pursuant to this Plan, or such other amount,
treatment or disposition as may otherwise be agreed to between the Debtors and a
respective lessor or contract vendor, or as may be determined by the Court in
the event of a dispute which has been timely raised as provided under Article X
of this Plan.
1.34. "Consumer Deposit Claim" means a Claim entitled to Priority Non-Tax
Claim status pursuant to section 507(a)(6) of the Bankruptcy Code to the extent
such Claim remains unsatisfied or existing as of the Effective Date.
1.35. "Consummation" or "Consummation Date" means the date upon which all
distributions and other treatment proposed by this Plan shall have been made or
completed, provided that substantial consummation of this Plan shall be deemed
to have occurred upon all distributions and treatment provided for on the
Effective Date having been made or completed.
<PAGE>
1.36. "Convenience Claim" means any Unsecured Claim of any Claimant which
when aggregated with all such other Claims of such Claimant either (a) total
$1,000.00 or less or (b) are reduced by election of such Claimant or by Final
Order after objection pursuant to Article XI of this Plan to $1,000.00 in the
aggregate. An election to have a Claim treated as a Convenience Claim pursuant
to Subsection (b) hereof shall be made by the Holder of such a Claim upon the
Ballot (see Disclosure Statement) to be executed in the space therein provided
for such election. Holders of a Convenience Claim in accordance with Subsection
(a) hereof shall have no right to elect whether such Claim is treated as a
Convenience Claim or an Unsecured Claim.
1.37. "Creditor" means any Entity that has a Claim against the Debtors.
1.38. "Creditors' Committee" means the official committee of unsecured
creditors appointed by the Office of the United States Trustee in the Bankruptcy
Case pursuant to section 1102 of the Bankruptcy Code, and as same may be
increased, decreased, or reconstituted, as authorized under the Bankruptcy Code,
or otherwise.
1.39. "Debtors" mean The Harvey Group Inc. and Harvey Sound, Inc.
1.40. "Disallowed Claim" means any Claim, or portion thereof, that has been
disallowed pursuant to section 502 of the Bankruptcy Code by the Court pursuant
to a Final Order.
1.41. "Disbursing Agent" shall mean the Debtors in connection with their
obligations to make the distributions contemplated under this Plan.
<PAGE>
1.42. "Disclosure Statement" means the statement required under section
1125 of the Bankruptcy Code, as modified or amended, that (i) relates to this
Plan and (ii) is approved by the Bankruptcy Court pursuant, and contains
adequate information as defined under, section 1125 of the Bankruptcy Code.
1.43. "Disputed Claim" or "Disputed Interest" means: (a) a Claim or portion
of a Claim (other than an Allowed Claim) which is scheduled by the Debtors as
disputed, contingent, unliquidated or unknown; or (b) a Claim which has been
filed pursuant to section 501(a) of the Bankruptcy Code as unliquidated,
contingent or unknown; or (c) a Claim which has been filed pursuant to section
501(a) of the Bankruptcy Code; or (d) an Existing Equity Interest, and as to
which an objection to the allowance thereof has been interposed within the time
limitation fixed by the Bankruptcy Code, by an order of the Court, or by this
Plan, which objection has not been determined, in whole or in part, by a Final
Order.
1.44. "Distribution" shall mean a payment of Cash, notes, New Common Stock,
New Preferred Stock or other considerations to be made under this Plan.
1.45. "Distribution Date" means the Effective Date, except with respect to
Disputed Claims, in which case, Distribution Date shall be a date which is
thirty (30) days after the date a Final Order has been entered with respect to
the disposition of the particular Disputed Claim.
1.46. "Effective Date" means a date not later than the twentieth (20th)
Business Day after the Confirmation Date.
<PAGE>
1.47. "Entity" shall have the meaning set forth in section 101(15) of the
Bankruptcy Code.
1.48. "Estate" means the estates of the Debtors created in the Bankruptcy
Case pursuant to section 541 of the Bankruptcy Code.
1.49. "Executory Contracts" means unexpired leases, including those for
nonresidential real property, and executory contracts and licenses within the
meaning of section 365 of the Bankruptcy Code.
1.50. "Existing Common Stock" means the issued and outstanding shares of
common stock of The Harvey Group Inc. and all warrants, options or contract
rights to purchase or receive such shares at any time held as of the Record
Date.
1.51. "Existing Equity Interest" or "Interest" means any interest in the
Debtors represented by Existing Common Stock of the Debtors.
1.52. "Existing Interest Holder" or "Interest Holder" means the beneficial
holder of an Existing Equity Interest.
1.53. "Final Order" means an order or judgment of a court, the
implementation or operation or effect of which has not been reversed, stayed,
modified or amended and as to which order or judgment (or any revision,
modification or amendment thereof) the time to appeal or seek a writ of
certiorari has expired and as to which no appeal or petition for certiorari has
been taken or is pending.
<PAGE>
1.54. "Fleet" means Fleet Bank, NA, as successor with respect to the
NatWest Claim, to NatWest Bank, N.A. f/k/a National Westminster Bank USA.
1.55. "Group" means The Harvey Group Inc.
1.56. "HAC" means Harvey Acquisition Company, LLC.
1.57. "HAC Claim" means the Secured Claim and any Administrative Claim held
by HAC arising out of a certain post-Petition Date finance and security
agreement, dated as of October 24, 1995, and as amended, extended and increased
pursuant to an extension letter agreement between HAC and the Debtors dated
September 1996 (collectively, the "HAC Financing Agreement") executed and
delivered by Debtors with, to or in favor of HAC, as approved and authorized by
various Final Orders of the Court dated October 19, 1995, October 30, 1995 and
September 27, 1996 (the "HAC Financing Orders"), pursuant to which HAC has, or
is authorized to lend to the Debtors an amount up to $3,000,000.00.
1.58. "Impaired Parties" means all Creditors and Interest Holders whose
Claims or Existing Equity Interests are impaired under this Plan.
1.59. "Insider" means any person who is an insider within the meaning of
section 101(31) of the Bankruptcy Code.
1.60. "InterEquity" means InterEquity Capital Partners, LP.
<PAGE>
1.61. "InterEquity Claim" means the Claim of InterEquity arising out of
pre-Petition Date loans and advances made by InterEquity to the Debtors pursuant
to certain loan and security agreements (the "InterEquity Loan Agreement")
executed and delivered by the Debtors to InterEquity in the approximate amount
of $606,500.00 as of the Petition Date.
1.62. "Issued New Common Stock" means the 2,209,945 shares of the New
Common Stock to be issued to Creditors under this Plan or offered to Entities or
Persons for purchase under the Public Offering.
1.63. "NatWest Claim" means the Claim of Fleet arising out of pre-Petition
Date loans and advances made by NatWest Bank, N.A. to the Debtors pursuant to
certain loan and security agreements executed and delivered by the Debtors to
NatWest in the approximate principal amount of $275,000.00 as of the Petition
Date, which Claim was assigned by Fleet to Richard Sinise and Keith Becker,
jointly, in or about early September , 1996.
1.64. "New Common Stock" means the 10 million non-assessable shares of
common stock of Reorganized Harvey at par value of $.01 authorized under the
Plan, of which 2,209,945 shall be issued and subject to Distribution under
Article IV of this Plan.
1.65. "New Equity" means the equity interests in the Reorganized Harvey
represented by the New Common Stock and New Preferred Stock issued under this
Plan.
<PAGE>
1.66. "New Preferred Stock" means the 10,000 authorized shares of
non-voting, convertible, and redeemable preferred stock of Reorganized Harvey,
$1,000.00 par value, with a coupon rate of eight and one-half (8.5%) percent per
annum, payable semi-annually, subject, however, to such rate being increased to
ten and one-half (10.5%) percent during the first year subsequent to the
Effective Date, if Reorganized Harvey elects to accrue dividends for such
period, and in which event the accrued dividends (at the 10.5% rate) shall be
payable in three (3) equal installments, with interest at the rate of 8.5% per
annum, due on the second, third and fourth anniversaries of the Effective Date.
Reorganized Harvey shall have the right during the period from the Effective
Date through the last day prior to the fourth anniversary of the Effective Date
to redeem the New Preferred Stock, in whole, or part, with a redemption price to
be paid to the holders of the New Preferred Stock equal to the aggregate
liquidation value of the New Preferred Stock, plus all accrued and unpaid
dividends. Redemption of the New Preferred Stock shall be mandatory on the
fourth anniversary of the Effective Date, with a redemption price fixed pursuant
to the above set forth terms, 875 shares of which shall be deemed issued and
outstanding as of the Effective Date and distributed in accordance with Article
IV and Section 6.03 of this Plan. The aforesaid shares shall be convertable to
New Common Stock pursuant to the Conversion Terms set forth in Exhibit "2" to
this Plan.
1.67. "Person" means a person as defined in section 101(41) of the
Bankruptcy Code.
1.68. "Petition Date" means August 3, 1995, the date on which voluntary
petitions were filed by the Debtors for reorganization under Chapter 11.
1.69. "Plan" means this Modified Amended Chapter 11 Joint and Substantively
Consolidated Plan of Reorganization as modified, amended or restated from time
to time.
1.70. "Priority Claims" means Priority Tax Claims and Priority Non-Tax
Claims.
1.71. "Priority Non-Tax Claim" means a Claim entitled to priority under
section 507 of the Bankruptcy Code other than an Administrative Claim or a
Priority Tax Claim.
1.72. "Priority Tax Claim" means a Claim entitled to priority under section
507(a)(8) of the Bankruptcy Code.
1.73. "Professional Person" shall have the meaning set forth in section
327(a) of the Bankruptcy Code, and includes, by way of example, the Debtors'
attorneys as retained under section 327 of the Bankruptcy Code and the
Committee's attorneys and accountants retained pursuant to section 1103 of the
Bankruptcy Code.
<PAGE>
1.74. "Pro-Rata" or "Pro-Rata Share" means proportionately, so that the
ratio of the amount of the Distribution made on account of a particular Allowed
Claim to the Distributions made on account of all Allowed Claims of the Class in
which the particular Allowed Claim is included is the same as the ratio of the
amount of such particular Allowed Claim to the total amount of Allowed Claims of
the Class in which such Allowed Claim is included.
1.75. "Public Offering" means the solicitation to the public for purchase
of the portion of the Issued New Common Stock not distributed to Creditors under
this Plan, in accordance with all applicable registrations and other filings and
documents including, but not limited to, a prospectus of Reorganized Harvey,
which offering shall commence on the earliest date permissible under all
applicable law.
1.76. "Record Date" means the last date fixed pursuant to a Final Order of
the Bankruptcy Court for the purpose of voting with respect to this Plan and to
determine the holders of Existing Equity Interests as evidenced by the Existing
Common Stock. If no such date is fixed, the Record Date shall be the date the
order approving the Disclosure Statement is signed by the Court.
<PAGE>
1.77. "Reorganized Harvey" shall mean The Harvey Group Inc. and Harvey
Sound, Inc., or the Entity, Harvey Electronics, Inc., resulting from the merger
of Group and Sound as provided for in Article XII of this Plan and as same are,
or is, constituted and on a consolidated basis for purposes of this Plan as of
the occurrence of the Effective Date.
1.78. "Secured Claim" means all or that portion of any Claim, together with
such interest (including, where permitted by law interest accrued on and after
the Petition Date), fees, costs and charges as may be allowed by such agreement
or by the Court under section 506(b) of the Bankruptcy Code, that is secured by
a valid, perfected lien to the extent of the value of the interest of the holder
of such Claim in such property of the Debtor, as determined by agreement between
the Debtor and the holder of such Secured Claim or by the Court by a Final Order
pursuant to section 506(a) of the Bankruptcy Code.
