UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-4626
Harvey Electronics, Inc.
(Exact name of small business issuer as specified in its charter)
New York 13-1534671
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
205 Chubb Avenue, Lyndhurst, New Jersey
(Address of principal executive offices)
201-842-0078
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No[ ]
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No [ ]
As of March 2, 1999, 3,282,833 shares of the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
Harvey Electronics, Inc.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements: Page no.
Statements of Operations (Unaudited) - Thirteen weeks ended
January 30, 1999 and January 31, 1998 ................................... 3
Balance Sheets - January 30, 1999 (Unaudited) and October 31, 1998 ........ 4
Statement of Shareholders' Equity (Unaudited) - Thirteen weeks
ended January 30, 1999 .................................................. 6
Statements of Cash Flows (Unaudited) - Thirteen weeks ended
January 30, 1999 and January 31, 1998 ................................... 7
Notes to Financial Statements (Unaudited) ................................. 8
Item 2. Management's Discussion and Analysis or Plan of Operation ................. 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K .......................................... 19
Signatures .............................................................................. 19
</TABLE>
2
<PAGE>
Part I Financial Information
Item I. Financial Statements
Harvey Electronics, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
January 30, January 31,
1999 1998
----------------------------------------------------------
<S> <C> <C>
Revenues
Net sales $6,408,484 $4,869,816
Interest and other income 21,297 15,542
----------------------------------------------------------
6,429,781 4,885,358
----------------------------------------------------------
Cost and expenses
Cost of sales 3,876,170 2,996,320
Selling, general and administrative expenses 2,158,941 1,667,521
Interest expense 24,000 91,300
----------------------------------------------------------
----------------------------------------------------------
6,059,111 4,755,141
----------------------------------------------------------
----------------------------------------------------------
Income before income tax equivalent provision 370,670 130,217
Income tax equivalent provision 40,000 -
----------------------------------------------------------
----------------------------------------------------------
Net income 330,670 130,217
Preferred Stock dividend requirement (18,594) (18,500)
Accretion of Preferred Stock - (6,000)
----------------------------------------------------------
Net income attributable to common stock $312,076 $105,717
==========================================================
==========================================================
Basic and diluted earnings per share $ .10 $ .05
==========================================================
==========================================================
Basic and diluted weighted average shares outstanding during
the period 3,282,833 2,257,833
==========================================================
==========================================================
Dividends per common share NONE NONE
</TABLE>
See accompanying notes.
3
<PAGE>
Harvey Electronics, Inc.
Balance Sheets
<TABLE>
<CAPTION>
January 30, October 31,
1999 1998
(Unaudited) (1)
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 122,795 $ 221,444
Accounts receivables, less allowance of $25,000 452,124 365,635
Note receivable 71,878 73,321
Inventories 4,232,440 4,014,936
Prepaid expenses and other current assets 282,893 278,270
-----------------------------------------------
-----------------------------------------------
Total current assets 5,162,130 4,953,606
Property and equipment:
Leasehold improvements 1,144,969 973,162
Furniture, fixtures & equipment 958,028 842,375
-----------------------------------------------
-----------------------------------------------
2,102,997 1,815,537
Less accumulated depreciation & amortization 480,952 408,711
-----------------------------------------------
-----------------------------------------------
1,622,045 1,406,826
Equipment under capital leases, net 40,134 10,599
Cost in excess of net assets acquired, less accumulated
amortization of $2,500 - 1999 and $1,000 - 1998 147,500 149,000
Reorganization value in excess of amounts allocable to
identifiable assets, less accumulated amortization of
$150,023 - 1999 and $132,023 - 1998 1,458,440 1,516,440
Other assets, less accumulated amortization of $174,890 -
1999 and $155,390 - 1998 354,548 352,788
-----------------------------------------------
Total assets $8,784,797 $ 8,389,259
===============================================
</TABLE>
(1) The balance sheet as of October 31, 1998 has been derived from the
audited financial statements at that date.
See accompanying notes.
4
<PAGE>
Harvey Electronics, Inc.
Balance Sheets (continued)
<TABLE>
<CAPTION>
January 30, October 31,
1999 1998
(Unaudited) (1)
----------- -----------
<S> <C> <C>
Liabilities and shareholders' equity Current liabilities:
Trade accounts payable $ 1,611,187 $ 1,577,126
Accrued expenses and other current liabilities 825,092 931,211
Income taxes 14,119 24,900
Cumulative preferred stock dividends payable 80,519 61,925
Current portion of long-term liabilities 112,533 -
Current portion of capital lease obligations 37,336 3,352
---------------------------------------------
---------------------------------------------
Total current liabilities 2,680,786 2,598,514
Long-term liabilities:
Cumulative preferred stock dividends payable 61,556 61,556
Other liabilities 200,972 198,922
Capital lease obligations 4,850 5,710
---------------------------------------------
267,378 266,188
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 (aggregate liquidation preference - $875,000) 402,037 402,037
Common stock, par value $.01 per share; authorized
10,000,000 shares; issued 3,282,833 - 1999 and 32,828 32,828
3,282,833 - 1998
Additional paid-in capital 7,481,667 7,481,667
Accumulated deficit (2,079,899) (2,391,975)
---------------------------------------------
Total shareholders' equity 5,836,633 5,524,557
---------------------------------------------
=============================================
Total liabilities and shareholders' equity $8,784,797 $ 8,389,259
=============================================
</TABLE>
(1) The balance sheet as of October 31, 1998 has been derived from the
audited financial statements at that date.
See accompanying notes.
5
<PAGE>
Harvey Electronics, Inc.
Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Preferred Stock Common Stock Paid-in Accumulated Shareholders'
Shares Amount Shares Amount Capital Deficit Equity
----------- ------- -------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31,1998 875 $402,037 3,282,833 $32,828 $7,481,667 $(2,391,975) $5,524,557
Net income for the thirteen
weeks ended January 30, 1999 - - - - - 330,670 330,670
Cumulative dividends on
Preferred Stock - - - - - (18,594) (18,594)
--------- ------------ ----------- --------- ------------ ------------- -------------
Balance at January 30, 1999 875 $402,037 3,282,833 $32,828 $7,481,557 $(2,079,899) $5,836,633
</TABLE>
See accompanying notes.
6
<PAGE>
Harvey Electronics, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
January 30, 1999 January 31, 1998
-----------------------------------------------------
<S> <C> <C>
Operating activities
Net income $ 330,670 $ 130,217
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 115,801 108,011
Income tax equivalent provision 40,000 -
Deferred compensation - 22,000
Straight-line impact of rent escalations 2,288 10,442
Changes in operating assets and liabilities:
Accounts receivable (86,489) (136,062)
Note receivable 1,443 -
Inventories (217,504) 35,053
Prepaid expenses and other current assets 107,910 34,981
Accounts payable 34,061 (168,868)
Accrued expenses, other current liabilities and
income taxes (117,138) (214,989)
-----------------------------------------------------
-----------------------------------------------------
Net cash provided by (used in) operating activities 211,042 (179,215)
-----------------------------------------------------
Investing activities
Certific Certificate of deposit - 200,000
Purchases of property and equipment (287,460) (14,471)
Increase in other assets (21,260) (2,500)
-----------------------------------------------------
Net cash (used in) provided by investing activities (308,720) 183,029
-----------------------------------------------------
-----------------------------------------------------
Financing activities
Costs of new line of credit facility - (82,178)
Public offering costs - (85,538)
Net (repayments) borrowings of old revolving line of credit facility
- (1,777,851)
Net proceeds from new revolving line of credit facility - 2,005,538
Principal payments on capital lease obligations (971) (10,076)
-----------------------------------------------------
Net cash (used in) provided by financing activities (971) 49,895
-----------------------------------------------------
(Decrease) increase in cash and cash equivalents (98,649) 53,709
Cash and cash equivalents at beginning of period 221,444 10,033
-----------------------------------------------------
Cash and cash equivalents at end of period $ 122,795 $ 63,742
=====================================================
Taxes paid $11,000 -
Interest Paid $50,000 $112,000
</TABLE>
See accompanying notes.
7
<PAGE>
1. Basis of Presentation and Description of Business
Basis of Presentation
The accompanying unaudited financial statements of Harvey Electronics, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with the instructions
to Form 10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the thirteen week period ended January 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending October 30, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended October 31, 1998.
The preparation of the financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosures at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimations and assumptions.
Description of Business
The Company is a specialty retailer of high quality audio/video consumer
electronics and home theater products in the Metropolitan New York area. Revenue
from retail sales is recognized at the time goods are delivered to the consumer
or, for certain installation services, when such services are performed and
accepted by the customer.
2. Retail Store Openings
On July 2, 1998, as a part of its expansion plan, the Company acquired
certain assets and business of the Sound Mill, Inc. and its subsidiary, Loriel
Custom Audio/Video Corporation (the "Sound Mill"), a retailer and custom
installer of specialty high-end audio/video products for twenty-nine years with
one store located in Mt. Kisco, in Northern Westchester County, New York, for a
purchase price of $200,000 (as adjusted) in cash. The acquisition was accounted
for as a purchase. The purchase price was allocated to the assets acquired based
upon the fair values on the date of acquisition as follows: $50,000 for
leasehold improvements, equipment, vehicles and tools and $150,000 for cost in
excess of net assets acquired which is being amortized over a twenty-five-year
period. The Company also signed a ten-year lease with a five-year renewal option
for the 3,100 square foot retail store operated by the Sound Mill. This property
is owned by the former principals of the Sound Mill. The store was renovated for
8
<PAGE>
a November, 1998 grand re-opening. Accordingly, the results of operations
for this new store have been included in the Company's operations for the first
quarter ended January 30, 1999. Pro-forma sales, net income and basic and
diluted earnings per share would not have been considered material for the
thirteen weeks ended January 31, 1998.
On August 11, 1998, the Company signed a ten-year lease with a five-year
renewal option for its new 4,600 square foot retail showroom in
Greenvale/Roslyn, on the north shore of Long Island, New York. This new retail
store also opened in November, 1998. Its results of operations have also been
included in the Company's operations for the first quarter ended January 30,
1999.
3. Planned Expansion of Bang & Olufsen Branded Stores
Bang & Olufsen products have been sold by the Company since 1980, and the
line represented approximately $348,000 or 5.4% of the Company's net sales for
the thirteen week period ended January 30, 1999. Bang & Olufsen has decided that
it will now focus on developing Bang & Olufsen licensed stores ("Branded
Stores") throughout the world. Bang & Olufsen has, accordingly, canceled its
dealer agreement with the Company and, with one exception, all other retailers
effective May 31, 1999. After this date, Bang & Olufsen products will be
available only in Branded Stores.
The Company has received a commitment from Bang & Olufsen permitting, but
not requiring, the Company to open Branded Stores in Manhattan, Long Island and
Connecticut. Pursuant to this commitment, the Company must complete construction
of these locations at various dates through November 1999. Bang & Olufsen has
authorized the Company to open up to five Branded Stores.
On January 7, 1999, as part of its expansion plan in the New York region,
the Company signed a lease and a related Prime Site Marketing Agreement to open
a new 1,500 square foot Bang & Olufsen Branded Store in the Union Square area,
in lower Manhattan. The Company plans to open this new store in May, 1999. This
will be the Company's seventh store and will be the third opened within thirteen
months of its successful public offering completed in April, 1998.
