HARVEY ELECTRONICS, INC.
205 Chubb Avenue
Lyndhurst, NJ 07071
NOTICE OF 1998 ANNUAL
MEETING OF STOCKHOLDERS TO BE
HELD AT 10:00 A.M. ON July 23, 1998
To the Stockholders of HARVEY ELECTRONICS, INC.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders
(the "Meeting") of HARVEY ELECTRONICS, INC. (the "Company") will be held on July
23, 1998 (the "Meeting Date"), at 10:00 A.M. at the Marriott At Glen Pointe, 100
Frank W. Burr Boulevard, Teaneck, NJ 07666 for the following purposes:
1. To elect six directors;
2. To ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending
October 31, 1998;
3. To approve the Harvey Electronics, Inc. Stock Option Plan; and
4. To transact such other business as may properly come before
the Meeting and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on June 15, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting, and only holders of record of shares of the
Company's Common Stock at the close of business on that day will be entitled to
vote. The stock transfer books of the Company will not be closed.
Enclosed is a copy of the Company's Annual Report on Form 10-KSB/A as
filed with the Securities and Exchange Commission for the fiscal year ended
November 1, 1997.
A complete list of stockholders entitled to vote at the Meeting shall
be available at the offices of the Company during ordinary business hours from
June 23, 1998 until the Meeting Date for examination by any stockholder for any
purpose germane to the Meeting. This list will also be available at the Meeting.
All stockholders are cordially invited to attend the Meeting in person.
However, whether or not you expect to be present at the Meeting, you are urged
to mark, sign, date and return the enclosed Proxy, which is solicited by the
Board of Directors, as promptly as possible in the postage-prepaid envelope
provided to ensure your representation and the presence of a quorum at the
Meeting. The shares represented by the Proxy will be voted according to your
specified response. The Proxy is
<PAGE>
revocable and will not affect your right to vote in person in the event you
attend the Meeting.
By Order of the Board of Directors
/s/Joseph J. Calabrese, Jr.
---------------------------------------
Joseph J. Calabrese, Jr., Secretary
Lyndhurst, New Jersey
June 23, 1998
- ------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ACCOMPANYING
POSTPAID ENVELOPE. YOUR DOING SO MAY SAVE HARVEY ELECTRONICS, INC. THE EXPENSE
OF A SECOND MAILING.
- --------------------------------------------------------------------------------
<PAGE>
HARVEY ELECTRONICS, INC.
205 Chubb Avenue
Lyndhurst, NJ 07071
------------------------------
PROXY STATEMENT
------------------------------
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT 10:00 A.M. ON JULY 23, 1998
The enclosed Proxy Statement is solicited by the Board of Directors of
HARVEY ELECTRONICS, INC. (the "Company") in connection with the 1998 Annual
Meeting of Stockholders (the "Meeting") to be held on July 23, 1998 (the
"Meeting Date"), at 10:00 a.m. at the Marriott At Glen Pointe, 100 Frank W. Burr
Boulevard, Teaneck, NJ 07666 and any adjournment thereof. The Board of Directors
has set June 15, 1998, at the close of business, as the record date ("Record
Date") for the determination of stockholders entitled to notice of and to vote
at the Meeting. As of the Record Date, the Company had 3,282,833 shares of
Common Stock outstanding. A stockholder executing and returning a Proxy has the
power to revoke it at any time before it is exercised by filing a later Proxy
with, or other communication to, the Secretary of the Company or by attending
the Meeting and voting in person. The Proxy will be voted in accordance with
your directions as to:
(1) The election of the persons listed herein as directors of the Company;
(2) The ratification of the appointment of Ernst & Young, LLP as the
Company's independent auditors for the fiscal year ending October 31, 1998;
(3) To approve the Harvey Electronics, Inc. Stock Option Plan; and
(4) The transaction of such other business as may properly come before the
Meeting and any adjournment or postponement thereof.
In the absence of direction, the Proxy will be voted in favor of these
proposals.
The entire cost of soliciting proxies will be borne by the Company. The
cost of solicitation, which represents an amount believed to be normally
expended for a solicitation relating to an uncontested election of directors,
will include the cost of supplying necessary additional copies of the
solicitation materials and the Company's 1997 Annual Report on Form 10-KSB/A to
Stockholders (the "Annual Report") to beneficial owners of shares held of record
by brokers, dealers, banks, trustees, and their nominees, including the
reasonable expenses of such recordholders for completing the mailing of such
materials and Annual Report to such beneficial owners.
In voting at the Meeting, each stockholder of record on the Record Date of
the Common Stock will be entitled to one vote on all matters. Holders of a
majority of the outstanding shares of Common Stock must be represented in person
or by proxy in order to achieve a quorum to vote on all matters. The attached
Notice of Meeting, the Proxy Statement, the enclosed form of Proxy and the
Annual Report are being mailed to stockholders on or about June 23, 1998.