1.79. "Sound" means Harvey Sound, Inc.
1.80. "Unclaimed Property" means any Issued New Common Stock, Cash or other
consideration to be distributed under this Plan (together with any interest
earned thereon) that is deemed unclaimed in accordance with Section 7.04 of this
Plan.
1.81. "Unsecured Claim" means any Claim, other than the Congress Claim, the
HAC Claim, the InterEquity Claim, the NatWest Claim, an Administrative Claim, a
Priority Claim, a Secured Claim, a Convenience Claim, and an Affiliate Claim.
<PAGE>
ARTICLE II
CLASSIFICATION OF CLAIMS AND STOCK INTERESTS
2.01. Division of Classified Claims. An Allowed Claim is in a particular
Class only to the extent such Claim qualifies within the description of that
Class and is in a different Class to the extent that the remainder of the Claim
qualifies within the description of the different Class.
2.02. Allowed Claims and Interests. A Claim or Interest is in a particular
Class only to the extent the Claim or Interest is an Allowed Claim or Allowed
Existing Equity Interest as defined herein and has not been paid or otherwise
satisfied prior to the Effective Date.
2.03. Classification. Claims against and Existing Equity Interests in the
Debtors, excluding Administrative Claims and Priority Tax Claims, are divided
into the following Classes:
2.03.01. Class 1 shall consist of: Priority Non-Tax Claims.
2.03.02. Class 2 shall consist of: The Allowed Congress Claim.
2.03.03. Class 3 shall consist of: The Allowed HAC Claim.
2.03.04. Class 4 shall consist of: The Allowed InterEquity Claim.
<PAGE>
2.03.05. Class 5 shall consist of: The Allowed NatWest Claim.
2.03.06. Class 6 shall consist of: All Allowed Convenience Claims.
2.03.07. Class 7 shall consist of: All Allowed Unsecured Claims.
2.03.08. Class 8 shall consist of: All Allowed Affiliate Claims.
2.03.09. Class 9 shall consist of: All Allowed Existing Equity Interests.
2.04. Non-Classified Claims. Under this Plan Allowed Administrative Claims
and Allowed Priority Tax Claims are not designated within a Class as
classification of such Claims are not mandated under the Bankruptcy Code (see
section 1123(a)(1) of the Bankruptcy Code).
ARTICLE III
IDENTIFICATION OF CLASSES OF CLAIMANTS AND
INTEREST HOLDERS IMPAIRED AND UNIMPAIRED UNDER THE PLAN
3.01. Allowed Non-Tax Priority Claims (Class 1), the Allowed Congress Claim
(Class 2), and Allowed Convenience Claims (Class 6), are not impaired under this
Plan and therefore will not be voting on this Plan.
<PAGE>
3.02. The Holders of the HAC Claim (Class 3), the InterEquity Claim (Class
4), the NatWest Claim (Class 5), Allowed Unsecured Claims (Class 7), Allowed
Affiliate Claims (Class 8) and Interests Holders (Class 9) are Impaired Parties
under this Plan. However, as holders of Class 8 Claims are to receive no
Distribution on account of their Claims, or retain any value in Reorganized
Harvey or its assets or property, this Class is deemed under section 1126(g) of
the Bankruptcy Code to have not accepted this Plan. Therefore, votes of such
Creditors will not be solicited.
3.03. As the Bankruptcy Code provides that Administrative Claims and
Priority Tax Claims must be satisfied in full as of the Effective Date or, with
respect to Priority Tax Claims, receive treatment which provides the equivalent
of the present value of such Claims, these Claims are unimpaired under this
Plan.
3.04. In the event of a controversy as to whether any Claimant or Class of
Claimants or Existing Interest Holder is impaired under this Plan, the Court
shall, after notice and a hearing, determine such controversy.
3.05. The Debtors shall provide each Claimant in Class 3, Class 4, Class 5
and Class 7 and the Interest Holders of Class 9 with a form of ballot approved
by the Court to be used in casting a vote on this Plan. The ballot shall
designate the Class in which such ballot is to be cast (i.e. Class 3, 4, 5, 7
and 9) by the Impaired Party receiving the ballot.
<PAGE>
ARTICLE IV
PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS UNDER THIS PLAN
4.01. Unclassified Claims. Allowed Administrative Claims and Allowed Tax
Claims, are not classified under this Plan pursuant to section 1123(a) of the
Bankruptcy Code.
4.01.01. All Allowed Administrative Claims, which remain unsatisfied as of
the Effective Date, shall be paid by the Debtors in full on the Effective Date,
in Cash, or on such other terms as may be agreed upon by the holder of such
Allowed Administrative Claim and the Debtors, except that Administrative Claims
incurred by the Debtors in the ordinary course of business shall be paid when
due in accordance with ordinary business terms.
<PAGE>
4.01.02. All Allowed Tax Claims, other than such Allowed Tax Claims or
portions thereof which, by express terms, is not due or payable by the Effective
Date, shall be paid, (a) at the election of the Debtors (i) in deferred Cash
payments of a value as of the Effective Date equal to the amount of such Allowed
Tax Claim payable annually over a period not exceeding six (6) years from the
date of assessment of such Claim if an assessment has been made prior to the
Petition Date (and within six (6) years subsequent to the Effective Date if no
assessment has been made prior to the Filing Date) and, in such event, interest
shall be paid on the unpaid portion of such Allowed Tax Claim at the rate fixed
by applicable statute upon which such Claim is based or the rate of seven (7)
percent per annum, which ever is lower, or (ii) on the Effective Date, or (b) as
such Claimant and the Debtors may otherwise agree. All Allowed Tax Claims that
by their terms become due and payable after the Effective Date shall be paid
when due. All payments on Allowed Tax Claims shall and must be applied under any
and all circumstances by such Claimants: (a) first, in full, to and against the
"penalty" portion of such Claim which may properly and legally be deemed and
construed to be or constitute a personal fiduciary liability of any and/or all
of the Debtors' officers or principals, and (b) next, only after such actual
and/or potential fiduciary liability has been paid in full, as desired by such
Claimants and/or as is otherwise directed under any applicable law.
<PAGE>
4.02. Allowed Priority Claims (Class 1). Each holder of an Allowed Priority
Claim, other than an Allowed Consumer Deposit Claim shall be paid in full in
Cash on the Effective Date, unless such holder and the Debtors shall agree to a
different treatment. Allowed Consumer Deposit Claims will be satisfied by the
Debtors, or Reorganized Harvey, as the case may be, in the normal course of
business and pursuant to the terms and conditions of the transaction between the
Debtors and the holder of such Allowed Claim which gave rise to the Consumer
Deposit Claim.
<PAGE>
4.03. Allowed Congress Claim (Class 2). The obligations of the Debtors to
Congress which constitute the Allowed Congress Claim, both with respect to the
Pre-Petition Congress Loans and the DIP Financing shall remain current in the
ordinary course of business and pursuant to the terms and conditions of the
Congress Financing Agreements and the Ratification Agreement pending the
Effective Date. Upon occurrence of the Effective Date, the Allowed Congress
Claim shall be deemed satisfied in full by virtue of a post-Effective Date
financing facility extended by Congress to Reorganized Harvey pursuant to
post-Effective Date Loan and Security Agreements to be negotiated between
Congress and Reorganized Harvey, with such post-Effective Date lending secured
by liens on substantially all of Reorganized Harvey's post-Effective Date
property and assets. All liens on and security interests in property and Assets
of the Debtors as granted to Congress, both on a pre-Petition Date basis
pursuant to the Congress Financing Agreements and in the Bankruptcy Case
pursuant to the Congress Financing Order, shall remain in full force and shall
be deemed to continue to be duly perfected and existing liens or and security
interests during the period from the Confirmation Date to and including, the
Effective Date and until such time as the obligations to Congress constituting
the Allowed Congress Claim are satisfied as provided above.
4.04. Allowed HAC Claim (Class 3). As of the Effective Date, the Allowed
HAC Claim shall be deemed an Allowed Claim in the principal amount of up to
$3,000,000, plus all accrued and unpaid interest and charges incurred in
accordance with the HAC Financing Agreements, and shall be satisfied in full,
and all liens on and security interests in the property and Assets of the
Debtors held by HAC, shall be deemed canceled, satisfied and extinguished upon
the issuance to HAC, or its designee, of 2,000,000 shares of the New Common
Stock, which is equal to ninety and one half (90.5%) percent of the Issued New
Common Stock.
<PAGE>
4.05. Allowed InterEquity Claim (Class 4). As of the Effective Date, the
InterEquity Claim shall be deemed an Allowed Claim in the principal amount of
$600,000 with respect to the pre-Petition Date obligations of the Debtors to
InterEquity, and $70,000 on account of a "finder's fee" agreed to between the
Debtors and InterEquity in connection with the HAC Financing Agreement and shall
be satisfied in full, and all liens on and security interests in the property
and Assets of the Debtors held by InterEquity, shall be deemed, canceled,
satisfied and extinguished upon: (a) the issuance to InterEquity on account of
the $600,000, of 600 shares of the New Preferred Stock issued under Section 6.03
of this Plan, subject, however, to the conversion rights under the Conversion
Terms (see Exhibit "2" hereto), which provides the right to convert the New
Preferred Stock to New Common Stock in accordance with the terms and conditions
set forth therein ; and (b) on account of the $70,000 at the election of the
Debtors, either (i) $35,000 Cash paid on the Effective Date, or (ii) a number of
shares of New Common Stock (as issued in accordance with Section 6.03 of this
Plan) equal to the total number of shares of Issued New Common Stock multiplied
by a fraction in which the numerator is 70,000 and the denominator is the sum of
the Allowed HAC Claim.
<PAGE>
4.06. Allowed NatWest Claim (Class 5). As of the Effective Date the NatWest
Claim shall be deemed an Allowed Claim in the principal amount of $275,000.00
and shall be satisfied in full, and all liens on and security interests in the
property and Assets of the Debtors held by the holder of the NatWest Claim,
shall be deemed canceled, satisfied and extinguished upon. The issuance to the
holder of the NatWest Claim of 275 shares of the New Preferred Stock issued
under Section 6.03 of this Plan, subject, however, to the conversion rights
under the Conversion Terms(See Exhibit "2" hereto) which provides to said holder
the right to convert the New Preferred Stock in accordance with the terms and
conditions set forth therein.
4.07. Allowed Convenience Claims (Class 6). Each holder of an Allowed
Convenience Claim shall be paid in Cash, the full amount of its Allowed Class 6
Claim on the Effective Date.
4.08. Allowed Unsecured Claims (Class 7). (a) Each holder of an Allowed
Unsecured Claim shall be entitled to receive, on the Effective Date, or as soon
as practicable thereafter, its Pro Rata Share of 187,845 shares of the New
Common Stock, which is equal to eight and one-half (8.5%) percent of the Issued
New Common Stock.
4.09. Allowed Affiliate Claims (Class 8).Affiliate Claims which are Allowed
Claims shall be subordinated to all senior Classes of Claims (1, 2, 3, 4, 5, 6
and 7) and shall receive nothing on account of such Allowed Claims.