4. Revolving Line of Credit Facility
On November 5, 1997, the Company entered into 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 were used to pay down and cancel the existing credit
facility with Congress Financial Corporation ("Congress"), reduce trade payables
and pay related costs of the refinancing. The interest rate on borrowings up to
$2,500,000 is 1% over the prime rate. The rate charged on outstanding balances
over $2,500,000 is 1.75% above the prime rate. A
9
<PAGE>
commitment fee of $49,500 was paid by the Company at closing and is being
amortized to interest expense over three years. A facility fee ($24,750) of
three-quarters of one percent (.75%) of the maximum credit line, is also being
charged in each year. Monthly maintenance charges and a termination fee also
exist under the line of credit. At January 30, 1999, no amounts were outstanding
under the credit facility.
Paragon has 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 is 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.
5. Note Receivable
On October 31, 1998, the Company received a promissory note from a previous
member/officer of an underwriter from the Company's successful public offering,
in lieu of an outstanding trade receivable for $73,321. Payments, including
interest at 9% per annum are due to the Company as follows: twelve equal
payments of $940 through October 31, 1999 and a balloon payment of $68,430, due
October 31, 1999. As a result, the amount due to the Company ($71,878) has been
presented as a short-term "note receivable" at January 30, 1999.
6. Segment Disclosures
Effective November 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("Statement
131"). Statement 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports.
Statement 131 also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The adoption of Statement
131 did not affect results of operations or financial position, and did not
require the disclosure of segment information.
7. Income Per Share
In 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Earnings per share amounts
for all periods have been presented and conform to the SFAS No. 128
requirements.
10
<PAGE>
The basic income per common share for the thirteen weeks ended January 30,
1999 and January 31, 1998 was computed based on the weighted average number of
common shares outstanding. Common equivalent shares of approximately 131,250
relating to the conversion of Preferred Stock were not considered since their
conversion rates were greater than the fair market value of the Company's Common
Stock.
8. Income Taxes
In connection with the Company's emergence from its reorganization
proceeding under Chapter 11 of the United States Bankruptcy Code on December 26,
1996, the Company adopted Fresh Start Accounting in accordance with AICPA
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code." Fresh Start Reporting requires that the Company
report an income tax equivalent provision when there is book income and a
pre-reorganization net operating loss carryforward. This requirement applies
despite the fact that the Company's pre-reorganization net operating loss
carryforward will be utilized to reduce the related income tax payable. The
current and any future year benefit arising from utilization of the
pre-reorganization carryfoward is not reflected as a reduction of the tax
equivalent provision in determining net income, but instead is recorded first as
a reduction of reorganization value in excess of amounts allocable to
identifiable assets until exhausted and thereafter as a direct addition to
paid-in-capital.
During the three months ended January 30, 1999, the income tax equivalent
provision and the associated reduction of reorganization value in excess of
amounts allocable to identifiable assets amounted to $40,000. The income tax
equivalent provision does not affect the Company's tax liability or require the
use of cash flows.
9. Inventories
Inventories have been valued at average cost, based upon gross profit
percentages applied to sales.
11
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following management's discussion and analysis and this Form 10-QSB
contain forward-looking statements which involve risks and uncertainties. When
used herein, the words "anticipate," "believe," "estimate," and "expect" and
similar expressions as they relate to the Company or its management are intended
to identify such forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company's actual results,
performance or achievements could differ materially from the results expressed
in or implied by these forward-looking statements. Historical results are not
necessarily indicative of trends in operating results for any future period.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made.
General
The following discussion should be read in conjunction with the Company's
audited financial statements for the fifty-two weeks ended October 31, 1998 and
the fifty-three weeks ended November 1, 1997, included in the Company's Annual
Report on Form 10-KSB.
Thirteen Weeks Ended January 30, 1999 as Compared to Thirteen Weeks Ended
January 31, 1998
Net income. The Company's net income for the first quarter ended January
30, 1999 increased to $330,670 as compared to net income of $130,217 for the
same period last year. The discussion of other items below explains the increase
in net income.
Revenues. For the first fiscal quarter ended January 30, 1999, the
Company's net sales aggregated $6,408,000, an increase of approximately
$1,539,000 or 31.6% from the same quarter in fiscal 1998. Comparable store sales
for the first fiscal quarter ended January 30, 1999 increased 12.3% or
approximately $600,000 from the same quarter last year.
Sales increased as the Company, in November 1998, successfully opened two
new retail store locations in Mt. Kisco in Westchester County and in
Greenvale/Roslyn on the north shore of Long Island. The revenues from these
locations, together with the strong increase in same store sales primarily
accounted for the significant sales increases. The Company also continues to
benefit from new digital technologies which have been embraced by the Company's
upscale customers. The increase in the Company's sales is attributed in the
volume of goods and services sold and to a lesser extent, changes in product
lines or prices.
Sales also increased as the Company continued to refine its marketing and
advertising campaign, which focuses on differentiating the Company's products
and custom installation services. Sales for the first quarter of fiscal 1999
also benefited from the use of a prestigious holiday catalog and radio
advertising.
12
<PAGE>
Thirteen Weeks Ended January 30, 1999 as Compared to Thirteen Weeks Ended
January 31, 1998 (continued)
As part of its marketing plan, the Company offers its customers who qualify
a Harvey credit card which is issued by an unrelated financial company. The
Company continuously offers consumers using the Harvey credit card 90 days
interest-free financing on any purchases. As a promotion, the Company, from time
to time, offers consumers using the Harvey credit card attractive financing
alternatives of 6 or 12 months interest-free financing on specific products. The
Company pays the finance company a fee in connection with all interest-free
financing which is a percentage of such sales. These promotions were very
successful in the first quarter of fiscal 1999.
Custom installation services continue to expand and account for
approximately 23% of net sales for the first quarter ended January 30, 1999 as
compared to 19% for the same quarter last year.
Costs and Expenses. Total cost of sales for the thirteen weeks ended
January 30, 1999 increased approximately $880,000 or 29.4% from the same period
last year. This was primarily the result of increased sales, partially offset by
improved gross profit margins.
Gross profit margin for the first quarter ended January 30, 1999 increased
to 39.5% from 38.5% for the same quarter in fiscal 1998. The gross margin for
the first quarter of fiscal 1999 increased primarily as a result of increased
custom installation sales which have higher gross margins and less emphasis on
price sensitive advertisements. The new digital technologies have also helped to
improve the Company's gross margin for the first quarter of fiscal 1999. The
Company's management also continues to focus its sales training efforts and
merchandising emphasis on the sale of higher margin inventory categories and
accessories.
Selling, general and administrative expenses ("SG&A expenses") increased
29.5% or approximately $491,000 for the thirteen weeks ended January 30, 1999 as
compared to the same quarter last year. Comparable SG&A expenses for the first
quarter of fiscal 1999 increased approximately $202,000 or 12.1% as compared to
the same quarter last year.
The increase in SG&A expenses for the first quarter of fiscal 1999 as
compared to the prior year was primarily due to general increases in payroll and
payroll related items, professional expenses, insurance costs and various store
operating expenses including costs of offering extended interest-free financing
to its customers. These increases were partially offset by reduced advertising
and stock compensation expenses.
Interest expense decreased approximately $67,000 or 73.7% for the first
quarter ended January 30, 1999 as compared to the same quarter last year.
13
<PAGE>
Thirteen Weeks Ended January 30, 1999 as Compared to Thirteen Weeks Ended
January 31, 1998 (continued)
The decrease in interest expense was primarily due to the elimination of
outstanding borrowings under the revolving line of credit facility in the first
quarter of fiscal 1999, as a result of the paydown of the credit facility in
April 1998 using part of the net proceeds from the public offering.
See Note 8 to the unaudited financial statements, regarding the income tax
equivalent provision for the thirteen weeks ended January 30, 1999.
Liquidity and Capital Resources
The Company's ratio of current assets to current liabilities was 1.93, or
approximately $2,481,000 at January 30, 1999 as compared to 1.91, or
approximately $2,355,000, at October 31, 1998. The increase in the current ratio
at January 30, 1999 was primarily the result of the Company's net income for the
first quarter.
Net cash provided by operating activities was approximately $211,000 for
the first quarter of fiscal 1999 as compared to net cash used in operations of
approximately $179,000 for the same period last year. The improvement in cash
provided by operations was due primarily to the Company's increased net income,
offset by a decrease in accrued expenses and an increase in inventory.
Net cash used in investing activities was approximately $309,000 for the
first quarter of fiscal 1999 as compared to net cash provided of approximately
$183,000 for the same period last year. Net cash used in the first quarter of
fiscal 1999 was due primarily to capital expenditures relating to the new store
openings. In the first quarter of fiscal 1998, the Company benefited from the
redemption of a $200,000 certificate of deposit.
Net cash used in financing activities for the first quarter of fiscal 1999
was approximately $1,000 as compared to net cash provided by financing
activities of approximately $50,000 for the same quarter last year. The first
quarter of fiscal 1998 had an increase in net cash from financing activities
from additional net borrowings from the revolving line of credit facility.
On November 5, 1997, the Company entered into a three-year revolving line
of credit facility with 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 were used to pay down and cancel the existing credit
facility with Congress Financial Corporation ("Congress"), reduce trade payables
and pay related costs of the refinancing. The Paragon facility provides an
improved advance rate of the Company's inventory, compared to the Company's
previous facility with Congress. The interest rate on borrowings up to
$2,500,000 is 1% in excess of the rate of interest announced publicly by Norwest
Bank, Minnesota, National Association, from time to time as its "prime rate"
14
Liquidity and Capital Resources (continued)
(the "Prime Rate"). The rate charged on outstanding balances over
$2,500,000 is 1.75% above the Prime Rate. A commitment fee of $49,500 was paid
by the Company at closing (which is being amortized over three years) and a
facility fee ($24,750) of three-quarters of one percent (.75%) of the maximum
credit line will be charged in each year. Monthly maintenance charges and a
termination fee also exist under the line of credit. At March 2, 1999, there
were no outstanding borrowings under the Paragon revolving line of credit
facility.
The maximum amount of borrowings available to the Company under this line
of credit is limited to formulas prescribed in the loan agreements. The
Company's maximum borrowing availability is equal to 75% of acceptable
inventory, minus the then unpaid principal balance of the loan, minus the then
aggregate of any available reserves as may have been established by Paragon,
minus the then outstanding stated amount of all letters of credit.
Pursuant to the credit facility the Company must maintain certain levels of
inventory, trade accounts payable, inventory purchases, net income or loss and
minimum gross profit margins. Additionally, the Company's capital expenditures
can not exceed a predetermined amount.
Paragon obtained a senior security interest in substantially all of the
Company's assets. The revolving line of credit facility provides Paragon with
rights of acceleration upon the breach of certain financial covenant or the
occurrence of certain customary events of default including, among others, the
event of bankruptcy. The Company is also restricted from paying dividends on
common stock, retiring or repurchasing its common stock, and entering into
additional indebtedness (as defined).