BENEFICIAL STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 2, 1998, by (1) each director
of the Company, (ii) each person known to the Company to be the beneficial owner
of more than 5% of the Common Stock of the Company, (iii) the executive officers
named in the Summary Compensation Table below, and (iv) all executive officers
and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature Acquirable
Name and Address of of Beneficial Within Percent of
Beneficial Owner Title of Class Owner 60 Days Class
- ------------------- --------------- ----------------- ---------- -----------
<S> <C> <C> <C> <C>
Harvey Acquisition Common 1,750,000 (3) - 53.3%
Company LLC ("HAC")
c/o Recca & Co., Inc.
100 Wall Street, 10th Floor
New York, NY 10005
Michael E. Recca Common 1,755,000 (1) - 53.5%
Recca & Co., Inc.
100 Wall Street, 10th Floor
New York, NY 10005
Stewart L. Cohen Common Common 10,000 - *
Harvey Electronics,Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
William F. Kenny, III Common 8,489 - *
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
Fredric J. Gruder Common 2,500 - *
Gersten, Savage,Kaplowitz &
Fredericks, LLP
101 East 52nd Street
New York, NY 10022
Franklin C. Karp Common 15,000(2) - *
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
Joseph J. Calabrese Common 10,702 (2) - *
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
Michael A. Beck Common 7,500 (2) - *
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
Roland W. Hiemer Common 2,500 (2) - *
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
- --------------------
All Directors and Officers as Common 1,811,691 55.2%
as a group (8 persons)
</TABLE>
* Less than 1% of outstanding shares of Common Stock.
(1) Includes Shares owned by HAC, of which Mr. Recca is a member and one of
three managers.
(2) Amounts do not include shares which may be acquired as a result of the
exercise of options, as all options are currently not exercisable.
(3) 2,000,000 shares of the Company's Common Stock were originally issued
to HAC in satisfaction of the $2,822,500 of subordinated secured financing
provided to the Company during its reorganization process. As a result of the
Company's public offering (the "Public Offering") of 1,200,000 shares of Common
Stock and 1,830,000 Warrants to purchase Common Stock, completed April 7, 1998,
175,000 shares of Common Stock were sold by HAC. In late November 1997, 85,000
shares of Common Stock were transferred by HAC to certain employees of the
Company (see "Certain Transactions", below, for details). Additionally, HAC
purchased 10,000 shares of Common Stock from InterEquity Capital Partners, L.P.
("InterEquity"), a prereorganization subordinated secured debtholder, after the
closing of the Public Offering.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock to file reports of ownership and changes in ownership of
such stock with the Securities and Exchange Commission (the "SEC"). Directors,
executive officers and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based upon a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
as of May 2, 1998, the Company believes that its directors, executive officers
and greater than 10% stockholders complied with all Section 16(a) filing
requirements. ELECTION OF DIRECTORS
Six directors are to be elected by a plurality of the votes cast at the
Meeting, each to hold office until the next Annual Meeting of Stockholders and
until his respective successor is duly elected and qualified.
The persons named below have been nominated for election as directors. The
persons named in the accompanying Proxy have advised the Company that it is
their intention to vote for the election of the persons named below as directors
unless authority is withheld.
Michael E. Recca
Franklin C. Karp
Joseph J. Calabrese, Jr.
Stewart L. Cohen
Fredric J. Gruder
William F. Kenny, III
The Company believes that each nominee will be able to serve. If any
nominee becomes unable or unwilling to serve, Proxies may be voted for the
election of such person or persons as the Board of Directors determines.
<PAGE>
Information Regarding Officers and Directors
The following table sets forth the names and ages of the Company's current
and nominated directors and executive officers and the positions they hold with
the Company:
Name Age (1) Position
Michael E. Recca ................... 47 Chairman and Director
William F. Kenny, III............... 67 Director
Stewart L. Cohen ................... 44 Director
Fredric J. Gruder................... 52 Director (nominee)
Franklin C. Karp ................... 44 President and Director
Joseph J. Calabrese, Jr............. 38 Executive Vice President,
Chief Financial Officer,
Treasurer, Secretary and
Director
Michael A. Beck .................... 39 Vice President of
Operations
Roland W. Hiemer ................... 37 Director of Inventory
Control
(1) As of May 2, 1998.
Michael E. Recca became the Chairman of the Board of Directors of the
Company in November 1996. Mr. Recca has been the president of Recca & Company,
Inc., a financial consulting firm based in New York City since 1992. Mr. Recca
is also a member and one of the three managers of Harvey Acquisition Company,
LLC, which is a principal shareholder of the Company. Mr. Recca is also an
employee of Taglich Brothers, D'Amadeo, Wagner & Co., Inc., an NASD registered
broker-dealer.
William F. Kenny, III has been a director of the Company since 1975. For
the past five years' Mr. Kenny has been a consultant to Meenan Oil Co., Inc. of
which he had previously been the chief executive officer. Mr. Kenny has also
served as a director of the Empire State Petroleum Association, Petroleum
Research Foundation and is the president of the East Coast Energy Council. Mr.
Kenny was also the president of the Independent Fuel Terminal Operators
Association and the Metropolitan Energy Council.