<PAGE>
4.10. Existing Equity Interests (Class 9). The holders of Allowed Existing
Equity Interests shall receive nothing on account of such Interests the
following: (a) Interest Holders with 100 or less shares of Existing Common Stock
- - $1.00 Cash; and (b) Interest Holders with 101 or more shares of Existing
Common Stock - A Pro-Rata share of 22,100 shares (1%) of the Issued New Common
Stock. All existing issued and outstanding Existing Common Stock shall be deemed
canceled as of the Effective Date.
4.11. Existing Liens and Security Interests. All liens on and security
interests in Assets, except those held by Congress, shall be deemed canceled,
satisfied and extinguished as of and subsequent to the Effective Date, upon
occurrence of the provisions of sections 4.04, 4.05 and 4.06 of this Plan. If
such Claimant fails or refuses to deliver the aforesaid documents or filings
within fifteen (15) Business Days of the date of the aforesaid notice by
Reorganized Harvey, then Reorganized Harvey shall be deemed appointed as the
attorney in fact for such Creditor for the purpose of preparation, execution and
recording of such document or filing. With respect to the liens and security
interests held by Congress in the event of satisfaction of the Congress Claim
the holder thereof shall, upon written request may by Reorganized Harvey
delivered to such Claimant, by certified mail, return receipt requested, deliver
to Reorganized Harvey all appropriate or necessary documents or filings, in
recordable form to evidence the satisfaction of such liens and security
interests.
<PAGE>
ARTICLE V
ACCEPTANCE OR REJECTION OF PLAN; EFFECT OF REJECTION BY ONE OR
MORE CLASS OF CLAIMS
5.01. Classes 3, 4, 5, 7 and 9 shall receive a ballot to vote to accept or
reject this Plan. Each such Class of Creditors or Interests is deemed to be
impaired in accordance with section 1124 of the Bankruptcy Code. The Holders of
Claims and Interest Holders in these Classes (Impaired Parties) will be
receiving treatment or Distributions under this Plan on account of such Claims
or Existing Equity Interests on terms and under conditions differing from the
current terms and conditions of the Debtors' obligations to such Creditors, or
the rights of such Interest Holders in the Debtors, accordingly under section
1126 of the Bankruptcy Code, these Classes are entitled to vote on this Plan and
the members thereof will receive a ballot. Class 8, Allowed Affiliate Claims are
also impaired under this Plan, however, as the Class 8 Claimants will receive no
Distribution or retain any interests or right with respect to the Assets or in
the Debtors under this Plan such Entities are deemed under section 1126(g) of
the Bankruptcy Code to have rejected this Plan. Therefore, holders of Allowed
Affiliate Claims will not receive a ballot.
<PAGE>
5.02. Classes 3, 4 and 5 shall have accepted this Plan if the Class votes
to accept this Plan on or before the date set by the Court as the last day to
vote on this Plan.
5.03. Class 7 shall have accepted this Plan if the Holders of (a) at least
two-thirds (2/3) in dollar amount and (b) more than one-half (1/2) in number of
the Allowed Unsecured Claims that have voted on this Plan on or before the date
set by the Court as the last day to vote on this Plan have voted to accept it.
5.04. Class 9 shall have accepted this Plan if the holders of at least
two-thirds (2/3) in amount of the Allowed Existing Interest that have voted on
this Plan on or before the date set by the Court as the last day to vote on this
Plan have voted to accept it.
5.05. In the event that any Class entitled to vote fails to accept this
Plan in accordance with section 1129(a) of the Bankruptcy Code, the Debtors
reserve the right to amend this Plan or seek to confirm this Plan pursuant to
the "cramdown" provisions of section 1129(b) of the Bankruptcy Code with respect
to such dissenting Class.
<PAGE>
5.06. In the event Class 7 votes to reject this Plan, and the Debtors
determine to seek Confirmation over such rejection under the provisions of
section 1129(b) of the Bankruptcy Code, then in such event the New Common Stock
which was to be distributed to Interest Holders in Class 9 shall instead be
distributed to the Holder of the Allowed HAC Claim; and all Cash to have been
distributed shall be deemed Unclaimed Property and shall be retained by
Reorganized Harvey; and shall not be included for any purposes under this Plan,
or otherwise, in any Distribution to Class 7 Creditors.
ARTICLE VI
MEANS FOR EXECUTION OF THIS PLAN
6.01. Plan Implementation. This Plan is to be implemented in a manner
consistent with section 1123 of the Bankruptcy Code.
<PAGE>
6.02. Plan Funding. On the Confirmation Date or such other date as may be
provided in any order approving this Plan, the Debtors shall create a
Confirmation Fund, which shall be the source of the Cash payments to be made
under this Plan to Administrative Claimants, Holders of Allowed Priority Non-Tax
Claims, those Priority Tax Claims the Debtors may elect to satisfy on the
Effective Date, or the initial installment which may be due on such Priority Tax
Claim as of the Effective Date and holders of Allowed Convenience Claims. The
source of Cash to be deposited into the Confirmation Fund shall be from Cash on
hand (operational revenues and remaining proceeds of the loans giving rise to
the HAC Claim). The Debtors, or Reorganized Harvey, as the case may be, shall
act as Disbursing Agent and shall be responsible for disbursement of the
proceeds of the Confirmation Fund in accordance with the terms of this Plan.
<PAGE>
6.03. Creation of New Equity and Execution of Related Documents. As of the
Effective Date, there shall be authorized for issuance by Reorganized Harvey 10
million (10,000,000) shares of New Common Stock and 10 thousand (10,000) shares
of New Preferred Stock. Reorganized Harvey shall issue 2,173,914 shares of the
New Common Stock and 875 shares of the New Preferred Stock for Distribution to
those Creditors and Interest Holders as designated in Article IV of this Plan.
As of, or prior to, the Effective Date, or as soon as thereafter as is
practicable, Reorganized Harvey execute all documents required, con shall have
executed, or caused, to have been executed on its behalf, all documents
required, contemplated or necessary for implementation of the provisions of this
Plan, including any and all such documents required for registration of the New
Equity not subject to the exemption provisions of section 1145 of the Bankruptcy
Code and so as to effectuate the Public Offering. On the Effective Date each of
such documents, agreements and instruments shall be deemed to become effective
simultaneously. Pursuant to section 1145(a) (1) and (2) of the Bankruptcy Code,
the New Equity actually issued to Creditors or Interest Holders under this Plan
in exchange for such Claims or Existing Equity Interests, or primarily in change
for such Claims or Interests, and partly for Cash or property, shall be exempt
from any and all federal, state or local laws requiring registration of a
security.
6.04. Cancellation of Existing Securities Instruments and Agreements. On
the Effective Date, except as otherwise provided herein, all securities, all
instruments and agreements governing any Claims or Interest, or instruments and
agreements governing any Claim or Interest impaired hereby, including, but not
limited to, the Existing Common Stock shall be deemed canceled and terminated
and of no further force or effect.
6.05. Setoffs. The Debtors may, but shall not be required to, set off
against any Claim and the Distributions to be made pursuant to this Plan in
respect of such Claim, any claims of any nature whatsoever which the Debtors may
have against the holder of such Claim, but neither the failure to do so nor the
allowance of any Claim hereunder shall constitute a waiver or release of any
such claim the Debtors may have against such holder.
<PAGE>
6.06. Corporate Action. Upon entry of the Confirmation Order by the Clerk
of the Bankruptcy Court, all actions contemplated by this Plan shall be
authorized and approved in all respects (subject to the provisions of this
Plan), including without limitation the following: (a) the adoption and filing
of any amendments to the Debtors' Certificates of Incorporation; (b) the
creation of New Equity through the authorization for, and issuance of, New
Common Stock and New Preferred Stock, as provided herein; (c) the Public
Offering; and (d) the execution, delivery, and performance of all agreements
required, contemplated or necessary to implement this Plan. The issuance of
securities pursuant to this Plan, the election and/or appointment of directors
and officers pursuant to this Plan, and the other matters provided for under
this Plan involving the corporate structure of the Debtors (including any
corporate action required in connection with this Plan) shall be deemed to have
occurred and shall be in effect, without any requirement of further action by
the shareholders or directors of the Debtors. On the Effective Date, the
appropriate officers and directors of the Debtors are authorized and directed to
execute and deliver the agreements, documents and instruments contemplated by
this Plan in the name of and on behalf of the Debtors. Pursuant to section 808
of the New York Business Corporation Law, actions taken pursuant to a confirmed
plan of reorganization of a New York corporation have the same effect as if
taken by unanimous action of the directors and shareholders of such
corporations.
<PAGE>
ARTICLE VII
PROVISIONS CONCERNING DISTRIBUTIONS
7.01. Time and Manner of Distributions Under this Plan.
7.01.01. On the Effective Date, or as soon thereafter as is practical, the
Disbursing Agent or any transfer or other agent appointed by the Disbursing
Agent, shall; (a) distribute the Issued New Common Stock to (i) the Allowed
Class 3 Claimant, (ii) Class 4 Claimant, (iii) the Allowed Class 7 Claimants,
and (iv) Class 7 Interest Holders entitled thereto and (b) distribute the New
Preferred Stock to the Holder of (i)the Allowed Class 4 Claim, and (ii) the
Allowed Class 5 Claim.
7.01.02. On the Effective Date, the Disbursing Agent shall pay in Cash
Allowed Administrative Claims, Allowed Priority Non-Tax Claims, Allowed
Convenience Claims, and Allowed Interest Holders entitled thereto, Allowed
Priority Tax Claims, or the first installment payment, if any, on Allowed
Priority Tax Claims from the Confirmation Fund.
<PAGE>
7.01.03. To the extent a Claim is a Disputed Claim, Distributions allocable
thereto shall not be made to the holder of such Claim but shall be held in a
Disputed Claim Account if the Distribution would have been Cash or in treasury
stock if the Distribution would have been New Common Stock. When a Disputed
Claim, or any portion thereof, becomes an Allowed Claim, the Disbursing Agent
shall cause a Distribution to be made to the holder of such Allowed Claim or in
accordance with the provisions of this Plan with respect to treatment of the
Class of Creditors in which the Allowed Claim is classified within ten (10)
Business Days after the order which Allows such Claim becomes a Final Order.
<PAGE>
7.01.04. The Confirmation Fund shall be closed by the Debtors as of the
first (1st) Business Day after the later of the last check on account of a
Distribution is cleared and paid upon by the payor bank and the date under this
Plan that the last of unclaimed Distributions become Unclaimed Property. If a
Priority Non-Tax Claim, A Priority Tax Claim, Administrative Claim, or a
Convenience Claim is a Disputed Claim, then a Distribution allowable thereto
shall be transferred from the Confirmation Fund to a Disputed Claim Account. All
Allowed Priority Tax Claim payments after the first payment, (which shall be
made from the Confirmation Fund), shall be made by Reorganized Harvey from
operating or other revenues.
7.02. Fractional Cents. Any other provision of this Plan to the contrary
notwithstanding, no payments of fractions of cents shall be made. Whenever any
payment of a fraction of a cent would otherwise be called for, the actual
payment shall reflect a rounding of such fraction to the nearest whole cent (up
or down).
7.03. Calculation of Distribution Amounts of New Equity. Any other
provision of this Plan to the contrary notwithstanding, (a) no fractional shares
of New Common Stock shall be issued or distributed, and (b) no Cash will be paid
nor other Distribution made in lieu of whole or fractional shares not issued or
distributed because of the provisions of this Section 7.03.