Paragon also received a warrant to purchase 125,000 shares of common stock
at an exercise price of $5.50 per share subject to adjustment under certain
circumstances, which is currently exercisable and expires on April 3, 2001,
Paragon's warrant and the underlying shares have not been registered under the
Securities Act.
On April 7, 1998, the Company completed a public offering ("Offering") of
its common stock and common stock purchase warrants. The Offering was co-managed
by The Thornwater Company, L.P., which sold 1,200,000 shares of the Company's
common stock of which 1,025,000 shares were sold by the Company and 175,000
shares were sold by Harvey Acquisition Company, LLC, the Company's major
shareholder. 2,104,500 Warrants to acquire additional shares of the Company's
common stock were also sold by the Company. The net proceeds from the Offering,
approximately $4.1 million, are being used for retail store expansion and
general working capital purposes.
15
<PAGE>
Liquidity and Capital Resources (continued)
Each Warrant is exercisable for one share of common stock at 110% ($5.50
per share) of the Offering price, for a period of three years commencing March
31, 2000. The Warrants are also redeemable (at $.10 per Warrant), at the
Company's option, commencing March 31, 2000 if the closing bid price of the
common stock for 20 consecutive trading days exceeds 150% of the Offering price
per share or $7.50.
The Company's management believes that the Company's overhead structure has
the capacity to support additional stores without significant increases in cost
and personnel, and, consequently, that revenues and profit from new stores will
have a positive impact on the Company's operations. This was realized for the
two new stores opened in the first quarter of fiscal 1999. The Company intends
to utilize the remaining net proceeds from the Offering and part of its credit
facility to open additional retail stores.
The Company's seeks to open an additional Company store in New Jersey
within the next eighteen months, if the appropriate location can be obtained.
The Company estimated that the total cost of opening this Company retail store
is approximately $650,000. The estimated cost of opening this store includes the
cost of leasehold improvements, including design and decoration, machinery and
equipment, furniture and fixtures, security deposits, opening inventory (net of
the portion to be borrowed from the Company's lender), lease acquisition
expense, pre-opening expenses and additional advertising and promotion in
connection with the opening.
As Bang & Olufsen focuses on developing Bang & Olufsen licensed branded
stores ("Branded Stores") throughout the world, it has canceled its dealer
agreement with the Company and, with one exception, all other retailers
effective May 31, 1999. After this date, Bang & Olufsen products will only be
available in Branded Stores.
The Company received a commitment from Bang & Olufsen permitting, but not
requiring, the Company to open Branded Stores in Manhattan, Long Island and
Connecticut. Pursuant to this commitment, the Company must complete construction
of these locations at various dates through November 1999. No assurance can be
given about the number of Branded Stores that the Company will open.
The Company believes that its new relationship with Bang & Olufsen presents
a positive step for the Company's growth, although no assurance can be given.
Management's belief is based on its ability to open Bang & Olufsen Branded
Stores near its existing Harvey locations, together with the elimination of
competition on Bang & Olufsen products from other retailers. Capital
expenditures necessary for each 1,500 square foot store, including inventory,
should approximate $300,000.
16
<PAGE>
Liquidity and Capital Resources (continued)
On January 7, 1999, as part of its expansion plan in New York region, the
Company signed a lease and a related Prime Site Marketing Agreement to open a
new 1,500 square foot Bang & Olufsen Brand Store in the Union Square area in
lower Manhattan. The Company plans to open this new store in May 1999.
This Branded Store will be the first of two stores the Company plans to
open in Manhattan in 1999. The new store will sell highly differentiated Bang &
Olufsen products, including uniquely designed audio systems, speakers,
telephones, headphones and accessories. The store will also sell video products
including LCD projects, DVD players and plasma flat-screen televisions, and A/V
furniture and accessories. The store will also offer professional custom
installation of multi-room audio and home theater systems.
This new store will be the Company's seventh, and will be the third store
opened within thirteen months of its successful public offering, completed in
April 1998.
Management believes that cash on hand, cash flow from operations and funds
made available under the credit facility with Paragon, will be sufficient to
meet the Company's anticipated working capital needs and expansion plan for at
least the next twelve month period.
During the periods presented, the Company was not significantly impacted by
the effects of inflation. The Company did benefit from a strong Christmas demand
in December, 1998.
Year 2000 Modifications
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather that the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on recent assessments, the Company determined that it will be
required to modify significant portions of it software so that those systems
will properly utilize dates beyond December 31, 1999. The Company presently
believes that with modifications of its existing software, the Year 2000 issue
can be mitigated. As a result, the Company has formulated a plan with its
software and service provider called Rescue 2000, to make all modifications to
twelve operating modules in its software systems. As of January 30, 1999, 50% of
the module modifications have been completed. Certain modifications have been
implemented and tested. Implementation and testing is expected to be completed
by May 1999. However, if such modifications are not made, or are not completed
timely, the Year 2000 issue could have a material impact on the operations of
the Company.
17
<PAGE>
Year 2000 Modifications (continued)
The Company's plan to resolve the Year 2000 issue involves the following
four phases: assessment, remediation, testing and implementation. As of January
30, 1999, the Company has fully completed its assessment of all systems that
could be significantly affected by the Year 2000. The completed assessment
indicated that most of the Company's significant information technology systems
could be affected, particularly the general ledger, billing and inventory
systems. The Company does not believe that the Year 2000 presents a material
exposure as it relates to the Company's products. To date, the Company is not
aware of any external agent with a Year 2000 issue that would materially impact
the Company's results of operations, liquidity or capital resources, except the
bank that processes the payment of the Company's credit card sales. The Company
has requested from its bank an assessment of the extent of the bank's Year 2000
compliance. In the event the bank is not Year 2000 compliant in a timely manner,
the Company is prepared to change banks. However, the Company has no means of
ensuring that external agents will be Year 2000 ready. The inability of external
agents to complete their Year 2000 resolution process in a timely fashion could
materially and adversely impact the Company's operations.
The Company will utilize its external software and service provider to
reprogram, test and implement the software for the Year 2000 modification, the
cost of which is not expected to be significant. The Company will evaluate that
status of completion of the Year 2000 modifications in April 1999 and will
undertake all remaining necessary steps to seek to ensure its systems are Year
2000 compliant. In the event the Company is unable to resolve its Year 2000
modifications in a timely fashion, the business of the Company may be materially
and adversely impacted.
18
<PAGE>
PART II. OTHER INFORMATION:
Items 1 through 5 were not applicable in the quarter ended January 30,
1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
------- ------------------
10.4.3 Dealer Agreement between the Company and Bang &
Oulfsen America, Inc.
10.5.8 Lease Agreement with Bender Realty
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed, on December 30, 1998, a Report on Form 8-K dated October
12, 1998, which reported events relating to the cancellation of the Financial
Advisory and Investment Banking Agreement with its underwriter as well as the
change in the Company's expansion plan regarding Bang & Olufsen Branded Stores.
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on March 3, 1999.
Harvey Electronics, Inc.
By: /s/Franklin C. Karp
-------------------------------------
Franklin C. Karp
President
By: /s/Joseph J. Calabrese
-------------------------------------
Joseph J. Calabrese
Executive Vice President,
Chief Financial Officer,
Treasurer & Secretary
19
BANG & OLUFSEN AMERICA, INC.
PRIME SITE MARKETING AGREEMENT (UNION SQUARE)
This Agreement. made as of the 6th day of January, 1999, between Bang &
Olufsen America, Inc., a Delaware corporation (hereinafter referred to as "BOA")
and Harvey Electronics, Inc., a New York corporation whose principal place of
business is 205 Chubb Avenue, Lyndhurst, New Jersey 07071 (hereinafter referred
to as "Dealer") and which desires to do business as provided herein at certain
retail space commonly known as 927 Broadway, New York, New York (hereinafter
referred to as the "Premises"), under the assumed name of Bang & Olufsen - Union
Square
WHEREAS, BOA is the exclusive distributor in the United States of high
quality audio and video products produced by Bang & Olufsen a/s of Denmark and
its subsidiaries and affiliates (hereinafter collectively referred to as "B&O
a/s") and sold under B&O's Proprietary Marks (as defined below), including the
trademark "Bang & Olufsenr",
WHEREAS, in furtherance of the Prime Site System (as defined below), BOA
will grant to selected dealers the right to conduct business using the trade
name "Bang & Olufsenr" and featuring B&O's Proprietary Marks in selected
locations under certain terms and conditions,
WHEREAS, BOA wishes to encourage and support the establishment of Prime
Site retail stores of a high standard and with a common and distinctive
appearance, the business of which will be the sale, installation and maintenance
of "Bang & Olufsenr" products under special systems of operation for Prime Sites
developed by BOA,
WHEREAS, Dealer wishes to operate a Prime Site at the location designated
below, using the Prime Site System and B&O's Proprietary Marks, and
WHEREAS, Dealer acknowledges the importance of maintaining uniform
procedures, policies and standards of quality, presentation and service as
required under the Prime Site System.
In consideration of the mutual promises herein contained, the parties
hereto agree as follows:
I. APPOINTMENT OF DEALER AND TERMS OF APPOINTMENT
A. BOA, as the exclusive agent of B&O a/s the United States for
distributing and implementing the Prime Site System as licensee of B&O's
Proprietary Marks in connection with that system, hereby designates Dealer as
one of its authorized Prime Site dealers in the United States. As a Prime Site
dealer, Dealer shall sell audio and video products produced by B&O a/s and sold
under B&O's Proprietary Marks. Dealer shall operate solely under the assumed
name set forth on the first page of this Agreement, unless BOA shall otherwise
consent. BOA grants Dealer the right to use the Prime Site System and B&O's
Proprietary Marks for the purpose of establishing and operating a Prime Site at
the Premises (all capitalized terms as defined below) in accordance with the
terms of this Agreement and of the Manual (as defined below). Dealer hereby
accepts such appointment under the terms and conditions herein set forth.
<PAGE>
B. In granting Dealer the appointment described above, BOA reserves the
right to increase or decrease the number of authorized Prime Site dealers in any
area at any time. Further. this Agreement. and the appointment of Dealer under
it, shall not restrict the right of BOA to increase or decrease the number of
its authorized dealers in any area at any time or otherwise restrict the right
of BOA to sell "Bang & Olufsenr" products.
C. Certain operating and other provisions applicable to the Business are
set forth in the Rider attached to this Agreement as Exhibit No.1.
II. DEFINITIONS. In this Agreement:
A. The phrase "B&O's Proprietary Marks" means "Bang & Olufsenr" and the
other trademarks, trade names and service marks of B&O a/s and BOA. whether or
not those trademarks, trade names and service marks are registered and whether
or not they exist now or are acquired in the future.
B. The term "Business" means the business to be operated by the Dealer at
the Premises under the name "Bang & Olufsenr" as provided for by this Agreement,
the Exhibits to it and the Manual.
C. The phrase "Distinctive Shop Fittings" means all shop fittings,
including, without limitation, facade, signs, fixtures (including trade
fixtures), decorations and other display elements sold or leased by BOA and/or
its affiliates to Dealer for use at the Premises.
D. The phrase "Lease Documents" means those agreements relating to the
lease of the Premises, copies of which are attached hereto as Exhibit No.2,
collectively, and all amendments and supplements thereto.
E. The term "Manual" means the written specification of the Prime Site
System supplied by BOA, as amended or updated by BOA from time to time.