Stewart L. Cohen was elected a director of the Company in 1997. Mr. Cohen
is the Chief Executive Officer of Paragon Capital LLC, an asset-based lender
providing a revolving line of credit facility to the Company and other
retailers. Mr. Cohen is also a managing director of The Ozer Group LLC, an asset
and business restructuring firm which provides asset disposition, business
evaluation, advisory services, and asset appraisals for financial institutions
lending primarily to retail businesses. He is also the President of U.S. Dixon's
Holdings, Inc. and its non-operating subsidiaries, for which Mr. Cohen was
retained to wind down the affairs of, and pursue economic settlements for, the
company with other parties. Mr. Cohen is also a "Responsible Officer" of Folger
Adams, a company in Chapter 11, where Mr. Cohen's responsibilities include the
administration of all funds and disbursements subject to the Folger Adams Plan
of Confirmation. Mr. Cohen is also a member of the Board of Advisors of Verc
Enterprises, Inc., and is a Contributing Editor to the American Bankruptcy
Institute Journal.
Fredric J. Gruder, a nominee for director, has, since September 1996, been
a partner in the New York law firm of Gersten, Savage, Kaplowitz & Fredericks,
LLP ("Gersten"), which represented Thornwater Company, L.P. ("Thornwater"), the
Company's underwriter, in the Offering. Gersten may represent Thornwater in
future legal matters. From March 1996 through September 1996, Mr. Gruder was of
counsel to Gersten, having been a sole practitioner from May 1995 through March
1996. From March 1992 until March 1996, Mr. Gruder served as vice president and
general counsel to Sbarro, Inc., a publicly traded corporation which owns,
operates, and franchises Italian restaurants. Prior to this time, Mr. Gruder
practiced law in New York for over twenty years, specializing in corporate
securities and retail real estate.
Franklin C. Karp has been with the Company since 1990. Before being
appointed as the Company's President in April 1996, Mr. Karp served as
Merchandise Manager and later as Vice President In Charge of Merchandising. Mr.
Karp has been employed in various sales, purchasing and management positions in
the retail consumer electronics business in the New York Metropolitan area for
25 years.
Joseph J. Calabrese, Jr., a certified public accountant, joined the Company
as Controller in 1989. Since 1991, Mr. Calabrese has served as Vice President,
Chief Financial Officer, Treasurer and Secretary of the Company. Mr. Calabrese
was elected Executive Vice President and a Director of the Company in 1996. Mr.
Calabrese began his career with Ernst & Young LLP in 1981 where for the eight
year period prior to his joining the Company he performed audit services with
respect to the Company.
Board Recommendation and Vote Required. The Board recommends that the
stockholders vote "FOR" the election of each of the above named nominees. The
affirmative vote of a majority of the shares of Common Stock present or
represented and entitled to vote at the meeting is required for the election of
each director.
Michael A. Beck has been Vice President of Operations of the Company since
April 1997. From June 1996 until such date he was the Company's Director of
Operations and from October 1995 until April 1996 he served as director of
operations for Sound City, a consumer electronics retailer. Mr. Beck was a store
manager for the Company from August 1989 until October 1995. Mr. Beck holds a BA
in Psychology from Merrimack College.
Roland W. Hiemer is an executive officer of the Company and Director of
Inventory Control. Mr. Hiemer has been with the Company for seven years. He
started with the Company as a salesman and advanced to Senior Sales Manager for
the Paramus store in 1991. He was further promoted to Inventory Control Manager
in 1991. In 1997, he was promoted to Director of Inventory Control. Mr. Hiemer
holds a BA in Business Administration from Hofstra University.
Committees of the Board of Directors
The Board of Directors, which met three times during fiscal 1997, has an
Audit Committee and a Compensation and Stock Option Committee.
Audit Committee. The function of the Audit Committee includes making
recommendations to the Board of Directors with respect to the engagement of the
Company's independent auditors and the review of the scope and effect of the
audit engagement. William F. Kenny, III and Stewart L. Cohen are the current
members of the Audit Committee. The Audit Committee met once relating to the
fiscal year 1997 audit.
Compensation and Stock Option Committee. The function of the Compensation
and Stock Option Committee is to make recommendations to the Board with respect
to the compensation of management employees and to administer plans and programs
relating to stock options, pension and other retirement plans, employee
benefits, incentives, and compensation. Stewart L. Cohen and William F. Kenny,
III are the current members of the Compensation and Stock Option Committee. The
Compensation and Stock Option Committee did not meet in fiscal year 1997 but did
meet in November 1997.
Directors' Compensation
Directors of the Company receive no compensation for service as members of
the Board, other than reimbursement of expenses incurred in attending meetings.
Effective April 1998, Michael E. Recca, Chairman of the Board, receives an
annual director's fee of $95,000.
Limitation of Liability of Directors; Indemnification of Directors and
Officers; Directors and Officers Insurance
The Company's Certificate of Incorporation provides that a director shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability if a judgment
or other final adjudication adverse to him establishes that his acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that his acts violated
Section 719 of the New York Business Corporation Law. Any repeal or modification
of what is set forth hereinabove will not adversely affect any right or
protection of a director of the Company existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such repeal or
modification. The effect of this provision is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in certain limited situations.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. These provisions will not
alter the liability of directors under federal securities laws.