<PAGE>
7.04. Unclaimed Property. Except as otherwise provided herein, in the event
and at such time as any Distribution under this Plan becomes Unclaimed Property,
then the Entity to which such Distribution was to have been made shall forfeit
all rights thereto, and thereafter the Claim or Interest in respect of which
such Distribution was to have been made shall be treated as a Disallowed Claim
or Interest not subject to section 502(j) of the Bankruptcy Code. In this
regard, Distributions to Claimants entitled thereto shall be sent to their last
known address set forth on a proof of claim filed with the Court or, if no proof
of claim is filed, on the schedules filed by the Debtors, or as set forth in the
most recently available records of the Debtors or to such other address as may
be requested in writing on or before the Effective Date by a Claimant. Any
Distributions of New Common Stock to holders in Class 7 which are returned under
this Article shall be held by Group as treasury stock. Any Distribution shall be
deemed Unclaimed Property if same has not been received or accepted by the
Entity entitled to such Distribution by a date which is one hundred eighty (180)
days subsequent to the date of such Distribution.
7.05. Payment Dates. Whenever any Distribution to be made under this Plan
shall be due on a day other than a Business Day, such payment or Distribution
shall instead be made, without interest, on the next Business Day.
7.06. De Minimus Distributions. Notwithstanding any provision of this Plan
with respect to treatment of Class 6 Claims, and without effecting the
applicability of the provisions of Article VIII and IX of this Plan to such
Claims, no cash payment of less than $1.00 shall be made to any holder of a
Convenience Claim unless a request therefor is made by such Claimant in writing
and delivered in accordance with Section 16.04 of this Plan by such holder to
the Debtors.
<PAGE>
ARTICLE VIII
PROVISIONS CONCERNING DISCHARGE AND PROPERTY
8.01. Discharge of Claims and Interests. The Distributions, treatments and
rights afforded in this Plan shall be in exchange for, and in complete
satisfaction, discharge and release of, all Claims and Existing Equity Interests
of any nature whatsoever, incurred prior to the Effective Date, including any
interest accrued thereon from and after the Petition Date, against the Debtors,
the Estate and any of its property. Except as otherwise provided in this Plan,
upon the Effective Date, all such Claims shall, notwithstanding anything in
Section 7.06 of this Plan, be discharged and Existing Equity Interests shall be
extinguished in accordance with sections 105, 524 and 1141 of the Bankruptcy
Code.
8.02. Vesting of Property in Reorganized Harvey. Except as may otherwise be
provided by this Plan, upon the Effective Date, and subject to the occurrence of
the Effective Date, title to all Assets and property dealt with by this Plan
shall pass to Reorganized Harvey free and clear of all Claims and Existing
Equity Interests, except as may otherwise be provided under this Plan, in
accordance with section 1141(c) of the Bankruptcy Code.
<PAGE>
ARTICLE IX
EFFECT OF THE PLAN ON HOLDERS OF CLAIMS AND
EXISTING EQUITY INTERESTS
9.01. Injunction. In implementing the discharge provided in Section 8.01 of
this Plan, except as otherwise expressly provided in this Plan, the Confirmation
Order shall provide, among other things, that all Entities who have held, hold
or may hold Claims or Existing Equity Interests against the Debtors are
permanently enjoined on and after the Effective Date: (a) from commencing or
continuing in any manner, directly or indirectly, any action or other proceeding
of any kind with respect to any such Claim or Existing Equity Interest against
the Debtors or the property of the Debtors with respect to any such Claim or
Existing Equity Interest; (b) from the enforcement, attachment, collection or
recovery by any manner or means, directly or indirectly, of any judgment, award,
decree, or order against the Debtors or the property of the Debtors with respect
to any such Claim or Existing Equity Interest; (c) from creating, perfecting or
enforcing, directly or indirectly, any encumbrance of any kind against the
Debtors, or against the property of the Debtors, with respect to any such Claim
or Existing Equity Interest; (d) from asserting, directly or indirectly, any
set-off, right of subrogation, or recoupment of any kind against any obligation
due the Debtors, or against the property of the Debtors, with respect to any
such Claim or Existing Equity Interest; and (e) from any act, in any manner, in
any place whatsoever, that does not conform to or comply with the provisions of
this Plan relating to any Claim or Existing Equity Interest. Nothing contained
in this Plan including this Section 9.01 shall: (a) prohibit the holder of a
timely filed Claim to which the Debtors have timely filed an objection from
litigating its right to seek to have such Claim declared an Allowed Claim; or
(b) enjoin or prohibit the enforcement by any Claimant of any of the obligations
of the Debtors under this Plan.
ARTICLE X
REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS
10.01. Assumption of Executory Contracts/Leases. As of the Effective Date,
the Debtors shall be deemed to have assumed the Executory Contracts listed on
Exhibit "1" to this Plan; provided, however, that the Debtors reserve the right
to file an application(s) to (a) reject any Executory Contract appearing on
Exhibit "1" to this Plan at any time up to and including the Confirmation Date,
and in which case, the Executory Contract subject to such application shall be
deemed removed and deleted from Exhibit "1" for all purposes, or (b) reject any
Executory Contract as provided in Paragraph 10.02 hereof.
<PAGE>
10.02. Disputes Regarding Contract Cures Within thirty (30) days after the
Confirmation Date, or by such other time as may be provided under this Plan
relevant to any disposition of a Contract Cure, the Debtors shall have
satisfied, settled or disposed of the Contract Cures to the licensors, lessors
or vendors under the Executory Contracts assumed pursuant to this Section and as
listed on Exhibit "1" hereto (subject only to the removal or deletion from said
Exhibit as provided in Section 10.01 hereof), unless a lessor, licensor, or
vendor under an Executory Contract to be assumed pursuant to this Plan, which
disputes its respective Contract Cure, has filed with the Court and has served
upon counsel to the Debtors and HAC (at the addresses set forth below) an
objection setting forth in reasonable detail the amount and basis for its
dispute of the Debtors' proposed Contract Cure; provided, however, that the
aforesaid notice must be filed with the Court and received by counsel for the
Debtors and HAC in accordance with Section 16.03 of this Plan, not later than
twenty (20) days following the Confirmation Date. Failure to timely file and
serve its objection shall be an absolute bar and injunction against any Entity's
right to object to the Contract Cure or to seek payment of any sums greater
than, or treatment different from, the Contract Cure. If the Debtors and the
lessor, licensor or vendor disputing the proposed Contract Cure are unable to
reach a resolution of such dispute, such dispute shall be submitted to the Court
for resolution. If a resolution is not reached or a Court determination is not
acceptable to the Debtors, the Debtors shall have the right to make application
to the Court to have the subject Executory Contract rejected.
<PAGE>
10.03. Rejection Claims. Until fixed by Final Order of the Court, Claims
resulting from the rejections pursuant to this Section ("Rejection Claims")
shall be treated under this Plan as Disputed Claims purporting to be Class 6
Claims or Class 7 Claims (depending upon the amount of the Disputed Claim to the
extent same becomes an Allowed Claim) pending a determination with respect to
the Allowance of such Claim in accordance with the provisions of Article XI of
this Plan. Any Rejection Claims must be filed with the Clerk of the Court within
thirty (30) days after the entry of the Confirmation Order with a copy served
upon counsel for the Debtors or be forever barred and the holders of such Claims
shall not be treated as Creditors with respect to such Claims for the purposes
of distribution hereunder or under section 365 of the Bankruptcy Code.
ARTICLE XI
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
OR DISPUTED INTERESTS
11.01. Time Limit for Objections to Claims. Objections to Claims shall be
filed by the Debtors with the Court and served upon the holders of each of the
Claims or Interests to which objections are made not later than (a) thirty (30)
days subsequent to the Confirmation Date with respect to non-Rejection Claims
and (b) thirty (30) days subsequent to the service upon Debtors' counsel of such
Claim in accordance with Section 10.03 of this Plan, or with respect to any
Claim or Interest, by such other later date as may be fixed by the Court.
11.02. Resolution of Disputed Claims and Interests. Unless otherwise
ordered by the Court, the Debtors, at their own expense, shall litigate to
judgment, settle or withdraw objections to Disputed Claims or Disputed
Interests, in their sole discretion, without notice to any party in interest,
other than the Holder of the Disputed Claim or the Disputed Interest and counsel
to the Creditors' Committee.
<PAGE>
11.03. Payments. Payments, Distributions or treatment on account of a
Disputed Claim or a Disputed Interest that ultimately becomes an Allowed Claim
or an Allowed Existing Interest shall be made in accordance with the provisions
of this Plan with respect to the Class in which the Disputed Claim or an Allowed
Existing Interest is classified. Such payments, Distributions or treatment shall
be made as soon as practicable, but not more than, seven (7) Business Days after
the date on which the order allowing such Claim or Interest becomes a Final
Order. Distributions, payment or treatment made in accordance with this Article
shall not include interest on the amount of any payment from the date on which
the Holder of the Allowed Claim would have been entitled to receive payment,
Distribution or treatment if its Claim or Interest had not been disputed. The
Debtors shall reserve a sufficient amount of the Confirmation Fund and issue
sufficient New Common Stock to be deposited into the Disputed Claim Account or
held as treasury stock of Group in the event a Disputed Claim or Disputed
Interest becomes Allowed.
ARTICLE XII
SUBSTANTIVE CONSOLIDATION
<PAGE>
12.01. Substantive Consolidation. Under this Plan, the Bankruptcy Case
shall be, as of the Effective Date, substantively consolidated into a single
case with respect to Confirmation, consummation, Distributions under, treatments
provided by and implementation of this Plan. Notwithstanding substantive
consolidation, but subject however to the provisions of, and authorization under
Section 12.03 hereof, Group and Sound shall retain their separate corporate
existence after the Effective Date.
12.02. Terms of Consolidation. Pursuant to the Confirmation Order, which
shall incorporate the terms of this Section, substantive consolidation shall be
with respect to:
(a) as provided in this Plan, all Affiliate Claims shall be eliminated;
(b) all Assets and all proceeds thereof and all liabilities of Group and
Sound shall be merged pursuant to the terms of this Plan or treated as though
they were merged;
(c) any obligation of each Debtor and all guarantees thereof executed by
one or more of them shall be deemed to be an obligation of both and of the
Estate jointly;
(d) any Claims filed or to be filed in connection with any such obligation
or guarantee shall be deemed to be but one Claim against the Debtors;
<PAGE>
(e) each and every Claim filed against either Debtor shall be deemed filed
against both;
(f) for purposes of determining the availability of the right of setoff
under section 553 of the Bankruptcy Code, the Debtors shall be treated as a
single Entity so that, subject to the other provisions of section 553 of the
Bankruptcy Code, debts due to either of them may be setoff against the debts of
either one; and
(g) as of the Effective Date, the Debtors may, in the sole discretion of
the Board of Directors of Reorganized Harvey, be deemed substantively
consolidated pursuant to and in the manner described in this Article XII.
<PAGE>
12.03. Corporate Consolidation. Under this Plan, Group and Sound may, in
the sole discretion of the Board of Directors of Reorganized Harvey, be merged
into a single corporate entity as of, or subsequent to the Effective Date,
pursuant to a formal merger agreement between Group and Sound and applicable
law. Reorganized Harvey shall be authorized to take any and all action as is
necessary or appropriate to effectuate the aforesaid merger, without need of
approval or consent of the holders of the New Equity. Upon such merger, any and
all contracts, including any Executory Contract, agreements, or other writings
or undertakings, including, without limitation, the Congress Financing
Agreements and the Ratification Agreement, to which the either or both Group and
Sound are a party, shall be deemed assigned by them to Reorganized Harvey
without the need of consent to such assignment from the other Entity or Entities
to such contract, agreement, writing, or undertaking, notwithstanding any
provision, term or condition to the contrary therein.