F. The phrase "Prime Site" means a retail store for Products operated in
accordance with the Prime Site System.
G. The phrase "Prime Site System" means the distinctive business format and
methods of operation and the designs developed by BOA for the interior and
exterior appearance of Prime Sites, as specified in the Manual and other written
advice given by BOA from time to time.
H. The term "Products" means the audio and video products produced by B&O
a/s and sold under the trademark "Bang & Olufsenr" or under other of B&O's
Proprietary Marks, and where the context permits, the customer services to be
made available in the Business in accordance with the Manual.
<PAGE>
III. THE MANUAL.
A. The Manual is an integral part of this Agreement. It describes the Prime
Site System and specifies the support provided by BOA and the obligations of the
Dealer in setting up and operating the Business.
B. Dealer shall comply with all its obligations as set out in the Manual
except insofar as they are inconsistent with an expressed term of this Agreement
or are varied by BOA in writing. Failure to do so will be a breach of this
Agreement.
C. BOA will give Dealer written notice of updates and amendments to the
Manual, which will be in effect immediately unless such notice otherwise states.
D. BOA will give Dealer sufficient copies of the Manual and its updates and
amendments. Dealer agrees to keep the copies secure and confidential, make no
further copies, provide access to the Manual only to responsible members of its
staff, and ensure that its contents are not disclosed to unauthorized staff or
any third parties.
IV. PURCHASE OF THE PRODUCTS.
A. BOA agrees to sell the Products to Dealer, which agrees to purchase the
Products from BOA in accordance with the terms and conditions set forth herein.
BOA reserves the right to change any terms or conditions relating to purchase
and sale of the Products, including but not by way of limitation, price and
payment terms, at any time.
B. All orders from Dealer are subject to acceptance by BOA at its principal
office in Mount Prospect, Illinois, or wherever subsequently relocated. BOA
shall have the right to cancel any orders placed by Dealer or refuse or delay
the shipment thereof if Dealer shall fail to keep its account current or to meet
payment schedules or other credit or financial requirements established by BOA,
or, if in BOA's sole opinion Dealer's credit shall become impaired, or Dealer
has otherwise violated the terms and conditions of this Agreement or the Lease
Documents. BOA expressly reserves the right to change credit or financial
requirements for dealers at any time. The cancellation of such orders or the
withholding of shipments by BOA shall not be construed as termination or breach
of this Agreement by BOA. BOA will otherwise use its best reasonable efforts to
make deliveries within a reasonable time in accordance with orders accepted from
Dealer, but it shall not be liable to Dealer for any damages, consequential or
otherwise, for any error in the filling of orders, or for failure to deliver or
delay in delivery. In the event of BOA's inability to supply the total demands
made by its dealers for the Products, for any reason, BOA shall have the right
to apportion the available Products among any or all of its dealers in such
manner and make delivery at such times as it may deem appropriate.
C. The Products shall be sold to Dealer at prices and terms established by
BOA and in effect at the time of acceptance of each of Dealer's orders. BOA
shall have the right to reduce or increase prices to Dealer at any time without
notice to Dealer. When a new price schedule is issued by BOA, it shall
automatically supersede all prior schedules on and after its effective date.
D. Prices of the Products shall not include taxes of any nature, however
denominated, and Dealer shall pay such taxes in full when invoiced by BOA or, in
lieu thereof, shall provide BOA with tax exemption certificates acceptable to
appropriate taxing authorities.
E. In the event of a decrease in published current dealer prices (except as
described hereinafter in this Section), Dealer shall be paid or credited with
money or provided Product of a value equal to the difference between the price
actually paid (less applicable special allowances and cash discounts, if any) by
Dealer for all Products in Dealer's unsold inventory for which payment has been
received by BOA and which were shipped to Dealer by BOA during the ninety (90)
day period prior to the effective date of the new dealer price applicable to
such Products, provided that Dealer submits an inventory report to BOA within
thirty (30) days after notification of such price decrease, and that such report
is verified to BOA's satisfaction. In the event of a decrease in published
current dealer prices in connection with a product "close-out." BOA shall have
the option to determine, in its sole discretion, whether, and if so, to what
extent to provide Dealer with the price protections described in the preceding
sentence.
V. ADDITIONAL SERVICES OF BOA. Throughout the term of this Agreement, BOA
may, but shall not be obligated to, provide administrative, marketing and
management support and know-how to Dealer, which shall include:
A. Training courses for Dealer's staff, to be held at such times and places
as BOA may prescribe.
<PAGE>
B. Regular consultation with and advice from BOA specialists, including
periodic visits to the Premises by such advisers as BOA considers appropriate.
C. Advice and updates on shop display, refurbishment, equipment layout,
decor and signs.
D. Development of advertising, promotional and direct mail programs,
including sales material and assistance with arranging display areas for that
material.
E. Development of tape and software updates to run the computerized Product
demonstration facility included in the Prime Site System.
F. Provision of standard formats for all stationery, documents and
promotional materials used in the Business.
VI. ADDITIONAL OBLIGATIONS OF DEALER. Dealer agrees to conduct the Business
as a high quality, distinctive retail store in accordance with the Prime Site
System, and agrees specifically:
A. To sell or provide in the course of the Business only the Products that
Dealer purchases from BOA, together with such additional goods or services as
BOA may specifically require or authorize as set forth on Exhibit No.5 attached
hereto and made a part hereof, as the same may be modified or supplemented from
time to time by written agreement of BOA and Dealer; provided. however, that the
merchandising of such additional goods and services from time to time shall be
subject to BOA's prior approval. Prior to opening the Business for retail trade,
Dealer shall purchase Products from BOA in sufficient quantities for display and
initial inventory to meet the requirements provided in the Manual. Dealer
acknowledges that BOA is entitled at any time to require it to withdraw existing
goods or services or to make available new goods or services. which may include
the introduction of new business items to further attract attention to the main
business of the Business.
B. To comply with all provisions of the Lease Documents.
C. To observe strictly the provisions of the Manual, except as they may be
modified in writing by BOA.
D. To not, directly or indirectly, sell, aid or facilitate in any way the
sale of Products from a location other than the Premises, as defined above,
without specific written authority from BOA to sell the Products at such other
location. Dealer further agrees to not sell the Products in connection with any
solicitation by telephone, mail order, Internet or other electronic means, and
agrees to engage in reasonable efforts to provide each retail customer with an
in-person demonstration of the Products; provided, however, that Dealer may
advertise, but not sell. Products on the Internet; provided, however, that any
list or description of Products shall be made by means of a link to the Bang &
Olufsenr Web Site or by such other means as BOA may approve in writing from time
to time.
E. To use B&O's Proprietary Marks and materials copyrighted by B&O a/s or
BOA only in store displays, newspaper, magazine, radio and television and other
advertising material promoting the Business. Dealer agrees not to use, or cause
the use of, B&O's Proprietary Marks or such copyrighted materials in any
unlawful manner in advertising or otherwise, or in any manner which may directly
or indirectly tend to lessen the value and goodwill of B&O's Proprietary Marks
and such copyrights. Dealer agrees not to use B&O's Proprietary Marks as part of
Dealer's own name or business identity, except in the trade name of the
Business. Nothing contained herein shall give to Dealer any interest in B&O's
Proprietary Marks and copyrighted materials of B&O a/s or BOA, except the
license to use them as provided herein. Dealer's right to use B&O's Proprietary
Marks and such copyrighted materials in any fashion, including without
limitation in Dealer's assumed name, and in a Web Site or E-Mail Address, shall
terminate immediately upon the termination of this Agreement.
F. To conform at all times to the standards set out in the Manual with
regard to products, services to customers and conduct of the Business.
G. To ensure that there are sufficient management and staff to properly
operate the Business, that all management and staff receive adequate training to
enable them to operate the Business to the required standard and that all
management and staff maintain the highest standards of dress, conduct, courtesy
and service as approved by BOA. The management and staff for the Business shall
be employed and compensated solely by Dealer.
<PAGE>
H. To ensure that its management and staff keep confidential the contents
of the Manual, the software programs provided and all other information they
obtain about the Prime Site System and about the business of BOA and B&O a/s
which is not available to the general public, and to not disclose such
confidential information to unauthorized staff or to any third party.
I. To not introduce "improvements" or modifications to the Business which
are inconsistent with this Agreement or the Manual without prior written consent
of BOA and to permit BOA to incorporate any of Dealer's approved improvements
and modifications into BOA's own business and Prime Site System without
compensation to Dealer.
J. To conduct the Business at all times in strict compliance with all
applicable federal, state and local laws and regulations. Dealer shall at no
time engage in any unfair or unethical trade practices such as "bait and switch"
advertising, and shall make no false or misleading representations with regard
to B&O a/s, BOA, the Business or the Products.
K. (1) To permit BOA at all reasonable times (with or without notice) to
visit and inspect the Premises, and any warehouse, storage or other facilities
maintained in connection with the Business, and to test any equipment there and
any Products which are being or have been repaired.
(2) Within ten (10) days after receipt from BOA of notice in 'writing of
any deficiencies or failures of Dealer or the Business to meet BOA's standards
of quality, appearance, cleanliness and service, Dealer shall correct all such
deficiencies or failures. Such notice by BOA shall constitute a notice of
default under this Agreement.
L. To immediately disclose to BOA any serious customer complaints and any
conflicts of interest which might affect the Business, however arising.
M. To use materials and equipment supplied by BOA or made to designs
supplied by BOA only in the Business, in the manner provided for under this
Agreement.
N. To make no statement, representation or claim, and give no warranty
relating to the Business or the Products to customers or to the trade, except as
authorized in the Manual, in literature about the Products supplied by BOA, or
otherwise in writing by BOA.
0. To maintain adequate records and accounts, audited or reviewed by an
established and reputable firm of Certified Public Accountants, give BOA access
on demand to the records and accounts, and report on a regular basis to BOA all
relevant market data and accounts as required in the Manual using standard
communication forms to be provided by BOA.
P. Before opening the Business for retail trade, to prepare and submit to
BOA for review a three-year Business Plan and a one year Operating Plan, both to
be consistent with this Agreement and with the Manual.
<PAGE>
Q. To provide reasonable consumer satisfaction in servicing Products. Such
service shall be performed in compliance with the standards set out in the
Manual by a qualified technician who is an employee of Dealer and has received
appropriate training for Product repair and installation provided or approved by
BOA. Such repair and installation shall always be carried out to the standards
set out in the Manual and to such other conditions as BOA may impose. As to any
Product not serviced by Dealer, Dealer shall assist each consumer seeking
service therefor by directing the consumer to the closest authorized service
center for Products and providing the consumer with the BOA "800" service
telephone number.
R. To pay the charges set out in the Manual or as advised from time to time
for each of the services referred to in the Manual, including to pay all of
Dealer's own expenses in attending training courses and in complying with its
obligations under this Agreement.
S. To honor such charge and credit cards and other payment plans as may
from time to time be issued or approved by BOA and to participate in, comply
with the terms of and promote any financial or leasing plans, programs or
procedures specified by BOA.