The Company's By-Laws provide that the Company shall to the fullest extent
permitted by applicable law, as amended from time to time, indemnify any person
who is or was made, or threatened to be made, a party to any action or
proceeding, whether civil or criminal, whether involving any actual or alleged
breach of duty, neglect or error, any accountability, or any actual or alleged
misstatement, misleading statement or other act or omission and whether brought
or threatened in any court or administrative or legislative body or agency,
including any action by or in the right of the Company to procure a judgment in
its favor and an action by or in the right of any other corporation of any type
or kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the Company
is serving or served in any capacity at the request of the Company, by reason of
the fact that he, his testator or intestate, is or was a director or officer of
the Company, or is serving or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and expenses (including
attorneys' fees, cost and charges) incurred as a result of such action or
proceeding, or appeal therein, except to such person who is a director or
officer of the Company and a judgment or other final adjudication adverse to
such director or officer establishes that (i) his acts were committed in bad
faith or were the result of active and deliberate dishonest and, in either case,
were material to the cause of action so adjudicated, or (ii) he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled.
Section 722 of the New York Business Corporation Law empowers a New York
corporation to indemnify any person, made, or threatened to be made, a party to
an action or proceeding other than one by or in the right of the corporation to
procure a judgment in its factor, whether civil or criminal, including an action
by or in the right of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the corporation served in any
capacity at the request of the corporation, by reason of the fact that he, his
testator or intestate, was a director or officer of the corporation, or served
such other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees actually and
necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in, or in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the corporation and, in
criminal actions or proceedings, in addition, had no reasonable cause to believe
that his conduct was unlawful.
In addition, Section 722 of the New York Business Corporation Law states
that a New York corporation may indemnify any person made, or threatened to be
made, a party to an action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he, his testator or intestate,
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of any other corporation of
any type of kind, domestic or foreign, of any partnership, joint venture, trust,
employee benefit plan or other enterprise, against amounts paid in settlement
and reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court on which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
The Company maintains directors and officers liability insurance. The
current annual premium for such insurance is approximately $65,000, all of which
is paid by the Company.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company,
as well as any other compensation paid to or earned by the Chairman of the
Company, the President of the Company and those executive officers compensated
at or greater than $100,000 for services rendered to the Company in all
capacities during the three most recent fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Name of Individual Annual Compensation Long Term
and Principal Position Year Salary Bonus Compensation (3)
- ---------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C> <C>
Michael E. Recca 1997 $ 0 ----- ---------
Chairman (1) 1996 $ 0 ----- ---------
1995 $ 0 ----- ---------
Franklin C. Karp 1997 $126,000 ----- ---------
President 1996 $ 88,000(2) ----- ---------
1995 $108,000 ----- ---------
Joseph J. Calabrese, Jr. 1997 $117,000 ----- ---------
Executive Vice President, 1996 $ 82,000(2) ----- ---------
Chief Financial Officer, 1995 $101,000 ----- ---------
Treasurer and Secretary
</TABLE>
- ----------------------------
(1) Effective April 11, 1998, Mr. Recca receives an annual director's fee
in the amount of $95,000 in his capacity as the Chairman of the Board of
Directors of the Company.
(2) Represents the nine month transition period ended October 26, 1996,
when the Company's fiscal year end was changed to the Saturday closest to
October 31 from the Saturday closest to January 31.
(3) See "1997 Option Grants", below, for information regarding options
granted on December 5, 1997, after the end of the Company's fiscal year,
November 1, 1997.
Severance Agreements
The Company has entered into substantially similar severance agreements
('Severance Agreement') with each of Franklin C. Karp, Joseph J. Calabrese,
Michael A. Beck, and Roland W. Hiemer.
Each Severance Agreement provides that in the event the Company is sold or
merged with another company, involved in a corporate reorganization, or if a
change of the current management takes place, and the party, for the foregoing
reasons, is terminated or asked to accept a position other than that of senior
officer requiring similar responsibilities to those that the party currently
performs, or if the current corporate office is moved to a new location which is
more than thirty miles from either Mineola, New York, or Lyndhurst, New Jersey,
depending on who the party is, as a result of a reorganization or change in
ownership or control, and the party declines the new position or relocation, the
Company or its successor in control will be obligated, and continue, to pay the
party at the same salary and car allowance, if any, the party had most recently
been earning, for a period of one year following termination of Mr. Karp and Mr.
Calabrese, and six months for Mr. Beck and Mr. Hiemer. In addition, the party
will be fully covered under the Company's benefit plans, including, without
limitation, the Company's medical, dental, life and disability insurance
programs, during the one-year period for Mr. Karp and Mr. Calabrese and during
the six month period for Mr. Beck and Mr. Hiemer (including family coverage for
medical and dental insurance).
In the event following any foregoing termination the party obtains
employment at a lesser compensation than the party's compensation by the
Company, the Company will pay the party the difference between the two salaries
for the remainder of the one-year or six month period, whichever is applicable,
plus continued coverage of the Company's benefit plans for the same period.