ARTICLE XIII
CONDITIONS PRECEDENT
<PAGE>
13.01. Conditions to Occurrence The Effective Date. It shall be a condition
precedent to the Effective Date that (a) unless waived by the Debtors in a
writing filed with the Bankruptcy Court, the Confirmation Order shall have
become a Final Order; (b) the Confirmation Fund shall have been adequately
funded; (c) no order or judgment enjoining the Debtors from effectuating the
terms and conditions of this Plan shall have been entered by any court,
administrative body or other tribunal; (d) as part of Confirmation, the Court
shall have authorized the substantive consolidation of the Assets and
liabilities of the Debtors in accordance with the provisions of Article XII of
this Plan; and (e) the post-Effective Date financing facility with Congress
shall have closed.
ARTICLE XIV
ADMINISTRATIVE PROVISIONS
14.01. Further Documents and Action. On or before the Effective Date, the
Debtors shall cause to be prepared and shall execute, and are authorized to file
with the Court or other appropriate governmental Entity, such agreements and
other documents, and take or cause to be taken such action, as may be necessary
or appropriate to effect and further evidence the terms and conditions of this
Plan.
14.02. Committees. As of the Effective Date, the Creditors' Committee shall
cease its functioning, other than with respect to matters provided in Section
14.04 hereof, and shall have no further authority or function regarding the
implementation of this Plan, or otherwise, except as to matters provided in
Section 14.04 hereof.
<PAGE>
14.03. Post-Confirmation Management. Subject to final determination by HAC,
the Debtors contemplate that the post-Confirmation management of Reorganized
Harvey will consist of a chairman of the Board of Directors of Reorganized
Harvey appointed by the Board of Directors at its first meeting on, or after the
Effective Date, Franklin Karp, as president of Reorganized Harvey, and Joseph
Calabrese as vice president of finance, chief financial officer and corporate
secretary. These officers will be employed on an at will basis upon the same
terms and conditions, including compensation, as they had been employed as of
the Confirmation Date, subject to change upon decision of the Board of
Directors. The aforesaid designations of Persons for executive positions with
Reorganized Harvey are subject to change at the discretion of the Board of
Directors. Additionally, the Board of Directors may, from time to time, and in
accordance with the Debtors' By-laws, appoint or designate such other officers
as may be deemed appropriate or necessary. Such officers' employment shall be
pursuant to arrangements to be agreed to by the officers and HAC. Reorganized
Harvey shall have the right to otherwise manage the employees of Reorganized
Harvey and to implement policies, programs, etc. regarding same as it deems
necessary or appropriate, in its sole discretion, subject only to Reorganized
Harvey's duties, responsibilities and commitments under this Plan.
<PAGE>
14.04. Post Confirmation Board of Directors. Until the first regularly
scheduled general meeting of Reorganized Harvey shareholders (i.e. the holders
of the New Common Stock), the post-Effective Date Board of Directors shall
consist of two (2) Persons from senior management of Reorganized Harvey, three
(3) Persons named by HAC, one (1) Person named by the Creditors' Committee (the
"Committee Member"), and subject to that Person's acceptance, one (1) Person
from the existing board of directors of Group, William Kenny, or if such Person
fails or refuses to accept appointment then in his place and stead, HAC shall
appoint a Person of its selection. Thereafter, and notwithstanding anything in
the By-laws of Reorganized Harvey, or this Plan to the contrary, the Committee
Member shall serve on the Board of Directors for a period of two (2) years
post-Effective Date. In the event that during the aforesaid term of the
Committee Member, said member resigns, is removed, or is otherwise incapable or
unwilling to serve on the Board of Directors, the Creditors' Committee shall
have the right to appoint or designate a replacement Committee Member to serve
out the remainder of the two year term, so long as such designation occurs
within thirty (30) days after the resignation, removal or determination of the
Board of Directors as to the inability or unwillingness of the existing
Committee Member. In the event that no successor Committee Member is designated
within said period by the Creditors' Committee, then a replacement member shall
be designated in accordance with applicable law and the By-laws of Reorganized
Harvey.
<PAGE>
ARTICLE XV
RETENTION OF JURISDICTION
15.01. Retention of Jurisdiction. Following the Confirmation Date, the
Court shall retain jurisdiction of the Bankruptcy Case and of all matters
arising under or out of the Bankruptcy Case, including, without limitation, for
the following purposes:
15.01.01. to hear and determine any objections to the allowance of Claims
brought by the Debtors;
15.01.02. to determine any and all applications for compensation for
Professional Persons;
15.01.03. to determine any and all applications, adversary proceedings, and
contested or litigated matters properly before the Court and pending on the
Confirmation Date that may be brought by the Debtors;
15.01.04. to modify this Plan pursuant to section 1127 of the Bankruptcy
Code or to remedy any defect or omission or reconcile any inconsistency in the
Confirmation Order to the extent authorized by the Bankruptcy Code;
<PAGE>
15.01.05. to hear and determine all controversies, suits and disputes, if
any, as may arise in connection with the interpretation or enforcement of this
Plan, the Confirmation Order and any other documents executed and delivered in
connection with this Plan;
15.01.06. to hear and determine all controversies, suits and disputes, if
any, as may arise with regard to orders of this Court in the Bankruptcy Case;
15.01.07. to hear and determine any and all controversies and disputes
arising under, or in connection with, this Plan or the Confirmation Order,
including disputes with respect to post-Effective Date fees and expenses of
Professional Persons pursuant to Section 16.13 of this Plan;
15.01.08. to adjudicate all controversies concerning the classification of
any Claim;
15.01.09. to liquidate damages in connection with any disputed, contingent
or unliquidated Claims;
15.01.10. to recover any assets and property of the Debtors wherever
located, including the prosecution and adjudication of all causes of action
available to the Debtor as of the Confirmation Date;
<PAGE>
15.01.11. to determine all questions and disputes regarding recovery of and
entitlement to the Debtors' assets and property and determine all claims and
disputes between the Debtors, and any other Entity, whether or not subject to an
action pending as of the Confirmation Date;
15.01.12. to enter any order, including injunctions, necessary to enforce
the title, rights and powers of the Debtors and to impose such limitations,
restrictions, terms and conditions on such title, rights and powers as the Court
may deem necessary or appropriate;
15.01.13. to enter an order or final decree closing and terminating the
Bankruptcy Case; and
15.01.14. to make such orders as are necessary or appropriate to carry out
the provisions of this Plan, including but not limited to orders interpreting,
clarifying or enforcing the provisions thereof and/or the Confirmation Order.
<PAGE>
ARTICLE XVI
MISCELLANEOUS
16.01. Modification Of This Plan. The Debtors reserve the right, in
accordance with the Bankruptcy Code, to amend or modify this Plan prior to the
Confirmation Date. After the Confirmation Date, the Debtors may, upon order of
the Court, amend or modify this Plan in accordance with section 1127(b) of the
Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency
in this Plan in such manner as may be necessary to carry out the purposes and
intent of this Plan.
16.02. Revocation and Withdrawal of Plan.
16.02.01. Right to Revoke. The Debtors reserve the right to revoke or
withdraw this Plan prior to the Confirmation Date.
<PAGE>
16.02.02. Effect of Withdrawal or Revocation. If the Debtors revoke or
withdraw this Plan prior to the Confirmation Date, then this Plan shall be
deemed null and void. In such event, nothing contained herein shall be deemed to
constitute: (a) a waiver or release of any Claims by or against the Debtors or
any other Person or to prejudice in any manner the rights of the Debtors or any
Person in any further proceeding involving the Debtors; and (b) a waiver of the
Debtor's right to file and seek Confirmation of an alternative plan of
reorganization.
16.03. Nonconsensual Confirmation. As the impaired Class of Affiliate
Claims and the Class of Existing Equity Interests shall be deemed to have not
accepted this Plan, the Debtors reserve the right to, and shall, request that
the Bankruptcy Court confirm this Plan by applying the provisions of section
1129(b) of the Bankruptcy Code with respect to these impaired Classes.
16.04. Notices to Debtors. Any and all motions, notices, requests,
elections or demands in connection with Reorganized Harvey, the Bankruptcy Case
or this Plan, including but not limited to any change of address of any Existing
Equity Interest Holder or any Claimant for the purposes of receiving
distributions under this Plan, and forfeiting same pursuant to Section 7.04 of
this Plan, shall be in writing and shall be deemed to have been given to
Reorganized Harvey when received or, if mailed, five days after the date of
mailing to:
(a): The Debtors and/or Reorganized Harvey:
The Harvey Group Inc. and Harvey Sound, Inc.
Attn: Franklin C. Karp 205
Chubb Avenue Lyndhurst, NJ 07071
<PAGE>
(b): with copy to:
Harvey Acquisition Corporation
c/o Recca & Company, Inc.
Attn: Michael Recca
100 Wall Street
New York, NY 10005
(c): with copy to Counsel to the Debtors:
Angel & Frankel, P.C.
Attn: Kevin R. Toole, Esq.
460 Park Avenue
New York, New York 10022-1906
(d): with copy to Counsel to HAC:
Ruskin, Moscou, Evans & Faltischek, P.C.
Attn: Jeffrey A. Wurst, Esq.
170 Old Country Road
Mineola, NY 11501
(e): with copy to Counsel to the Creditors' Committee:
Traub, Bonacquist & Fox
Attn: Michael Fox, Esq.
Frederick Levy, Esq.
489 Fifth Avenue
New York, NY 10017
16.05. Notice And Entry Of Confirmation Order. Notice of the entry of the
Confirmation Order shall be sufficient if (a) a copy of the notice indicating
that said order has been entered by the Court, without attaching said order, is
mailed to all known Claimants, Existing Interest Holders, whether or not
Allowed, and to all Persons which have filed a notice of appearance and request
for papers at their last known addresses.
<PAGE>
16.06. Post Confirmation Date Service List - Persons Entitled To Notice.
From and after the Effective Date, notices of appearance and demands for service
of process filed with the Court prior to such date in the Bankruptcy Case shall
no longer be effective. No further notices, other than notice of entry of the
Confirmation Order shall be required to be sent to such Entities.
16.07. Headings. The headings used in this Plan are inserted for
convenience only and neither constitute a portion of this Plan nor in any manner
affect the provisions of this Plan.
16.08. Severability. Should any provision in this Plan be determined to be
unenforceable, such determination shall in no way limit or affect the
enforceability and operative effect of any and all other provisions of this
Plan.
16.09. Governing Law. Except to the extent that the Bankruptcy Code is
applicable, the rights and obligations arising under this Plan shall be governed
by, and construed and enforced in accordance with, the laws of the State of New
York.
16.10. Change of Corporate Name. Reorganized Harvey shall have the right
subsequent to the Effective Date and in the sole discretion of the Board of
Directors of Reorganized Harvey, to change the corporate name of Group, or the
Entity resulting from the merger of Group and Sound (See Section 12.03 of this
Plan), to Harvey Electronics Inc.
<PAGE>
16.11. Stock Option Plan. Reorganized Harvey shall have the right
subsequent to the Effective Date, and in the sole discretion of the Board of
Directors of Reorganized Harvey, to put into effect a stock option plan for
employees, the terms and conditions of which will be as determined by the Board
of Directors in accordance with any applicable law.