T. To immediately adopt all new or different marks, names or symbols
designated by BOA for use in addition to or substitution for any of B&O's
Proprietary Marks then in use, and to immediately discontinue the use of any of
B&O's Proprietary Marks the use of which in connection with the Prime Site
System BOA has chosen to discontinue or suspend, all at the sole cost and
expense of Dealer.
U. To not change its name or its d/b/a from those shown as such on the
first page of this Agreement, unless BOA shall have first consented thereto in
writing.
VII. THE PREMISES
A. Before the Business is opened, the Premises shall be converted and/or
updated to the then current interior and exterior design for the Prime Site
System. Without limiting the generality of the foregoing, Dealer agrees to
complete all interior and exterior work to the Premises pursuant to plans and
specifications approved by Landlord and BOA and shall open for business at the
Premises no later than 90 days from the date of this Agreement.
B. Dealer undertakes:
(1) At all times to perform and comply with the provisions of the Lease
Documents and each lease, sublease or license under which the Premises are held.
(2) At all times to maintain the standards of decoration, repair and
cleanliness of the interior and exterior of the Premises as described in the
Manual or approved in writing by BOA.
(3) Not to dispose of or in any way alter its interest in the Premises
except with the prior written consent of BOA.
<PAGE>
(4) To ensure that all necessary consents and approvals for any alterations
to the Premises and for carrying on the Business at the Premises are applied
for, obtained and diligently observed.
C. Dealer agrees to purchase or lease such new Distinctive Shop Fittings as
BOA may develop for the Prime Site System in replacement of worn-out or outdated
shop fittings.
D. All shop and office equipment and miscellaneous supplies (other than
Distinctive Shop Fittings) are to be acquired in accordance with the Manual and
paid for by the Dealer.
E. Dealer shall keep all shop fittings in good condition and keep them
fully insured at its own expense.
VIII. B&O'S PROPRIETARY MARKS AND PRIME SITE SYSTEM.
A. Dealer recognizes BOA's right to use and to grant to others the right to
use B&O's Proprietary Marks, and hereby acknowledges and agrees that it has no
claim and will hereafter not assert any claim to ownership of B&O's Proprietary
Marks or any registration thereof in any jurisdiction, or to any goodwill
associated therewith, by reason of Dealer's licensed use of B&O's Proprietary
Marks. Dealer agrees that it does not and will not, during or after the term of
this Agreement, dispute the validity of B&O's Proprietary Marks, any
registration thereof or the rights of BOA, B&O a/s and their licensees thereto.
Dealer agrees that during the term of this Agreement Dealer will not use or
imitate any of B&O's Proprietary Marks or the Prime Site System or any of the
distinguishing characteristics of either except pursuant to the authorization
and license granted pursuant to this Agreement. Dealer further agrees that it
shall make use of B&O's Proprietary Marks only in accordance with the standards
specified herein, and it shall use them only to refer to and identify Products
so marked which are sold in the Business, or the companies involved in the
manufacture or distribution of such Products, and in no other way whatever.
Dealer further agrees that after the termination or expiration of this Agreement
for any reason, Dealer will not use or imitate any of B&O's Proprietary Marks or
the Prime Site System or any of the distinguishing characteristics of either.
Dealer shall in no event and at no time, either directly or indirectly, in any
manner or fashion, disparage the names or good will of BOA, B&O a/s, the B&O
Proprietary Marks, or the Prime Site System.
B. Unless Dealer shall have received BOA's prior written consent and the
consent of the owner thereof, Dealer will not display or use at the Premises any
trademark, service mark or other marks or advertisements of any other person,
firm or corporation.
C. Any and all documents or other printed or written materials to which
Dealer intends to apply or affix B&O's Proprietary Marks, including without
limitation stationery, brochures, invoices, and advertising, must be approved by
BOA in writing prior to use thereof. On any and all such materials, B&O's
Proprietary Marks shall be used only in accordance with BOA's instructions and
after obtaining its consent. As between Dealer and BOA, B&O's Proprietary Marks
shall remain the property of BOA. Dealer will not have any right to use B&O's
Proprietary Marks other than as provided in this Agreement.
<PAGE>
D. In order to protect the integrity of B&O's Proprietary Marks, BOA
requires that B&O's Proprietary Marks be used only in certain styles and
formats. Dealer agrees that if BOA objects to any use by Dealer of any of B&O's
Proprietary Marks, Dealer will immediately discontinue and cease such use
E. Dealer agrees to arrange for B&O's Proprietary Marks to appear, in a
style or format expressly approved by BOA, on all paper and plastic bags, and
all mailing and other packaging materials used by the Business, and Dealer
agrees to submit such articles for BOA's prior approval as to quality and style
and as to the representation of B&O's Proprietary Marks.
F. Dealer agrees not to use any signs or advertising in connection with the
Business except signs or advertising specifically approved in advance by BOA.
G. In the event that Dealer receives notice or knowledge or is informed of
any claim asserted by any third person that any of B&O's Proprietary Marks, or
any use thereof, infringes any trademark or other right of any person, Dealer
shall promptly notify BOA of such claim. Upon BOA's receipt of notice from
Dealer of any such claim, BOA shall take such action as it may deem reasonably
necessary to defend against such claim and, provided that such claim does not
arise out of or involve use of B&O's Proprietary Marks by Dealer in a manner not
authorized by this Agreement, will assume the costs of such defense and
indemnify and hold Dealer harmless from and against any loss incurred by Dealer
resulting directly and solely from an infringement claim arising from Dealer's
use of B&O's Proprietary Marks. In no event, however, shall BOA be liable to
Dealer for consequential or exemplary damages. BOA shall have sole authority to
settle, compromise or otherwise dispose of any such claim. Dealer agrees to
cooperate fully with BOA in the defense of any such claim.
H. In the event that Dealer learns of or obtains any information concerning
any actual or threatened infringement or piracy of B&O's Proprietary' Marks,
Dealer shall promptly notify' BOA. Upon receipt of notice of any such claim, BOA
shall take such action as it may deem reasonably necessary. BOA shall have sole
authority to settle, compromise or otherwise dispose of any claim based on such
notification. Dealer agrees to cooperate fully with BOA in regard to any such
claim.
IX. CONFIDENTIALITY.
A. Dealer agrees that it shall not disclose any information or knowledge
concerning the Prime Site System (including specifically, but without
limitation, the Manual), all of which is confidential, to any person other than
appropriate Dealer personnel as necessary in the operation of the Business.
Dealer shall not copy the Manual or other confidential information, and Dealer
shall use the Manual and other confidential information only as necessary in the
operation of the Business. The Manual and other confidential information shall
at all times remain the sole property of BOA, and the same shall promptly be
returned to BOA upon the termination of this Agreement.
B. To the extent permitted by law, Dealer agrees to require that each of
Dealer's employees execute a confidentiality agreement in substantially the form
attached hereto as Exhibit No.3. Dealer agrees to take all necessary steps to
enforce such agreement when it becomes aware of any violation thereof. and to
immediately report any such violation to BOA.
X. INDEMNIFICATION; INSURANCE AND ENFORCEMENT.
A. Except as otherwise provided in this Agreement, Dealer shall indemnify
and save BOA, B&O a/s and their respective successors and assigns, and their
officers. agents and employees, harmless from and against all claims. demands,
costs, and expenses, of whatever nature, arising out of the operation of the
Business; provided, however, that Dealer's indemnification obligations under
this Section X.A. shall not apply in respect of any claims or liability arising
solely out of BOA's acts or omissions (i) in the design and/or manufacture of
the Products or (ii) in respect of any infringement upon any patent, copyright
or trademark held by a third party.
<PAGE>
B. Dealer shall maintain in effect during the term of this Agreement
insurance coverage of the type and in the minimum amounts set forth in Exhibit
No.4, which insurance shall name BOA and B&O a/s as additional insureds. Each
such contract of insurance shall contain agreements by the insurer that the
contract will not be canceled except upon at least thirty (30) days prior notice
to each of the insureds, that the act or omission of one insured will not
invalidate the contract or its coverage as to any other insured, and that the
insurer will furnish to BOA and Dealer evidence of the insurance coverage in
effect from time to time during the term of this Agreement. All such insurance
shall be issued by a carrier licensed to do business in the State of Illinois
and in the jurisdiction where the Business operates.
C. In the event of any legal proceedings or litigation between BOA and
Dealer with respect to this Agreement, the Lease Documents or the Manual, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
expenses in connection therewith from the non-prevailing party.
D. Should either party breach the terms of this Agreement, it is agreed
that the non-breaching party will suffer irreparable loss and damage as a result
of such breach. In addition to all other remedies available to it, the
non-breaching party shall be entitled to both temporary and permanent injunctive
relief to prevent a breach or contemplated breach of this Agreement by the
breaching party.
XI. DURATION OF AGREEMENT/RIGHT TO TERMINATE.
A. Subject to the provisions of Section XI.B. below, the term of this
Agreement shall commence on the date hereof and shall terminate on May 3 1,
1999; provided, however, that this Agreement shall automatically be renewed for
a period of seven years commencing June 1, 1999 and ending May 31, 2006 upon
execution and delivery of the Licensed Dealer Agreement substantially in the
form of Exhibit No.7 attached hereto. BOA and Dealer agree that they shall
execute and deliver such Licensed Dealer Agreement effective as of June 1, 1999.
<PAGE>
B. Without prejudice to any remedy either party may have for breach or
nonperformance of this Agreement, BOA may terminate this Agreement as provided
below upon the occurrence of any of the following events:
1. BOA may terminate this Agreement effective immediately upon the
occurrence of any of the following events:
a. If the right of Dealer to occupy the Premises terminates for any reason,
or if Dealer shall be in default of any of its obligations under the Lease
Documents;
b. If Dealer breaches the provisions of Section VI.D, VI.E or VI.J, or
commits any other action or omission which in BOA's sole judgment adversely
affects the interests of BOA in promoting the marketing of Products;
c. If Dealer fails to make any payment when due under this Agreement any
Exhibit to this Agreement or the Manual and the same remains unpaid for a period
often days after delivery of written notice thereof to Dealer, or the Dealer
fails to make any payment when due under the Lease Documents;
d. If Dealer fails to meet its Product Service obligations under Section
VI.Q;
e. If Dealer for any reason, and at any time, vacates the Premises or
ceases to maintain the Business at the Premises in accordance with the Manual;
f. In the event of any breach of any representation or warranty under
Section XVI.A or XVI.B;
g. If Dealer makes any assignment or transfer, or any purported or deemed
assignment or transfer, in violation of this Agreement;
h. If Dealer is dissolved or liquidated, or a receiver is appointed for
Dealer; or
i. Upon the bankruptcy or insolvency of Dealer, or any assignment or
composition of Dealer for the benefit of creditors; or if a written warrant of
attachment or any similar process is issued by any court against all or any
substantial portion of Dealer's property or assets, and the writ, warrant of
attachment, or similar process is not released or bonded within fifteen (15)
days of the entry or levy.