Each Severance Agreement also provides that in the event the party is
terminated for any other reasons, except conduct that is materially injurious to
the Company or conviction of any crime involving moral turpitude, the Company
will be obligated and continue to pay the party at the same salary the party has
most recently been earning, for a period of six months following termination for
Mr. Karp and Mr. Calabrese and three months for Mr. Beck and Mr. Hiemer, plus
full coverage of the Company's benefits for the same period.
Employment Agreement
On April 3, 1998, the Company entered into a two year employment agreement
with Franklin C. Karp, the Company's President. The employment agreement
provides that Mr. Karp continue as the Company's President with the same
compensation and benefits which Mr. Karp currently receives, subject to annual
adjustment to be determined and made by the Board of Directors of the Company.
PROPOSED STOCK OPTION PLAN
In April 1997, the Company adopted The Harvey Electronics, Inc. Stock
Option Plan (the "Stock Option Plan"), which currently covers 1,000,000 shares
of Common Stock. Options may be designated as either (i) incentive stock options
("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code") or
(ii) non-qualified stock options. ISOs may be granted under the Stock Option
Plan to employees and officers of the Company.
The Stock Option Plan is intended to encourage stock ownership by employees
of the Company, so that they may acquire or increase their proprietary interest
in the Company and to encourage such employees and directors to remain in the
employ of the Company and to put forth maximum efforts for the success of the
business. Options granted under the Stock Option Plan may be accompanied by
either stock appreciation rights ("SARs") or limited stock appreciation rights
(the "Limited SARs"), or both.
The Plan is administered by the Company's Compensation and Stock Option
Committee as the Board may establish or designate (the "Administrators"). The
Committee shall be comprised of not less than two members, all of whom shall be
outside, disinterested directors. The members of the Compensation and Stock
Option Committee are Stewart L. Cohen and William F. Kenny III, each an outside
director.
The Administrators, within the limitation of the Stock Option Plan, shall
have the authority to determine the types of options to be granted, whether an
Option shall be accompanied by SARs or Limited SARs, the purchase price of the
shares of Common Stock covered by each Option (the "Option Price"), the persons
to whom, and the time or times at which, Options shall be granted, the number of
shares to be covered by each Option and the terms and provisions of the option
agreements.
The maximum aggregate number of shares of Common Stock as to which Options,
Rights and Limited Rights may be granted under the Stock Option Plan to any one
optionee during any fiscal year of the Company is 50,000.
With respect to the ISOs, in the event that the aggregate fair market
value, determined as of the date the ISO is granted, of the shares of Common
Stock with respect to which Options granted and all other option plans of the
Company, if any, become exercisable for the first time by any optionee during
any calendar year exceeds $100,000, Options granted in excess of such limit
shall constitute non-qualified stock options for all purposes. Where the
optionee of an ISO is a ten (10%) percent stockholder, the Option Price will not
be less than 110% of the fair market value of the Company's Common Stock,
determined on the date of grant, and the exercise period will not exceed five
(5) years from the date of grant of such ISO. Otherwise, the Option Price will
not be less than one hundred (100%) percent of the fair market value of the
shares of the Common Stock on the date of grant, and the exercise period will
not exceed ten (10) years from the date of grant. Options granted under the Plan
shall not be transferable other than by will or by the laws of descent and
distribution, and Options may be exercised, during the lifetime of the optionee,
only by the optionee or by his guardian or legal representative.
The Compensation and Stock Option Committee has approved the grant, as of
the effective date of the Public Offering (the "Effective Date"), of ISOs to
purchase an aggregate of 70,000 shares of Common Stock to certain employees of
the Company. Provided the Optionee is employed by the Company on the date of
exercise, these Options may be exercised as follows: (i) one-third shall become
exercisable at an exercise price of $5.00 per share, commencing one year from
the Effective Date; (ii) one-third shall become exercisable, at an exercise
price of $5.50 per share, commencing two years from the Effective Date; and
(iii) one-third shall become exercisable, at an exercise price of $6.00 per
share, commencing three years from the Effective Date.
Board Recommendation and Vote Required. The Board believes that approval of
the Stock Option Plan will allow the Company to provide incentives to attract,
retain and motivate personnel through the grant of stock options. Accordingly,
the Board recommends that stockholders vote "FOR" the approval of the Stock
Option Plan.
1997 Option Grants
The following table sets forth information relating to options granted on
December 5, 1997 (after the end of the Company's fiscal year, November 1, 1997)
to the named executive officers:
Individual Grants
<TABLE>
<CAPTION>
% of Total
Number of Options
Securities Granted To
Underlying Employees In Exercise or Base Expiration
Options Fiscal Year Price ($/sh) Date
Name Granted
<S> <C> <C> <C> <C>
Michael E. Recca 0 - - -
Franklin C. Karp 25,000 35.7% (1) 12/4/2007
Joseph J. Calabrese 10,000 14.3% (1) 12/4/2007
Michael A. Beck 10,000 14.3% (1) 12/4/2007
Roland W. Hiemer 5,000 7.1% (1) 12/4/2007
</TABLE>
(1) Provided the Optionee is employed by the Company on the date of
exercise, these Options may be exercised as follows: (i) one-third shall become
exercisable at an exercise price of $5.00 per share, commencing one year from
the Effective Date; (ii) one-third shall become exercisable, at an exercise
price of $5.50 per share, commencing two years from the Effective Date; and
(iii) one-third shall become exercisable, at an exercise price of $6.00 per
share, commencing three years from the Effective Date.