16.12. State of Incorporation. Nothing in this Plan shall be deemed a
limitation or restriction upon, or waiver by, Reorganized Harvey of any and all
rights to reincorporate Group and Sound, either one of them, or the Entity
resulting from a merger of Group and Sound, in a state other than the state of
incorporation as of the Confirmation Date.
16.13. Successors and Assigns. The rights and obligations of any Person
named or referred to in this Plan shall be binding upon, and shall inure to the
benefit of, the successors and assigns of such Person.
16.14. Reservation of Rights. Nothing contained herein shall prohibit
Reorganized Harvey from prosecuting or defending any of its rights as may exist
on its own behalf except as provided herein.
16.15. Disbursing Agent. The Debtors shall act as Disbursing Agent under
this Plan and shall establish such accounts or funds as may be prescribed under
this Plan or required to effectuate payments as provided for in this Plan.
<PAGE>
16.16. Fees and Expenses Post-Effective Date. Subsequent to the Effective
Date any professional fees or expenses incurred by Reorganized Harvey in respect
of any services rendered to the Debtors in the ordinary course of business shall
be paid by Reorganized Harvey in full in cash in accordance with the terms of
the particular transaction without application to, or obtaining an order from,
the Bankruptcy Court. Fees and expenses of Professional Persons of the
Creditors' Committee incurred post-Effective Date shall be paid by Reorganized
Harvey upon submission of a statement for such services rendered by said
professional to Reorganized Harvey and HAC, with copy to Angel & Frankel, P.C.,
unless within ten (10) days after receipt of such statement, Reorganized Harvey
notifies the Professional Person of any dispute with such fees and expenses. In
such event, unless Reorganized Harvey and the Professional Person resolve the
dispute, then either Entity may bring the issue before the Bankruptcy Court on
appropriate notice and application for determination.
Dated: New York, New York
November 6, 1996
The Harvey Group Inc.
By:___________________________
Franklin C. Karp, President
Harvey Sound, Inc.
By:___________________________
Franklin C. Karp, President
<PAGE>
EXHIBIT 1
Executory Contract Schedule
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT "1" TO AMENDED PLAN
Contract Vendor Contract Intent Defaults Cure/Claim
<S> <C> <C> <C> <C>
AT&T Leasing Services 1 Research lease for postage machine Assume None None
Drive, 4th floor
Westboro, MA 01581
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
Local 888, UFCW, AFL-CIO SOUND: Union Agreement dated 8/01/93 Assume None None
One Westchester Tower
100 East First Street
Mount Vernon, NY 10550
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
Philip R. Dino d/b/a BOERNER COMPANY: Reject None None
L&P Sales & Consultants Deferred Compensation
49 Hallberg Avenue Agreement dated 10/30/85
Bergenfield, NJ 0762
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
Hewlett-Packard Company GROUP: Financing Agreement Assume None None
24 Inverness Place East #4124-29609 dated 6/24/94 for
Englewood, CO 80112 computer hardware, software and
support
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
Harvey E. Sampson GROUP: Deferred Compensation Reject None None
140 Reach Run Agreement
Ithaca, NY 14850
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
Century Investors Corp. SOUND: (orig. Audio Exchange of Subject to separate $32,504.29 Set off arrears
233 Wall Street Westbury, Inc.): Store Lease Motion, or will be against $50,000
Kingston, NY 12401 Agreement dated 1/01/85 for assumed under Plan. security
nonresidential real property located deposit.
at 485 Old Country Road, Westbury,
NY 11590
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
Merchants Rent a Car GROUP: Lease dated 4/94 for two (2) Assume None None
P.O. Box 395 1994 Chevrolet vans
Hooksett, NH 03106
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
LKM Expressway Plaza Limited GROUP: Amendment and termination Reject None None
Partnership agreement dated 7/8/92 to prime
277 Northern Boulevard lease agreement dated 10/5/88 and
Great Neck, NY 11021 sublease consent agreement (between
Merkert and Group) dated 3/31/92 for
nonresidential real property located at
3 Expressway Plaza, Roslyn Heights, NY
and termination
agreement.
- ---------------------------------------- -------------------------------------- --------------------- ------------- --------------
</TABLE>
<PAGE>
EXHIBIT 2
Terms and Conditions of Conversion
<PAGE>
TERMS AND CONDITIONS OF CONVERSION
1. Definitions.
a. As used herein, the following terms shall have the meanings ascribed:
"Act" means the Securities Act of 1933, as heretofore or hereafter amended.
"HARVEY Common Stock", as used herein, means the fully paid and registered
non-assessable shares of common stock of HARVEY authorized under the Plan and
issued in connection with a public offering by Harvey subsequent to the
Confirmation Date (the Public Offering as defined in the Plan).
"Confirmation Date" means the date on which the Amended Joint and
Substantively Consolidated Plan of Reorganization of The Harvey Group Inc. and
Harvey Sound, Inc. is confirmed by the United States Bankruptcy Court for the
Southern District of New York (the "Court").
"Conversion" means the exercise of the conversion rights afforded the
holder of the Preferred Stock pursuant to the Plan and in accordance with these
terms and conditions.
"Conversion Event" means a public offering of HARVEY Common Stock, a sale
of substantially all of the assets of HARVEY, or a merger of HARVEY with another
entity not an affiliate or subsidiary of HARVEY.
"Conversion Price" means an amount equal to the par value of the Preferred
Stock actually held by InterEquity.
"Converted Shares" means that the number of shares of Harvey Common Stock
issuable upon exercise of the Conversion right hereunder.
"Debtors" means HARVEY and Harvey Sound, Inc.
"Exercise Period" means the exercise period described in Section 2.
"Market Price" has the meaning ascribed to it in Section 11.
"Plan" means the Debtors' Amended Joint and Substantively Consolidated Plan
of Reorganization confirmed by the Court.
"Preferred Stock" means the [600] or [275] redeemable shares of preferred
stock of Harvey, par value $1,000.00, issued under the Plan and any additional
shares thereof as may be distributed under the Plan, which are received by
InterEquity and the holders of the NatWest Claim, respectively.
<PAGE>
2. Duration and Conversion Exercise.
a. The right of Conversion shall be exercisable in accordance with the
terms hereof by the parties with such right on any Business Day during the
Exercise Period.
b. The Exercise Period shall be the period beginning on the initial date of
a Conversion Event subsequent to the Effective Date (the "Offering Date") and
ending at 5:00 p.m. (New York City time) on the fourth (4th) anniversary of the
Confirmation Date, provided, however, that in no event shall the Exercise Period
close less than ninety (90) days subsequent to a Conversion Event.
c. Subject to Section 3, Section 5(a) and Section 7, upon duly signed and
delivered, to HARVEY at its corporate offices, Attention: Corporate Secretary,
or at such other address as HARVEY may specify in writing , HARVEY shall
promptly issue and cause to be delivered to the Preferred Stock holder, or as
the written order of the holder may designate, a certificate or certificates for
the Warrant Shares issued upon such exercise.
d. The Conversion right shall be exercisable during the applicable Exercise
Period only in the entirety of the Converted Shares.
e. If at any time prior to the exercise of the Conversion, the Preferred
Stock is redeemed by HARVEY, in whole, or in part, then the Conversion right as
provided herein, shall be deemed canceled with respect to such redeemed stock,
as of the date of such redemption, subject, however, that if within one (1) year
subsequent to such redemption, a Conversion Event occurs, the rights of the
holder of the Preferred Stock afforded thereunder and pursuant to these Terms
and Conditions shall be deemed in full force and effect as if the aforesaid
holder still held the Preferred Stock and such holder shall have the right to
purchase the same number of shares of stock it would have been entitled to had a
redemption not occurred, for the amount recieved by such holder pursuent to such
redemption.
3. Payment of Taxes.
HARVEY will pay all taxes attributed to the initial issuance of the
Converted Shares other than those on or measured by income; provided that HARVEY
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the Converted in a name other than that of the registered
holder of the Preferred Stock in question, and HARVEY shall not be required to
issueConverted Stock in the name of the transferee unless and until the person
or persons requesting the issuance thereof shall have paid to HARVEY the amount
of such tax or shall have established to the satisfaction of HARVEY that such
tax has been paid, or is not payable.
<PAGE>
4. Reservation, Listing and Issuance of Converted Shares.
<PAGE>
a. HARVEY will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy its obligation to issue Conversion Shares upon the exercise of the
Conversion, the number of shares of HARVEY Common Stock deliverable upon
exercise of the Conversion.
b. All Converted Shares will, upon issuance in accordance with the terms of
the Plan, be registered, fully paid and non-assessable and free from all taxes
with respect to the issuance thereof and from all liens, charges and security
interests created by HARVEY.
5. Reporting Requirements.
HARVEY will use its best efforts to comply with the reporting requirements
of Section 13 and 15(d) of the Act to the extent required by the Act and will
use its best efforts to comply with all other applicable public information
reporting requirements of the Commission (including Rules 144 and 148
promulgated by the Commission under the Act) from time to time in effect and
relating to the availability of an exemption form the Act for the sale of
restricted securities. HARVEY will also cooperate with the holder of the
Conversion right in supplying such information as may be necessary for such
holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of an
exemption from the Act for the sale of restricted securities.
6. Determination of Market Price.
a. The Market Price shall be the offering price of the HARVEY Common Stock
as reflected in the prospectus relating to the secondary public offering
described in Section 2b hereof.
7. Determination of the Number of Converted Shares.
a. Upon exercise of the Conversion and surrender the certificates
representing the Preferred Stock, the number of Converted Shares that the holder
of the Preferred Stock shall be entitled to receive will be determined by
applying a conversion ratio of 2 dollars of the Exercise Price to 3 dollars of
Market Price. As an example only, on the Exercise Date and assuming the
Preferred Stock has a total liquidation value of $300,000 and the Market Price
is $3.00, the holder of said stock shall be entitled to receive 66,666 Converted
Shares.
8. Creation of Conversion Right; Limitations on Issuance.
a. On the Effective Date, the Conversion right will be deemed vested in to
InterEquityand the holders of the NatWest Claim.
b. No cash will be paid nor distributions of any kind made in lieu of the
Conversion right.
c. On any exercise of the Conversion, no fractiononal shares of HARVEY
Common Stock will be issued; and no cash will be paid nor distributions of any
kind made in lieu of whole or fractional shares not issued pursuant to these
Terms and Conditions.