<PAGE>
2. BOA may terminate this Agreement if any of the following defaults shall
occur and Dealer shall fail to correct or cure such default within ten (10) days
after having received written notice of, or having otherwise become aware of,
such default:
a. If Dealer shall fail to satisfy its obligation to meet any minimum
purchase requirement required by Exhibit No.1 hereto;
b. If Dealer fails to adhere to all display requirements, including but not
limited to having on display, in working order and in good condition, all
Products to be on display as required by Exhibit No. I hereto;
c. If Dealer fails to present Products competently and in accordance with
BOA's standards; or
d. If Dealer shall be in default under any other of its obligations under
this Agreement (including the Lease Documents, the other Exhibits hereto and the
Manual) or shall be in default of any' payment obligations to BOA under any
other agreement between Dealer and BOA or any affiliate of BOA, other than those
defaults enumerated in Section XI.B.l above, and such default shall continue
after the expiration of any applicable grace or cure period; or
e. If a business other than Dealer shall be in default of any payment
obligations to BOA under any agreement with BOA or any affiliate of BOA provided
the Dealer and that business are under common control.
C. Neither BOA nor Dealer shall be liable to the other because of the
termination of this Agreement, for compensation, or reimbursement, or damages
for loss of prospective profits on anticipated sales or on account of
expenditures, investments, leases, or any type of commitments made in connection
with the business of either of them.
XII. RESPONSIBILITIES UPON TERMINATION.
A. Upon the termination of this Agreement, Dealer shall no longer be an
authorized Prime Site dealer for the Products, and Dealer shall immediately pay
all amounts owed, whether or not due, to BOA, on the effective date of
termination.
B. Upon the expiration or termination of this Agreement, Dealer shall (i)
discontinue forthwith any and all use of B&O's Proprietary Marks and the
copyrighted material of BOA or B&O a/s, including such use in advertising, (ii)
discontinue all operations of the Business, (iii) forthwith notify' and instruct
publications and others who may list or publish Dealer's name as a Prime Site
Dealer, including telephone directories, yellow pages, and other business
directories, to discontinue such listing of Dealer, and (iv) return to BOA all
promotional literature and material, including point of purchase materials and
displays, provided to Dealer by BOA.
<PAGE>
C. Upon termination of this Agreement for any reason, BOA shall have the
option to repurchase from Dealer any or all new, current products in Dealer's
inventory at the net invoice prices at which such Products were originally
purchased by Dealer from BOA, less any discounts and allowances which BOA may
have given to Dealer for such Products and reasonable costs for handling and
processing. This option may be exercised by BOA at any time within thirty (30)
days after the effective date of termination of this Agreement. Dealer agrees to
deliver such repurchased Products to BOA in their original packages, and to
otherwise cooperate with BOA as requested by BOA in connection with BOA's
exercise of its repurchase right hereunder.
XIII. DEALER NOT AN AGENT.
A. This Agreement does not in any way create the relationship of principal
and agent between Dealer and BOA or B&O a/s, and in no circumstances shall
Dealer, its agents or employees be considered the agents of BOA or B&O a/s
Dealer shall not act or attempt to act or represent itself directly or by
implication as agent of BOA or B&O a/s, or in any manner assume or create or
attempt to assume or create any obligation or make any contract, agreement,
representation or warranty on behalf or in the name of BOA or B&O a/s, except
such Product warranties as may be previously authorized in writing by BOA. No
partnership, joint venture, agency, or employment is intended or created by this
Agreement.
B. During the term of this Agreement, Dealer shall hold itself out to the
public as an independent contractor operating the Business pursuant to a license
from BOA. Dealer agrees to take such further affirmative action as BOA may
require in this regard, including, without limitation, (i) exhibiting a notice
of Dealer's licensee status (in form prescribed by BOA) in a conspicuous place
on the Premises, (ii) making any and all "assumed name" or similar filings
required or permitted to be made under applicable state and local laws to
disclose the true identity of the Dealer, (iii) placing the phrase "an
authorized independent dealer of Bang & Olufsenr products" in a conspicuous
location on all advertising, promotional materials, letterhead, business cards,
forms and other printed materials, (iv) maintaining in good standing its
existence as an independent entity, and (v) taking such other action as BOA may
specify from time to time.
XIV. FORCE MAJEURE. Except as otherwise provided in this Section XIV,
neither party hereto shall be responsible for or liable for failure to perform
any part of this Agreement or for any delay in the performance of any part of
this Agreement, directly or indirectly resulting from or contributed to by any
foreign or domestic embargoes, acts of God or the public enemy; the adoption or
enactment of any law, ordinance, regulation, ruling or order directly or
indirectly interfering with the performance hereunder; or wars, fires, floods,
explosions, strikes, factory shut downs, work stoppages, slow-downs or other
differences with workmen; shortages of fuel, power, materials or labor, or delay
in or lack of the usual means of transportation; action taken to carry out the
intent or purpose of any law or administrative regulation or order having the
effect of law; compliance with any request by a governmental agency or official
thereof, extraordinary currency devaluations, taxes, or customs duties or other
similar charges or assessments; or other events or contingencies beyond the
reasonable control of such party; provided, however, that the foregoing shall
not apply to, and shall not excuse Dealer from any delay in respect of, any
payment of money required pursuant to this Agreement, the Lease Documents or the
Manual.
<PAGE>
XV. ASSIGNMENT.
A. The relationship created between BOA and Dealer is personal in nature.
BOA, in entering into this Agreement, has relied upon the continued active
participation of certain individuals in the operations of Dealer. Dealer shall
have no right to assign this Agreement without the prior written consent of BOA.
This Agreement shall automatically terminate upon purported assignment or
transfer by Dealer thereof unless Dealer shall have given written notice to BOA.
together with all necessary information relating to the proposed assignment or
transfer and the proposed assignee or transferee, at least thirty (30) days
prior thereto, and shall have received the written consent (which consent may be
granted or withheld in BOA's sole discretion) of BOA to such assignment or
transfer within fifteen (15) days after BOA's receipt of Dealer's notice to BOA.
For purposes of this Agreement, any change in ownership or active management of
Dealer shall be deemed an assignment or transfer which requires the prior
consent of BOA. Dealer's obligations under this Agreement shall survive any
assignment or transfer by Dealer; provided, however, that so long as Dealer is a
publicly traded company, any transfer or series of transfers as part of a single
transaction, of the common stock of Dealer shall not require the prior consent
of BOA unless, as a result of such transfer or series of transfers. control of
Dealer is acquired by any manufacturer of consumer electronics products having
annual sales in the United States of $10,000,000 or more. For purposes of the
immediately preceding sentence, "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of Dealer, whether through the ownership of voting securities, by
contract or otherwise. Dealer's continuing responsibilities under this Agreement
shall apply should the Agreement be terminated hereunder.
B. BOA shall be authorized to assign or transfer this entire Agreement,
or any portion of its rights and obligations under this Agreement. Any
assignment or transfer of obligations hereunder by BOA shall, to the extent that
such obligations are assumed by the assignee or transferee, relieve BOA from
such obligations.
<PAGE>
C. This Agreement shall be binding upon each of the parties to it and their
respective heirs, executors, administrators, successors, and assigns, but this
sentence shall not be deemed to authorize an assignment or transfer by Dealer in
violation of the other provisions of this Agreement.
XVI. INFORMATION FURNISHED TO BOA.
A. Dealer acknowledges that BOA has been induced to enter into this
Agreement by certain information (including, but not limited to, financial
statements) heretofore submitted by Dealer, which information BOA has relied on
in entering into this Agreement. Dealer warrants and represents that such
information is true, correct, complete and accurate. In the event that such
information contains any material misstatements, errors, or omissions of
material facts, BOA shall have the right to terminate this Agreement effective
immediately upon written notice to Dealer, and shall have all other rights under
law. Further, (i) if such misstatement, error or omission is the result of fraud
or (ii) if such misstatement is the result of a misrepresentation regarding any
material fact pertaining to the ownership of Dealer or Dealer's financial
information or financial reporting requirements to BOA, then at BOA's option any
and all other agreements with Dealer shall also be terminated effective
immediately upon written notice to Dealer.
B. In entering into this Agreement, BOA is also relying upon Dealer's
representation and warranty that Dealer's execution of this Agreement and
performance of its obligations hereunder will not constitute a violation or
breach, or cause Dealer to be in violation or breach, of any lease or other
contractual obligation that it has to any other person. Dealer hereby confirms
its representation and warranty to this effect.
XVII. PAYMENTS DUE. Notwithstanding anything to the contrary. contained in
the Agreement, all payments to be made by Dealer to BOA in respect of services
or goods (including, without limitation, fixtures) purchased prior to or during
the first six months of operation of the Business shall be deferred during such
period and shall not be due and payable until the first day immediately
following the expiration of such six month period; provided, however. that the
foregoing limitations shall not apply to Products purchased by Dealer from BOA,
it being agreed that such Products shall be purchased and paid for in accordance
with ordinary terms; and further provided, however, that this paragraph XVII
shall not apply if this Agreement renews or extends a prior Prime Site Marketing
Agreement between BOA and Dealer.
XVIII. RIGHT OF FIRST REFUSAL. If at any time during the term of this
Agreement Dealer receives from any entity or firm a bona fide offer for the
assignment of Dealer's right to occupy the Premises (any such bona fide offer
being hereinafter referred to as an "Offer"), or Dealer otherwise wishes to so
transfer its right to occupy the Premises, Dealer shall provide BOA with a
written notice setting forth the terms of such Offer or the other terms of such
transfer as soon as practicable. Within 60 days after receiving such notice, BOA
shall have the right (but not the obligation) to accept the assignment of the
right to occupy the Premises on the identical terms as set forth in such notice,
and may exercise same by delivering to Dealer notice of its intent to exercise
during such 60 day period. Upon delivery of such notice of intent to exercise,
the parties shall consummate the assignment of the right to occupy the Premises
as soon as practicable thereafter.
If any transfer of the right to occupy the Premises is made by Dealer with
the consent of BOA, BOA's right of first refusal shall survive such transfer.
XIX. EXHIBITS.
There are eight Exhibits to this Agreement, which are as follows:
Exhibit No. 1;
Exhibit No. 2 (Lease Documents);
Exhibit No. 3 (Employee Confidentiality Agreement);
Exhibit No. 4 (List of insurance coverage furnished by Dealer);
Exhibit No. 5 (Authorized non-Bang & Olufsenr products);
Exhibit No. 6 (Letter regarding the use of names);
Exhibit No. 7 (Licensed Dealer Agreement);
Exhibit No. 8 (Letter regarding Repurchase of Inventory).
The provisions of each of the Exhibits 1, 3, 4, 5 and 6 are part of this
Agreement.
<PAGE>
XX. ENTIRE AGREEMENT. ETC.
A. This Agreement (including the Exhibits hereto) and the Manual embody the
entire agreement between the parties hereto in connection with the subject
matter hereof and supersede all prior agreements, if any. Any waiver, amendment
or modification of this Agreement, to be effective, must be in writing and
signed by the parties hereto. There are no oral or implied agreements, and no
oral or implied warranties between the parties.
B. It is expressly agreed that no stipulation. conditions or statements
contained in any purchase order or similar form which may be submitted by Dealer
in connection with its purchase of Products shall be binding upon BOA even
though orders given on such forms are accepted or filled by BOA. The terms and
conditions stated on BOA's invoices and/or acceptances of such Dealer orders
together with the terms and conditions stated herein, which shall be
incorporated therein by reference, shall control and, if no terms and conditions
appear thereon, then the terms of this Agreement shall be deemed controlling.