<PAGE>
Option Exercises and Holdings
The following table sets forth information concerning the exercise of stock
options by the named executives during the Company's fiscal year ended November
1, 1997, the number of options owned by the named executives and the value of
any in-the-money unexercised stock options as of June 15, 1998.
Aggregated Option Exercises in Last Fiscal Year and Option Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
June 15, 1998 June 15, 1998
Shares Acquired
on Exercise Value Realized $ Exercisable/ (E) Exercisable/(E)
----------- ----------
Name Unexercisable (U) Unexercisable (U)
---- ----------------- -----------------
<S> <C> <C> <C> <C>
Michael E. Recca 0 0 0 $0 (U) (1)
Franklin C. Karp 0 0 25,000 (U) $0 (U) (1)
Joseph J. Calabrese, Jr. 0 0 10,000 (U) $0 (U) (1)
Michael A. Beck 0 0 10,000 (U) $0 (U) (1)
Roland W. Hiemer 0 0 5,000 (U) $0 (U) (1)
- ------------
</TABLE>
(1) No options were exercisable at June 15, 1998. Additionally, the grant
price was in excess of the market value of the Common Stock at June 15, 1998.
<PAGE>
HARVEY ELECTRONICS, INC. SAVINGS AND INVESTMENT PLAN
The Harvey Electronics, Inc. Savings and Investment Plan, as amended,
includes a defined contribution, profit sharing and 401(K) provision.
An employee is eligible to participate in the plan after he or she has
attained age twenty-one (21) and has completed one (1) year of service with the
Company. The Board of Directors of the Company may elect to provide for those
participants who are employed full time by the Company, as of the last day of
the plan year, a contribution of up to three percent (3%) of each employee's
compensation. The election by the Board of Directors is based solely on the
performance of the Company. For the three fiscal years ended November 1, 1997,
no defined contribution percentage was contributed by the Company. In addition,
employees participating in the salary deferral aspect of the plan, may elect to
defer up to fifteen (15%) of their salary. Effective January 1, 1995 the
Company's Board of Directors temporarily elected to eliminate the employer
401(k) match (which was 25% of the first 6% of the amount contributed by
participants prior to such date) on employee contributions. Employee
contributions, any Company contribution and the earnings thereon, will be
paid-out upon the employee's termination of employment, retirement, death,
disability or, if elected, while still employed by the Company upon attaining
age 59 1/2. Employees will be one hundred percent (100%) vested at all times in
the full value of their salary deferral account. After seven (7) years of
service with the Company, employees will be fully vested in the Company's
matching and defined contribution account.
CERTAIN TRANSACTIONS
In 1995 and 1996, during the Company's bankruptcy proceeding, the Company
borrowed, in the aggregate, approximately $2,822,500 (the "Loan") from HAC. As
of the effective date of the Company's Reorganization Plan, and pursuant to
certain provisions contained therein, HAC's claims in connection with the Loan
was satisfied by issuing HAC 2,000,000 shares of the Company's Common Stock.
Subsequently, Michael E. Recca was elected as a member and Chairman of the
Company's Board of Directors. In connection with the Loan, the Company paid a
$5,000 per month loan servicing fee, which was to be paid to Recca & Co. Inc.,
of which Michael E. Recca is the sole shareholder, through October 1996.
Subsequently, through April 1997, a $5,000 per month management fee to Recca &
Co., Inc. was paid. For fiscal 1998 Recca & Co., Inc. will receive a $40,000
management consulting fee.
Harvey E. Sampson, former director and officer of the Company (now
deceased), and a holder of approximately 7% of the Company's Common Stock prior
to the Company's reorganization, executed a promissory note ("Note") to the
Company in the principal amount of $153,371, payable in 6 annual payments of
$25,562 commencing on January 1, 1997, with an annual interest rate of 6%. The
Note was delivered as payment for the purchase by Mr. Sampson of certain
insurance policies and their related cash surrender values, which were owned by
the Company. On June 15, 1995, Mr. Sampson resigned as a director and officer of
the Company, but continued to hold approximately 7% of the Company's Common
Stock. On the effective date of the Company's reorganization, Mr. Sampson became
a holder of less than 1% of the Company's Common Stock. In July 1996, Mr.
Sampson, with the agreement of the Company, satisfied the note by paying
$125,000 and the Company obtained the release of personal guaranty of the
Company's indebtedness to Congress Financial Corporation ("Congress"), the
Company's previous lender. On February 9, 1996, the Company entered into a
severance agreement with Arthur Shulman, its then President, Chief Executive
Officer and a director of the Company. In consideration of Mr. Shulman's
resignation effective February 29, 1996 from all offices and positions he held
in the Company and its subsidiaries, the Company:
(1) paid Mr. Shulman $75,000;
(2) on February 29, 1996 paid Mr. Shulman a sum equal to 3 weeks accrued
vacation pay;
(3) provided Mr. Shulman with, and paid for, all medical benefits under
COBRA for an 18-month period following the termination; and
(4) agreed to provide Mr. Shulman with all indemnification, and all
limitation of liability, existing in favor of Mr. Shulman as provided in the
Company's certificate of incorporation and by-laws for six years from
termination.