9
Exhibit A
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -------------------------------x
In re: Chapter 11
THE HARVEY GROUP INC. and Case Nos. 95 B 43360 and
HARVEY SOUND, INC. d/b/a 95 B 43361 (BRL)
HARVEY ELECTRONICS,
Debtors. Jointly Administered
- -------------------------------x
ORDER CONFIRMING RESTATED MODIFIED AMENDED JOINT AND
SUBSTANTIVELY CONSOLIDATED PLAN OF REORGANIZATION OF THE HARVEY
GROUP INC. AND HARVEY SOUND, INC. AND GRANTING RELATED RELIEF
The Harvey Group Inc. and Harvey Sound, Inc. (the "Debtors"), having filed
with this Court under Chapter 11 of Title 11, United States Code (the
"Bankruptcy Code"), their Modified Amended Plan of Reorganization, dated
September 19, 1996 (the "Amended Plan") and a Modified Amended Joint Disclosure
Statement pursuant to Section 1125 of the Bankruptcy Code with respect to the
Amended Plan (the "Disclosure Statement"), hereinafter, all terms in this Order
not otherwise defined herein shall have the respective meanings ascribed to such
terms in the Amended Plan or the Disclosure Statement; and a hearing having been
held before his Court on notice to all Creditors, Interest Holders and other
parties-in-interest in the Bankruptcy Case to consider the adequacy of the
information contained in the Disclosure Statement; and the Court having approved
the Disclosure Statement pursuant to Order (I) Approving Modified Amended Joint
Disclosure Statement of Debtors pursuant to Section 1125(b) of the Bankruptcy
Code; (II) Approving the Form of Ballots; (III) Fixing The Date By Which
Acceptances and Rejections of the Debtors' Modified Amended Joint and
Substantively Consolidated Plan of Reorganization Must Be Submitted and (IV)
Scheduling a Hearing to Consider Conformation of the Plan dated September 25,
1996 (the "Disclosure Statement Order"), and a copy of the Disclosure Statement
with the Amended Plan as an appendix thereto, the Disclosure Statement Order and
various related materials including Ballots (as defined in the Disclosure
Statement Order) for soliciting acceptances or rejections of the Plan having
been transmitted to all known holders of Claims, Existing Equity Interests and
other parties-in-interest; and the solicitation of acceptances and rejections
from holders of Impaired Claims and Impaired Interests having been made in the
manner required by this Court pursuant to the Disclosure Statement Order; and
the Debtors having filed on November 8, 1996 a Restated Modified Amended Joint
and Substantively Consolidated Plan of Reorganization, dated November 6, 1996
(the "Plan"), which contains typographical and grammatical corrections and
technical revisions to the Terms and Conditions of Conversion, as contained in
Exhibit "2" to the Plan and as further revised on the record of the Confirmation
Hearing (as defined hereafter) with respect to the time period in Paragraph 2.b
of said Terms and Conditions, from 90 days to nine months (the "Revisions"); and
a hearing to consider Confirmation of the Amended Plan, and other matters
relating to Confirmation having been held before this Court on November 12, 1996
(the "Confirmation Hearing"), upon notice as heretofore directed under the
Disclosure Statement Order, at which hearing the Court considered the Plan,
containing the aforesaid corrections, revisions, for Confirmation; and upon the
Declarations of Service by Mail filed herein evidencing compliance with the
aforesaid noticing directions; and upon the entire record of the Bankruptcy Case
and the record of the Confirmation Hearing; and the certification of Angel &
Frankel, P.C., of acceptances or rejections of the Amended Plan with the
originals of the Ballots received attached thereto, having been filed with the
Court (the "Ballot Certification"); and upon all the proceedings heretofore had
herein; and after due deliberation and sufficient cause appearing therefor;
<PAGE>
IT IS HEREBY FOUND AND DETERMINED that
(a) All Creditors, Persons, Entities and Interest Holders entitled or
required to receive notice of the Amended Plan, the Disclosure Statement, the
hearing on the adequacy of the Disclosure Statement and Confirmation Hearing
have received due, proper and adequate notice thereof.
(b) The Amended Plan, as revised pursuant to the Plan, meets the
requirements of Section 1127 of the Bankruptcy Code and the Revisions do not
require any additional disclosure to Creditors, Interest Holders and other
parties in interest under Section 1125 of the Bankruptcy Code and the Revisions
are non-substantive in nature and do not materially effect or adversely impact
upon any rights of Creditors, Interest Holders or other parties in interest and
that no further solicitation of acceptances or rejections with respect to the
Plan is required.
(c) The Ballots received in connection with voting on acceptance or
rejection of the Amended Plan are deemed for all purposes effective as to voting
with respect to the Plan and the results of the tabulation of such Ballots, as
reflected in the Ballot Certification, is deemed applicable to the Plan and said
Ballots are deemed to have been cast with respect to acceptance or rejection of
the Plan.
(d) The Amended Plan has been duly accepted in accordance with Section 1126
of the Bankruptcy Code by all actual Classes of Claims and Interests existing
and impaired under the Plan, thus satisfying the requirement of Section 1129 (a)
(8) (A) of the Bankruptcy Code.
(e) The Plan complies with the applicable provisions of Chapter 11 of the
Bankruptcy Code.
(f) The Debtors, as proponent of the Plan, have complied with all
applicable provisions of the Bankruptcy Code regarding both the Plan and the
Disclosure Statement.
(g) The Plan has been proposed in good faith and not by any means forbidden
by law.
<PAGE>
(h) The Plan specifies the Classes of Claims not impaired under the Plan.
Class 1, Class 2 and Class 6 as designated under the Plan, and all
Administrative Claims and Priority Tax Claims (which are not classified under
the Plan) are not impaired under the Plan.
(i) The Plan identifies the Classes of Claims and Interests impaired under
the Plan and specifies the treatment of Allowed Claims or Interests in such
Classes. Classes 3, 4, 5, 7, 8 and 9 as designated under the Plan are impaired
under the Plan.
(j) With respect to Class 8, Affiliate Claims, there are no such Claims
existing.
(k) The classification of Claims and Interests under the Plan complies with
Section 1122 of the Bankruptcy Code.
(l) The treatment of Claims under the Plan of the type specified in
Sections 507(a)(1), 507(a)(3), 507(a)(4) and 507(a)(7) of the Bankruptcy Code,
if any, complies with the provisions of Section 1129 (a)(9) of the Bankruptcy
Code.
(m) The Plan provides the same treatment for each Allowed Claim and Allowed
Interest in a particular Class.
(n) The solicitation of acceptances and rejections by the Debtors was in
good faith.
(o) The Plan provides adequate means for the execution and implementation
of the Plan.
(p) The procedures by which the Ballots were distributed and tabulated were
fair, properly conducted and complied with the Disclosure Statement Order.
(q) The Ballots included in the tabulation of acceptances or rejections and
which are attached to the Ballot Certification, have been timely received from
the respective holders of the Class 3 Claim, the Class 4 Claim, the Class 5
Claim, Class 7 Claims and Class 9 Interests.
(r) Any payments made or promised by the Debtors for services of
professional Persons, or for costs and expenses associated therewith in
connection with the Plan and incident to the Bankruptcy Case have been disclosed
to this Court, and any such payments made before Confirmation are reasonable
and/or have been approved by the Court after due and proper notice and
consideration by the Court or, if such payments are to be fixed after
Confirmation of the Plan, such payments are subject to approval of this Court as
reasonable.
<PAGE>
(s) The Debtors have disclosed the identity of any officer, director or
Insider that will be employed or retained by them and the nature of any
compensation for such Person.
(t) With respect to each Class, each holder of a Claim or Interest in such
Class has accepted the Plan or will receive or retain under the Plan on account
of such Claim or Interest property of a value, as of the Effective Date, that is
not less than the amount that such holder would receive or retain if the Debtors
were liquidated under Chapter 7 of the Bankruptcy Code on the same date.
(u) The Plan is feasible. The Debtors have demonstrated that there is a
reasonable prospect of them (i) being able to meet the financial obligations
imposed under the Plan without the need for liquidation or further financial
arrangements; and (ii) being able to execute and deliver, or cause to be
executed and delivered, all documents, agreements and/or instruments provided
for or required under the Plan and/or by applicable law to consummate the
transactions and conveyances contemplated by the Plan.
(v) All fees due under 28 U.S.C. Section 1930 have been paid, or the Plan
provides for the payment of all such fees on, or prior to, the Effective Date.
(w) The Plan is fair and equitable to all parties in interest, including,
without limitation, all holders of Claims against and Interests in the Debtors.
(x) The Plan does not discriminate unfairly with respect to each Class of
Claims or Interests.
IT IS THEREFORE,
NOW, on motion of ANGEL & FRANKEL, P.C., counsel to the Debtors,
ORDERED, ADJUDGED AND DECREED THAT:
1. The findings set forth above are incorporated herein and are hereby "SO
ORDERED" by this Court.
2. The Plan, including the Revisions set forth on the record of the
Confirmation Hearing with respect to Paragraph 2.b. of the Terms and Conditions
of Conversion, is hereby approved and confirmed in all respects.
3. The members of the Board of Directors of Reorganized Harvey shall, as of
the Effective Date, consist of Franklin C. Karp, Joseph Calabrese, Michael
Recca, Peter Burns, Joseph D'Amadeo, Ben Evans (the Committee Member) and
William Kenny, or any other member appointed by HAC should Mr. Kenny resign as a
director, such members to remain directors for the periods provided for under
Section 14.04 of the Plan.
<PAGE>
4. Without limiting the generality of Paragraph 2 above, the Debtors and/or
Reorganized Harvey, by any of their executive officers, are authorized to
execute and deliver all agreements, documents and other undertakings as defined
and described or contemplated under in the Plan (the "Plan Documents").
5. The Debtors and/or Reorganized Harvey, by any of their executive
officers, are hereby authorized and directed to implement and perform the terms
and conditions of each of the Plan Documents and to take such other steps and
perform such other acts as may be necessary to implement and effectuate the
Plan, and are further hereby authorized to execute and deliver any instrument
and perform any other act that is necessary for the consummation of the Plan and
the implementation of the Plan Documents, in accordance with Section 1142(b) of
the Bankruptcy Code.
6. The Debtors and/or Reorganized Harvey, as a reorganized entity pursuant
to the Plan and this Order, is hereby authorized and directed to continue,
assume, ratify and adopt all obligations, liabilities and indebtedness, if any,
owed to Congress Financial Corporation ("Congress") by the Debtors, as
debtors-in-possession, and incurred during the Bankruptcy Case, whether existing
prior to or after the entry of this Order, which indebtedness, if any, shall
survive Confirmation until fully paid and satisfied.
7. Any and all loans and advances made by Congress to the Debtors during
the period commencing on or after the entry of this Order, and concluding at the
time the Plan is substantially consummated, including, without limitation, the
satisfaction of the conditions to the occurrence of the Effective Date set forth
in the Plan, shall be governed by and made in accordance with the terms of the
Final Order Authorizing Financing, Granting Senior Liens and Priority
Administrative Expense Status, Modifying the Automatic Stay, and Authorizing
Debtors to Enter Into Agreements with Congress Financial Corporation, dated
August 23, 1995 (the "Congress Financing Order") and the accompanying loan and
security agreements (the "Congress Financing Agreements"), together with all
other related agreements, documents and instruments referred to in the Congress
Financing Agreements (collectively, the "DIP Financing Agreements"), which
Congress Financing Order and DIP Financing Agreements shall remain in full force
and effect and shall survive Confirmation until fully paid and satisfied.
8. The Debtors and/or Reorganized Harvey, as a reorganized entity pursuant
to the Plan and this Order, is hereby authorized and directed to continue,
assume, adopt and ratify all rights, priorities, liens and security interests
granted to Congress upon all of the property of the Estate pursuant to the
Congress Financing Order and the DIP Financing Agreements, all of which shall
remain in full force and effect and shall survive Confirmation, and shall
continue until all obligations, liabilities and indebtedness owed by Debtors to
Congress for all borrowings made prior to this Order are fully paid and
satisfied.
9. In addition to the aforesaid authorizations provided in Paragraphs 3 and
4 hereinabove, the Debtors and/or Reorganized Harvey, as a reorganized entity
pursuant to the Plan, is hereby authorized and directed to execute, deliver and
perform its obligations under the post-effective date financing facility
agreements with Congress (the "Exit Financing Agreements") and to take such
additional action and execute and deliver, record and file all such other
agreements and instruments as required by the Exit Financing Agreements.
<PAGE>
10. The record date for distribution to holders of Allowed Existing Equity
Interests of Issued New Common Stock pursuant to Section 4.10 of the Plan shall
be deemed to be November 8, 1996.