C. The waiver by BOA of any one default or provision of this Agreement or
the Manual shall not waive any subsequent defaults of the same provision on
another occasion, or any default of any other provision.
D. All terms and words used in this Agreement, regardless of the number and
gender form in which they are used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context or sense of this Agreement or any section or clause
herein may require, the same as if such words had been fully and properly
written in such number and gender form.
E. The provisions of this Agreement where the context or sense of this
Agreement so indicates shall survive any termination of this Agreement.
XXI. SEVERABILITY. If any provision in this Agreement, or its application
to any person or circumstance, is invalid or unenforceable, BOA may in its sole
discretion elect to terminate this Agreement. In the event that BOA does not so
elect to terminate this Agreement, the remainder of this Agreement or the
application of such invalid or unenforceable provision to other persons or
circumstances shall not be affected thereby.
<PAGE>
XXII. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
XXIII. NOTICES. Notices given pursuant to the terms of this Agreement shall
be in writing and shall be delivered personally or by certified or registered
mail, addressed to Dealer at the address first set forth in this Agreement, and
to BOA, at Bang & Olufsen America, Inc., 1200 Business Center Drive, Mount
Prospect, Illinois 60056, Attention: President. Any personally delivered notice
shall be deemed given upon actual delivery. Any mailed notice shall be deemed to
have been received seven (7) days after the certified or registered mailing
date. The addresses for such notices may be changed from time to time by written
notice.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have entered into this Prime Site
Marketing Agreement on the day and year first above mentioned.
DEALER
BANG & OLUFSEN AMERICA, INC. HARVEY ELECTRONICS, INC.
By: /s/ Ole Bek By: /s/ Joseph J. Calabrese
------------------------ -----------------------------
Ole Bek, President Joseph J. Calabrese, Executive Vice
President and Chief Financial Officer
<PAGE>
BANG & OLUFSEN AMERICA, INC.
PRIME SITE MARKETING AGREEMENT (UNION SQUARE)
EXHIBIT NO.1
BOA designates Harvey Electronics, Inc., CL/b/a Bang & Olufsen - Union
Square ("Dealer") as one of its authorized dealers, subject to the terms and
conditions set forth in the Prime Site Marketing Agreement ("Agreement"), and
those terms and conditions set forth in this Exhibit No. 1.
1. DEALER AGREES:
A. To display at the Premises all Bang & Olufsenr products purchased and
owned by Dealer and such other Products as BOA may designate in 'writing from
time to time. BOA has the right to add to or delete any Product on such list at
any time on not less than 30 days notice.
B. To display the Products in an appropriate environment to be approved by
BOA.
C. RESERVED
D. To sell Products only to retail customers and only from the Premises,
and not to sell Products to any dealers, including dealers authorized by BOA or
otherwise.
E. To comply with such warranty and service requirements as may be
established by BOA from time to time with respect to Products sold by Dealer.
2. BOA AGREES to provide Dealer with marketing support in accordance with
the current marketing support program that BOA, in its discretion, may establish
from time to time, subject to any additional marketing support BOA has agreed in
writing to provide Dealer.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit No.1 to
Prime Site Marketing Agreement to be executed in duplicate.
BANG & OLUFSEN AMERICA, INC. HARVEY ELECTRONICS, INC.
By: /s/ Ole Bek By: /s/Franklin C. Karp
--------------------------- ---------------------------------
President Title: Executive Vice President and Chief
Financial Officer
Dated as of _______________
<PAGE>
Exhibit No. 2
to
Bang & Olufsen America, Inc.
Prime Site Marketing Agreement (Union Square)
LEASE DOCUMENTS
[to be inserted]
<PAGE>
Exhibit No.3
to
Bang & Olufsen America, Inc.
Prime Site Marketing Agreement (Union Square)
EMPLOYEE CONFIDENTIALITY AGREEMENT
In consideration of employment of the undersigned by Harvey Electronics,
Inc. ("Dealer"), the undersigned agrees as follows:
1. As used herein. the following terms shall have the following respective
meanings:
A. "BOA" means Bang & Olufsen America. Inc., a Delaware corporation.
B. "Business" means the business operated by Dealer under the name "Bang &
Olufsenr".
C. "Manual" means the written specifications of the Prime Site System
supplied by BOA, as amended or updated by BOA from time to time.
D. "Prime Site System" means the distinctive business format and methods of
operation and the designs developed by BOA for the interior and exterior
appearance of retail stores such as the Business operated in accordance with the
Manual.
2. The undersigned agrees not to disclose any information or knowledge
concerning the Prime Site System (including specifically, but without
limitation, the Manual), all of which is acknowledged to be confidential, to any
person, other than appropriate Dealer personnel as necessary in the operation of
the Business.
3. The undersigned further agrees not to copy the Manual or other
confidential information, and to use the Manual and other confidential
information only as necessary in the performance by the undersigned of duties on
behalf of Dealer.
4 The undersigned acknowledges that the Manual and other confidential
information shall at all times remain the property of BOA.
5. The obligations of the undersigned under this agreement shall continue
notwithstanding termination of the undersigned's employment relationship with
Dealer for any reason.
<PAGE>
6. The covenants and obligations set forth in this agreement are intended
to benefit Dealer and BOA and shall be enforceable against the undersigned by
either Dealer ()~ BOA, as BOA may elect.
Date:____________________
Employee:
------------------------------------
Print Name:
Address:
<PAGE>
Exhibit No.4
to
Bang & Olufsen America, Inc.
Prime Site Marketing Agreement (Union Square)
INSURANCE COVERAGE FURNISHED BY DEALER
Commercial General Liability Insurance with a combined single limit of at
least $1,000,000
Property Insurance with limits of at least $500,000
Business Interruption Insurance in form and with coverages reasonably
satisfactory to BOA
<PAGE>
Exhibit No.5
to
Bang & Olufsen America, Inc.
Prime Site Marketing Agreement (Union Square)
LIST OF AUTHORIZED VENDORS OF NON-BANG & OLUFSENr PRODUCTS
Sony Video
Runco
Sharpvision
Mitsubishi
Marantz
Stewart Film Screen
Niles
Proton
Salamander Designs
BDI
Velodyne
Faroudja
Panamax
Monster Power
<PAGE>
Exhibit No.6
to
Bang & Olufsen America, Inc.
Prime Site Marketing Agreement (Union Square)
Letter re Use of Names (see attached)
<PAGE>
January 6, 1999
Mr. Franklin Karp
Harvey Electronics Inc.
205 Chubb Avenue
Lyndhurst New Jersey 07071
Re: Prime Site Marketing Agreement dated January 6, 1999 (together with all
amendments and supplements thereto and modifications, renewals, extensions and
restatements thereof, and all successor agreements thereto, the "Dealer
Agreement") between Bang & Olufsen America, Inc. ("BOA") and Harvey Electronics,
Inc. ("Harvey")
Dear Franklin:
This letter sets forth the terms and conditions under which BOA and Harvey
shall grant to each other the reciprocal right to use certain proprietary names
and trademarks owned by each of BOA and Harvey. Capitalized terms used in this
letter and not otherwise defined herein shall have the meanings specified in the
Dealer Agreement.
In consideration of the mutual covenants and agreements set forth in this
letter and in the Dealer Agreement, Harvey and BOA agree as follows:
1. Subject to the provisions of paragraph 3 of this letter, BOA hereby
grants to Harvey the non-exclusive right and license during the term of this
letter to use the name "Bang & Olufsenr" and "Bang & Olufsen America, Inc." in
press releases, other public announcements and/or any documents, instruments or
certificates filed with any governmental authority ("Public Documents") pursuant
to any law, statute rule or regulation applicable to any corporation,
partnership, limited liability company or other legal entity any or all of the
securities of which are publicly traded (collectively, "Securities
Regulations").
<PAGE>
2. Subject to the provisions of paragraph 3 of this letter. Harvey hereby
grants to BOA the non-exclusive right and license during the term of this letter
to use the name "Harvey Electronics, Inc." in connection (i) the advertisement
and promotion of BOA Products and/or BOA. its business and its licensed dealer
program as in effect from time to time and/or (ii) any press releases, other
public announcements and/or Public Documents filed with any governmental
authority pursuant to any applicable Securities Regulation.
3. Any use of the names "Bang & Olufsenr" and "Bang & Olufsen America,
Inc." by Harvey shall be subject to the prior 'written approval of BOA and any
use of the name Harvey Electronics, Inc." by BOA shall be subject to the prior
'written approval of Harvey.
(a) Either party intending to use the name of the other party shall provide
written notice of such intent ("Notice of Use"). Any Notice of Use shall
specify' how the party's name is to be used, the medium in which such name shall
be used. and the duration of such use.
(b) The party receiving a Notice of Use ("Receiving Party") shall have ten
(10) days from the date of the receipt of such Notice of Use ("Objection
Period") within which to object to the use described therein. If objection is
made by the Receiving Party within the Objection Period, the party issuing the
Notice of Use ("Issuing Party") shall be prohibited from using the name of the
Receiving Party in the manner described in the Notice of Use. If no objection is
made by the Receiving Party within the Objection Period, the Issuing Party shall
be entitled to use the Receiving Party's name in the manner described in the
Notice of Use. Any objection to a Notice of Use shall be in the sole discretion
of the Receiving Party, except as provided in paragraph 3(c) below.
(c) Notwithstanding anything contained in this letter or the Dealer
Agreement to the contrary, neither party shall unreasonably withhold or delay
its consent to any Notice of Use relating to a Public Document to be issued or
filed pursuant to applicable Securities Regulations.
4. This letter shall remain in full force and effect so long as the Dealer
Agreement shall be in effect; provided, however, that any use described in a
Notice of Use which is implemented prior to the termination or expiration of
this Agreement shall have the duration described in such Notice of Use. For the
purposes of this letter a use shall be deemed to be implemented if there is then
in effect a binding contract, commitment or obligation with a third party with
regard to such use or if a Public Document has been published or filed which
includes such use.
5. Any notice or communication required or permitted to be given under this
letter shall be in writing and shall be delivered in the manner specified in the
Dealer Agreement.
<PAGE>
6. To induce BOA to enter into this letter. Harvey represents and warrants
to BOA as follows:
(a) The execution of this letter and the performance of its obligations
hereunder will not constitute a violation or breach of any obligation,
contractual or otherwise, that it may have to any other person or entity.
(b) As of the date hereof, Harvey is not in default under the Dealer
Agreement and no event has occurred, and no condition exists, that with the
giving of notice or passage of time, or both, would constitute a default by
Harvey under the Dealer Agreement.
7. This letter shall be governed by, and construed in accordance with, the
laws of the State of Illinois without reference to conflicts of law or choice of
law principles.
8. The Dealer Agreement shall remain unmodified and shall continue in full
force and effect.
9. This letter may be executed in multiple counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
Please acknowledge your acceptance of the terms and conditions of this
letter by signing a copy of this letter enclosed herewith and returning it to me
as soon as possible.
Sincerely
/s/ Ole Bek
------------------------
Ole Bek, President
Agreed and Accepted:
HARVEY ELECTRONICS, INC.