Reference is made to the Annual Report on Form 10-KSB/A, section
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" regarding the Company's revolving
line of credit facility with Paragon Capital, LLC, which the Company entered
into on November 5, 1997, replacing Congress. Stewart L. Cohen, a director of
the Company, is the Chief Executive Officer and a director of Paragon.
In February and March, 1997, a member of HAC and a holder of Preferred
Stock, loaned the Company the principal amount of $350,000, with an interest
rate of 12% per annum. This loan was prepaid without penalty on April 9, 1998,
including interest of approximately $48,000.
In late November 1997, HAC transferred 85,000 shares of Common Stock to
certain employees and directors of the Company and a member of HAC. Such
transfer is to be treated for accounting purposes as if such shares were issued
by the Company as compensation to such persons. In November 1997, the Company
recorded deferred compensation equal to the fair market value of the shares (70%
of the per share public offering price, or $280,000) and will amortize this
balance over a two year period, during which the shares are subject to
forfeiture by the transferees.
In April 1998, HAC paid the Company, $70,000 of the estimated $475,000
expenses of the Offering in addition to the underwriting discounts and
commissions and non-accountable expense allowance related to the Shares sold by
it in the Offering.
In the future, the Company will present all proposed transactions between
the Company and its officers, directors or 5% shareholders, and their affiliates
to the Board of Directors for its consideration and approval. Any such
transaction, including forgiveness of loans, will require approval by a majority
of the disinterested directors and such transactions will be on terms no less
favorable than those available to disinterested third parties.
SHARES ELIGIBLE FOR FUTURE SALE
All of the 2,257,833 shares of Common Stock outstanding as of the Effective
Date, were issued in connection with the Company's Reorganization Plan, in
exchange for either a claim against, or an interest in, or a claim for an
administrative expense in the Company's bankruptcy proceeding. These shares are
deemed exempted securities under Section 1145 of the United States Bankruptcy
Code and, therefore, are freely tradable. A sale of shares in significant
amounts may have substantial adverse effects on the price of the Common Stock.
HAC has entered into a written agreement with The Thornwater Company, L.P.,
representative (the "Representative") of several underwriters, that it will not
publicly sell an aggregate of 1,750,000 shares of the Company's Common Stock
without the prior consent of the Representative for a period of 12 months from
the Effective Date as to 25% of such shares; for a period of 18 months from such
date, as to an additional 25% of such shares; and for a period of 24 months from
such date, as to the remaining 50% of such shares.
As of the Effective Date, all holders of the Preferred Stock entered into
lock-up agreements with the Representative, which agreements provide that Common
Stock issued upon conversion of Preferred Stock, Warrants owned by such holders
and Common Stock exercisable upon the exercise of such warrants will not be sold
publicly for two years following the Effective Date or one year from the
conversion (whichever is longer). The lock-up will be suspended, however, if the
closing bid price of the Common Stock on the NASDAQ SmallCap or the last sales
price of the Common Stock if listed on the NASDAQ National Market or a national
exchange, exceeds $7.50 for 45 consecutive trading days.
InterEquity which holds 41,565 shares of the Common Stock, has agreed with
the Representative not to publicly sell such shares for a period of one year
from the Effective Date.
Certain directors, officers and employees of the Company, and a member of
HAC have agreed with the Representative not to publicly sell an aggregate of
85,000 Shares for two years following the Effective Date. A sale of shares in
significant amounts after the expiration of any lock-up agreement may have
substantial adverse effects on the market price of the Common Stock and
Warrants.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Shares of Common Stock of The Harvey Group Inc., the predecessor of the
Company, were traded on the American Stock Exchange until June 16, 1995, and
were subsequently traded on the OTC Electronic Bulletin Board through November
1996 when such trading ceased as a result of the confirmation of the Company's
Reorganization Plan. Currently, the Company's Common Stock (symbol "HRVE") and
warrants symbol "HRVEW") are publicly traded on the NASDAQ SmallCap Market.
The outstanding shares of Common Stock are currently held by approximately
1,600 shareholders of record, and the Preferred Stock is held by 5 holders of
record.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and Warrant Agent for
the Warrants is Registrar and Transfer Company, 10 Commerce Drive, Cranford, New
Jersey 07016.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of its Audit Committee, none of
whose members is an officer of the Company, intends to reappoint the firm of
Ernst & Young LLP as independent auditors to make an examination of the
financial statements of the Company for the fiscal year ending October 31, 1998,
subject to approval by the shareholders. The firm of Ernst & Young LLP has
examined the financial statements of the Company since the fiscal year ended
February 2, 1974.