11. Distributions of Cash or New Equity required to be made to the holders
of Allowed Claims against, and Allowed Interests in, the Debtors shall be made
as provided in the Plan.
12. The Plan and its provisions shall be binding upon the Debtors and
Reorganized Harvey, any entity acquiring property under the Plan, any holder of
a Claim against or Interest in the Debtors, any federal, state, or local
authority, and any other party in interest, whether or not the Claim or Interest
of such holder or right or obligation of any party in interest is impaired under
the Plan, and whether or not such holder or party in interest has accepted the
Plan.
13. Except as otherwise provided in the Plan, this Order, or the Plan
Documents, from and after the Effective Date, the Debtors, their Estate and
Reorganized Harvey, and all of the Assets and property of the Debtors, the
Estate and Reorganized Harvey, shall be discharged and released from any and all
Claims and Interests of any nature whatsoever, including any interest accrued
thereon from and after the Petition Date. Except as otherwise provided in the
Plan, this Order or the Plan Documents, from and after the Effective Date, in
accordance with the Plan and to the extent provided by Section 1141 of the
Bankruptcy Code, all Claims shall be discharged in accordance with Sections 524
and 1141 of the Bankruptcy Code. Except as otherwise provided in the Plan, this
Order or the Plan Documents, from and after the Effective Date, all Entities
shall, in accordance with the Plan, be precluded and enjoined from asserting
against the Debtors, Reorganized Harvey, the Estate, and their respective
property and assets, any other or further Claim based on any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date.
14. Upon the Effective Date, all equity securities or debt, including, but
not limited to, any debentures, capital stock and Existing Common Stock shall be
canceled and, except a specifically prescribed in the Plan, the rights of the
holders thereof shall simultaneously therewith be terminated and any and all
certificates, indentures or other instruments evidencing such securities shall
be deemed canceled and of no further force or effect.
15. Except as otherwise expressly provided in the Plan and this Order, in
implementation of the discharge provided for above, and in accordance with the
Plan, all Entities who have held, hold or may hold Claims against, or Interests
in, the Debtors are jointly and severally restrained and permanently enjoined as
of and after the Effective Date from: (a) commencing or continuing in any
manner, directly or indirectly, any action or other proceeding of any kind with
respect to any such Claim against, or Interests in, the Debtors, Reorganized
Harvey, (and their respective shareholders, officers, directors and employees)
and the property of the Debtors and Reorganized Harvey (and of their respective
shareholders, officers, directors and employees), with respect to any such Claim
or Interest; (b) the enforcement, attachment, collection or recovery by any
manner or means of any judgment, award, decree, or order against the Debtors and
Reorganized Harvey (and/or their respective shareholders, officers, directors
and employees), the property of the Debtor and Reorganized Visual (and of their
respective shareholders, officers, directors and employees), with respect to any
such Claim or Interest; (c) creating, perfecting or enforcing any encumbrance of
any kind against the Debtors and Reorganized Harvey (and/or their respective
shareholders, officers, directors and employees) or against the property of the
Debtors and Reorganized Harvey (and of their respective shareholders, officers,
directors and employees), with respect to any such Claim or Interest; (d)
asserting any setoff, right of subrogation, or recoupment of any kind against
any obligation due the Debtors and Reorganized Harvey (and/or their respective
shareholders, officers, directors and employees) or against the property of the
Debtors and Reorganized Harvey (and of their respective shareholders, officers,
directors and employees), with respect to any such Claim or Interest; and (e)
any act, in any manner, in any place whatsoever, that does not conform to or
comply with the provisions of the Plan or this Order relating to any Claim or
Interest.
<PAGE>
16. Except as otherwise provided in the Plan, this Order or the Plan
Documents, from and after the Effective Date, in accordance with the Plan, all
Claims based upon guarantees of collection, payment or performance, indemnity
bonds or obligations, performance bonds, contingent liabilities arising out of
the assignment of leases or contract obligations, or other similar undertakings
made or given by the Debtors prior to the Petition Date, as to the obligations
or performance of another or of any other Person shall be discharged, released
and of no further force and effect.
17. From and after the Effective Date, the property and assets of the
Debtors and Reorganized Harvey shall be deemed to be free and clear of all
liens, claims, security interests, assignments, encumbrances and other adverse
interests of any nature and kind existing as of the Effective Date, except as
may otherwise be provided for in the Plan, this Order or the Plan Documents.
18. The Debtors are required to bring any objection to a Claim, not
previously commenced, within thirty (30) days after the Confirmation Date, or
with respect to Rejection Claims filed pursuant to Article X of the Plan, within
thirty (30) days after service of such Claim upon the Debtors' counsel, or as to
any Claim within such period as is subsequently directed by this Court. The
Debtors shall litigate to judgment, settle or withdraw objections to Disputed
Claims, in the sole discretion of the Debtors, without notice to any party in
interest, and any Disputed Claim or Disputed Interest ultimately Allowed shall
be satisfied and/or paid as provided in, and limited by, Section 11.03 of the
Plan.
19. The commencement or continuation by or on behalf of any holder of a
Claim or Interest, or any Entity acting or purporting to act by, through, under
or on behalf of any of the foregoing, of any action, the employment of process,
or any act to assert a claim for relief against the Debtors or Reorganized
Harvey in respect of any actions taken during the course of the Bankruptcy Case
is hereby permanently enjoined.
20. Any Executory Contract not previously assumed or rejected by the
Effective Date, or subject to a motion to assume or reject pending as of the
Effective Date, shall be deemed assumed or rejected in accordance with Section
10.01 of the Plan, subject to the provisions of Section 10.01 the Plan with
respect to any Executory Contract, the Contract Cure of which is in dispute.
21. The restraining provisions of Section 362(a) of the Bankruptcy Code
shall continue in effect until the Effective Date, excepting, however, any act
necessary or appropriate to effectuate any term or condition of the Plan
required to be completed prior to the Effective Date, or as otherwise provided
in the Plan, the Plan documents, in this Order, or any prior order of the Court.
22. The following are deemed for all purposes to be transactions under the
Plan and subject to, and entitled to the exemptions provided under, Section
1146(c) of the Bankruptcy Code: (a) assumption and assignment of a certain
Executory Contract as authorized and approved pursuant to this Court's Order
Approving and Authorizing Assumption and Assignment of Commercial Lease By and
Between Musart Associates, as Landlord and Harvey Sound, Inc., as Tenant and
Granting Related Relief, dated August 15, 1996; and (b) the delivery of
instruments by Reorganized Harvey to Congress which are deemed necessary or
appropriate by the parties with respect to the Exit Financing Agreements
provided for in, and authorized under this Order and Section 4.03 of the Plan.
<PAGE>
23. This Order shall be sufficient and conclusive evidence of the validity
of Congress' security interests in and liens upon all of the property of the
Estate as set forth in the Congress Financing Order and the DIP Financing
Agreements without the necessity of filing financing statements and other
documents which may be otherwise required under Federal or State law in any
jurisdiction, or the taking of any other action to validate or perfect the
security interests and liens granted to Congress in the Congress Financing Order
and the DIP Financing Agreements for advances made subsequent to the entry of
this Order.
24. The Congress Financing Order shall terminate upon the repayment in full
of any and all obligations, liabilities and indebtedness due Congress by Debtors
arising of loans and advances made during the Bankruptcy Case, or subsequent to
Confirmation but, in all events, prior to the Debtors and/or Reorganized Harvey
having entered into the Exit Financing Agreements with Congress, whereupon
Congress, its officers, directors, agents and employees, and its and their
respective successors and assigns are and shall be, relieved of and discharged
from any and all obligations of any nature or description and any and all
claims, obligations, liabilities, responsibilities and causes of action whether
at law or in equity, whether known or unknown, present or future, pursuant to or
arising out of the Congress Financing Order, the DIP Financing Agreements or
otherwise.
25. As of the Effective Date, all notices of appearance filed by any Entity
in the Bankruptcy Case shall be deemed withdrawn by such Entity And such Entity
shall not be entitled to any post-Effective Date notification of post-Effective
Date matters, hearings, pleadings or other proceedings filed or commenced by, or
with respect to, the Debtors or Reorganized or regarding any aspect of the Plan,
the Assets or otherwise.
26. Any Entity desiring to receive post-Effective Date notice as may be
given by the Debtors or Reorganized Harvey or directed by the Bankruptcy Court
shall serve upon the parties designated in Section 16.04 of the Plan, and file
with the Clerk of the Court, a post-Effective Date notice of appearance.
27. From and after the Effective Date, and in accordance with the Plan, and
with respect to any Entity which fails to claim any Cash or New Equity under the
Plan as provided in the Plan, such Cash or New Equity shall be deemed Unclaimed
Property and such Entity shall forfeit all rights thereto, and to any and all
future payments or distributions, and thereafter the Claim for which such Cash
or New Equity was distributed (from whichever distribution account established
under the Plan) shall be treated as a Disallowed Claim or Disallowed Interest
and the disposition of such New Equity or such Cash shall be in accordance with
the Plan.
<PAGE>
28. Upon the Effective Date, the Bankruptcy Case shall be substantively
consolidated with respect to Confirmation, the Assets, Distributions on account
of a treatment with respect to Claims and Existing Equity Interests and
consummation of the Plan. In accordance with the aforesaid substantive
consolidation:
(a) as provided in the Plan, Affiliate Claims, if any, shall be eliminated;
(b) all Assets and all proceeds thereof and all liabilities of the Debtors
shall be merged pursuant to the terms of the Plan or treated as though they were
merged;
(c) each and every Claim filed against either Debtor shall be deemed filed
against both;
(d) any obligation of each Debtor and all guarantees thereof executed by
one or more of them shall be deemed to be an obligation of both and of the
Estate jointly;
(e) any Claims filed or to be filed in connection with any such obligation
or guarantee shall be deemed to be but one Claim against the Debtors and any
such duplicative Claims shall be deemed merged without need of the Debtors to
bring an objection thereto under Article XI of the Plan;
(f) for purposes of determining the availability of the right of setoff
under Section 553 of the Bankruptcy Code, the Debtors shall be treated as a
single Entity so that, subject to the other provisions of Section 553 of the
Bankruptcy Code, debts due to either of them may be setoff against the debts of
either one; and
(g) as of the Effective Date, the Debtors shall be deemed substantively
consolidated pursuant to and in the manner described in Article XII of the Plan.
29. The Debtors are authorized, but not directed, to take any and all
actions necessary and appropriate to effectuate a merger or consolidation of the
separate corporate structures of Group and Sound as provided under Section 12.03
of the Plan and/or corporate name change under Section 16.10 of the Plan, and
that such merger or consolidation and name change is permissible and the Board
of Directors of Reorganized Harvey has the authority pursuant to Section 808 of
the New York Business Corporation Law to effectuate same without need of
approval or authorization of the holders of the New Equity or the Existing
Common Stock.
30. Except as to the matters and functions provided in Section 14.04 of the
Plan regarding appointment of the Committee Member to the Board of Directors, as
of and after the Effective Date, the Creditors' Committee shall cease and
terminate all functions and activity and shall have no further authority or
power regarding implementation of the Plan, or otherwise with respect to
Reorganized Harvey.
<PAGE>
31. Notwithstanding anything to the contrary contained in this Order, in no
event shall the Effective Date occur or be deemed to have occurred until all of
the conditions precedent set forth in Article XIII of the Plan have been
satisfied, unless specifically waived by the Entity having the right to so
waive.
Dated: New York, New York
November 13, 1996
\s\
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United States Bankruptcy Judge