The Board of Directors believes that the retention of the services of Ernst
& Young LLP will be in the best interests of the Company and recommends that the
shareholders approve their appointment as independent auditors. Ernst & Young
LLP does not have any financial interest in the Company and during the last
three years has not had any connection with the Company in any capacity other
than that of independent auditors and providing certain advisory services. The
affirmative vote by the holders of a majority of the Company's voting shares
represented at the Meeting is required for the approval of the auditors. Under
applicable New York law, in determining whether this proposal has received the
requisite number of affirmative votes, abstentions and broker non-votes will be
disregarded and will have no effect on the outcome of the vote.
A representative of Ernst & Young LLP is expected to be present at the
Meeting, and will be available to make a statement if he desires to do so and to
respond to appropriate questions from shareholders relating to the fiscal 1997
audit of the Company's financial statements.
ANNUAL REPORT ON FORM 10-KSB/A
An annual report on Form 10-KSB/A as filed with the SEC for the year ending
November 1, 1997, containing financial and other information about the Company,
is being mailed to all stockholders of record, at the Company's cost.
OTHER MATTERS
Management does not know of any other matters which are likely to be
brought before the Meeting. However, in the event that any other matters
properly come before the Meeting, including, but not limited to any proposals
made by shareholders, the persons named in the enclosed proxy will vote the
proxy in accordance with their best judgment. Under the Company's By-laws,
advance notice is required for nomination of directors and for certain business
to be brought before an annual meeting of shareholders of the Company. Such
advance notice must generally be received by the Company not less than 50 days
nor more than 75 days prior to the date of such meeting. A copy of the Company's
By-laws specifying the advance notice requirements will be furnished to any
stockholder upon written request to the Secretary of the Company.
SOLICITATION OF PROXIES
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Meeting and the enclosed proxy card will be borne by the Company.
In addition to the solicitation of proxies by use of the mails, the Company
may utilize the services of some of its officers and regular employees (who will
receive no compensation therefore in addition to their regular salaries) to
solicit proxies personally and by telephone and telecopy. The Company has
requested banks, brokers and other custodians, nominees, and fiduciaries to
forward copies of the proxy material to their principals and to request
authority for the execution of proxies, and will reimburse such persons for
their expenses in so doing.
SHAREHOLDERS PROPOSALS
Any shareholder of the Company who wishes to present a proposal to be
considered at the next annual meeting of shareholders of the Company and who
wishes to have such proposal presented in the Company's proxy statement for such
meeting must deliver such proposal in writing to the Company at 205 Chubb
Avenue, Lyndhurst, New Jersey 07071, on or before December 31, 1998. In order to
curtail controversy as to the date on which the proposal was received by the
Company, it is suggested that proponents submit their proposals by certified
mail, return receipt requested.
By Order of the Board of Directors
/s/Joseph J. Calabrese, Jr.
---------------------------------------
Joseph J. Calabrese, Jr., Secretary
Lyndhurst, New Jersey
Dated: June 23, 1998
<PAGE>
COMMON STOCK PROXY
------------------------------------
HARVEY ELECTRONICS, INC.
205 Chubb Avenue
Lyndhurst, NJ 07071
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned, revoking all previous proxies, hereby appoints Franklin C.
Karp and Joseph J. Calabrese, Jr., and each of them, proxies with power of
substitution to each, for and in the name of the undersigned to vote all shares
of Common Stock of Harvey Electronics, Inc. (the "Company"), held of record by
the undersigned on June 15, 1998 which the undersigned would be entitled to vote
if present at the Annual Meeting of Shareholders of the Company to be held on
July 23, 1998, at 10:00 a.m. at the Marriott at Glenpointe, 100 Frank W. Burr
Blvd., Teaneck, NJ 07666, and any adjournments thereof, upon the matters set
forth in the Notice of Annual Meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting, Proxy
Statement and the Company's 1997 Annual Report.
1. ELECTION OF DIRECTORS
FOR all nominees listed Withhold Authority to vote
below (except as marked for all nominees listed
to the contrary below) ______ below ______
(Instruction: To withhold authority to vote for an individual nominee
strike a line through such nominee's name in the list below.)
MICHAEL E. RECCA
FRANKLIN C. KARP
JOSEPH J. CALABRESE, JR.
STEWART L. COHEN
WILLIAM F. KENNY, III
FREDRIC J. GRUDER
2. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING OCTOBER 31,1998
FOR ______ AGAINST ______ ABSTAIN ______
<PAGE>
3. TO APPROVE THE HARVEY ELECTRONICS, INC. STOCK OPTION PLAN
FOR ______ AGAINST ______ ABSTAIN ______
4. TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF
FOR ______ AGAINST ______ ABSTAIN ______
PLEASE SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and when
properly executed will be voted as directed herein. If no direction is given,
this Proxy will be voted FOR Proposals 1, 2, and 3.
- ---------------------------------
(Date)
- ---------------------------------
(Signature)
- ---------------------------------
(Signature, if held jointly)
Please sign exactly as name appears below. If Shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee or
guardian, please list full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Please sign, date and return promptly in the enclosed envelope. No postage need
be affixed if mailed in the United States.