By: /s/Joseph J. Calabrese
------------------------------
Joseph J. Calabrese
Its: Executive Vice President and Chief
Financial Officer
Date: January 6, 1999
AGREEMENT OF LEASE, made as of this 23rd day of December 1998, between
BENDER REALTY, 175 Fifth Avenue, Suite 2230, New York, New York party of the
first part, hereinafter referred to as OWNER, and HARVEY ELECTRONICS INC. at 205
Chubb Avenue, Lyndhurst, New Jersey party of the second part, hereinafter
referred to as TENANT;
WITNESSETH:
Owner hereby leases to Tenant and Tenant hereby hires from Owner: Ground
floor and basement in the building known as 927 Broadway in the Borough of
Manhattan, City of New York, for the term of seven years with a five year option
(see rider) (or until such term shall sooner cease and expire as hereinafter
provided) to commence on the 1st day of January nineteen hundred and
ninety-nine, and to end on the 31st day of December, two thousand and five, both
dates inclusive, at an annual rate of:
Year 1 $114,000 or $9,500 per month, $8,000 in rent
concessions year 1.
Year 2-10 3% increase per year
Year 11-12 Market value.
which Tenant agrees to pay in lawful money of the United States which shall
be legal tender in payment of all debts and dues, public and private, at the
time of payment, in equal monthly installments in advance on the first day of
each month during said term, at the office of Owner or such other place as Owner
may designate, without any set off or deduction whatsoever, except that Tenant
shall pay the first _____ monthly installment(s) on the execution hereof (unless
this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
1. Rent: Tenant shall pay the rent as above and as hereinafter provided.
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2. Occupancy: Tenant shall use and occupy demised premises for any lawful
purpose including the sale of electronics, stereo, television, electronic
accessories and furniture, custom installation services, inclusive of Bang &
Olufsen products and non Bang & Olufsen products and for no other purpose.
Tenant shall at all times conduct its business in a high grade and reputable
manner, shall not violate Article 37 hereof, and shall keep show windows and
signs in a neat and clean condition.
3. Alterations: Tenant shall make no changes in or to the demised premises
of any nature without Owner's prior written consent, which consent will not be
unreasonably withheld or delayed. Subject to the prior written consent of Owner,
and to the provisions of this article, Tenant, at Tenant's expense, may make
alterations, installations, additions or improvements which are non-structural
and which do not affect utility services or plumbing and electrical lines, in or
to the interior of the demised premises by using contractors or mechanics first
reasonably approved in each instance by Owner. Tenant shall, before making any
alterations, additions, installations or improvements, at its expense, obtain
all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner and Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may reasonably
require. If any mechanic's lien is filed against the demised premises, or the
building of which the same forms a part, for work claimed to have done for, or
materials furnished to, Tenant, whether or not done pursuant to this article,
the same shall be discharged by Tenant within 30 days after notice thereof is
given to Tenant, at Tenant's expense, by payment or filing the bond required by
law. All fixtures and all paneling, partitions, railings and like installations,
installed in the premises at any time, either by Tenant or by Owner on Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the termination of
this lease, elects to relinquish Owner's rights thereto and to have them removed
by Tenant, in which event, the same shall be removed from the premises by Tenant
prior to the expiration of the lease, at Tenant's expense. Nothing in this
article shall be construed to give Owner title to or to prevent Tenant's removal
of trade fixtures, moveable office furniture and equipment, but upon removal of
any such from the premises or upon removal of other installation as may be
required by Owner, Tenant shall immediately and at its expense, repair and
restore the premises to the condition existing prior to installation and repair
any damage to the demised premises or the building due to such removal;
provided, however, that Tenant shall not have any obligation to remove any such
installation or restore the demised premises in connection with any installation
or alteration approved by Landlord. All property permitted or required to be
removed by Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the premises by
Owner at Tenant's expense.
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4. Repairs: Owner shall maintain and repair the public portions of the
building, both exterior and interior, except that if Owner allows Tenant to
erect on the outside of the building a sign or signs, or a hoist, lift or
sidewalk elevator for the exclusive use of Tenant, Tenant shall maintain such
exterior installations in good appearance and shall cause the same to be
operated in a good and workmanlike manner and shall make all repairs thereto
necessary to keep same in good order and condition, at Tenant's own cost and
expense, and shall cause the same to be covered by the insurance provided for
hereafter in Article 8. Tenant shall, throughout the term of this lease, take
good care of the demised premises and the fixtures and appurtenances therein,
and at its sole cost and expense, make all non-structural repairs thereto as and
when needed to preserve them in good working order and condition, reasonable
wear and tear, obsolescence and damage from the elements, fire or other
casualty, excepted. If the demised premises be or become infested with vermin,
Tenant shall at Tenant's expense, cause the same to be exterminated from time to
time to the satisfaction of Owner. Except as specifically provided in Article 9
or elsewhere in this lease, there shall be no allowance to the Tenant for the
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building including the erection or
operation of any crane, derrick or sidewalk shed, or in or to the demised
premises or the fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall be not entitled to any set off or reduction of rent by
reason of any failure of Owner to comply with the covenants of this or any other
article in this lease. Tenant agrees that Tenant's sole remedy at law in such
instance will be by way of an action for damages for breach of contract. The
provisions of this Article 4 with respect to the making of repairs shall not
apply in the case of fire or other Casualty which are dealt with in Article 9
hereof.
5. Window Cleaning: Tenant will not clean nor require, permit, suffer or
allow any window in the demised premises to be cleaned from the outside in
violation of Section 202 of the New York State Labor Law or any other applicable
law or of the Rules of the Board of Standards and Appeals, or of any other Board
or body having or asserting jurisdiction.
6. Requirements of law, Fire Insurance: Prior to the commencement of the
lease term, if Tenant is then in possession, and at all times thereafter,
Tenant, at Tenant's sole cost and expense, shall promptly comply with all
present and future laws, orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any direction of
any public officer pursuant to law, and all orders, rules and regulations of the
New York Board of Fire Underwriters or the Insurance Services Office, or any
similar body which shall impose any violation, order or duty upon Tenant with
respect to the demised premises, arising out of Tenant's manner of use thereof,
or with respect to the building if arising out of Tenant's manner of use of the
premises or the building (including the use permitted under the lease). Except
as provided in Article 29 hereof, nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has by its manner of use of the
demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other policies of insurance at any time carried
by or for the benefit of Owner. Tenant shall pay all costs, expenses, fines,
penalties or damages, which may be imposed upon Owner by reason of Tenant's
failure to comply with the provisions of this article. If the fire insurance
rate shall, at the beginning of the lease or at any time thereafter, be higher
than it otherwise would be, then Tenant shall reimburse Owner, as additional
rent hereunder, for that portion of all fire insurance premiums thereafter paid
by Owner which shall have been charged because of such failure by Tenant, to
comply with the terms of this article. In any action or proceeding wherein Owner
and Tenant are parties, a schedule or "make-up" of rate for the building or
demised premises issued by a body making fire insurance rates applicable to said
premises shall be conclusive evidence of the facts therein stated and of the
several items and charges in the fire insurance rate then applicable to said
premises.
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7. Subordination: This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor of by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
reasonably request.
8. Tenant's Liability Insurance Property Loss, Damage, Indemnity: Owner or
its agents shall not be liable for any damage to property of Tenant or of others
entrusted to employees of the building, nor for loss of or damage to any
property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence or willful misconduct of Owner, its agents, servants
or employees. Owner or its agents will not be liable for any such damage caused
by other tenants or persons in, upon or about said building or caused by
operations in construction of any private, public or quasi public work. Tenant
agrees, at Tenant's sole cost and expense, to maintain general public liability
insurance in standard form in favor of Owner and Tenant against claims for
bodily injury or death or property damage occurring in or upon the demised
premises, effective from the date Tenant enters into possession and during the
term of this lease. Such insurance shall be in an amount and with carriers
acceptable to the Owner. Such policy or policies shall be delivered to the
Owner. On Tenant's default in obtaining or delivery any such policy or policies
or failure to pay the charges therefor, Owner may secure or pay the charges for
any such policy or policies and charge the Tenant as additional rent therefor.
Tenant shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorneys fees, paid,
suffered or incurred as a result of any breach by Tenant, Tenant's agent,
contractors, employees, invitees, or licensees, of any covenant on conditions of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any subtenant,
and any agent, contractor, employee, invitee or licensee of any subtenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
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9. Destruction, Fire, and Other Casualty: (a) If the demised premises or
any part thereof shall be damaged by fire or other casualty, Tenant shall give
immediate notice thereof to Owner and this lease shall continue in full force
and effect except as hereinafter set forth. (b) If the demised premises are
partially damaged or inaccessible or rendered partially unusable by fire or
other casualty, the damages thereto shall be repaired by and at the expense of
Owner and the rent and other items of additional rent, until such repair shall
be substantially completed, shall be apportioned from the day following the
casualty according to the part of the premises which is usable. (c) If the
demised premises are totally damaged or inaccessible or rendered wholly unusable
by fire or other casualty, then the rent or other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's rights to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant
given within 90 days after such fire ore casualty or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
Owner's rights and remedies against Tenant under the lease provisions in effect
prior to such termination, and any rent owing shall be paid up to such date and
any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume fifteen (15) days after written notice from Owner that the premises
are substantially ready for Tenant's occupancy. (e) Nothing contained
hereinabove shall relieve Tenant from liability that may exist as a result of
damage from fire or other casualty. Notwithstanding the foregoing, including
Owner's obligation to restore under subparagraph (b) above, each party shall
look first to any insurance in its favor before making any claim against the
other party for recovery for loss or damage resulting from fire or other
casualty, and to the extent that such insurance is in force and collectible and
to the extent permitted by law, Owner and Tenant each hereby releases and waives
all rights of recovery with respect to subparagraphs (b), (d) and (e) above,
against the other or any one claiming through or under each of them by way of
subrogation or otherwise. The release and waiver herein referred to shall be
deemed to include any loss or damage to the demised premises and/or to any
personal property, equipment, trade fixtures, goods and merchandise located
herein. The foregoing release and waiver shall be in force only if both
<PAGE>
releasors' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. Tenant acknowledges that Owner will
not carry insurance on Tenant's furniture and/or furnishings or any fixtures or
equipment, improvements, or appurtenances removable by Tenant and agrees that
Owner will not be obligated to repair any damage thereto or replace the same.
(f) Tenant hereby waives the provisions of Section 227 of the Real Property Law
and agrees that the provisions of this article shall govern and control in lieu
thereof. The Lease term shall be extended for the length of time the demised
premises were not usable by Tenant. Notwithstanding anything contained herein to
the contrary, if any such damage is not repaired within 270 days after the date
of casualty, Tenant may cancel this Lease.
10. Eminent Domain: If the whole or any part of the demised premises shall
be acquired or condemned by Eminent Domain for any public or quasi public use or
purpose., then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease. Tenant shall
have the right to make an independent claim to the condemning authority for the
value of Tenant's moving expenses and personal property, trade fixtures and
equipment, provided Tenant is entitled pursuant to the terms of the lease to
remove such property, trade fixtures and equipment at the end of the term and
provided further such claim does not reduce Owner's award.
11. Assignment, Mortgage, Etc.: Tenant for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns
expressly covenants that it shall not assign, mortgage or encumber this
agreement, not underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance which consent will not be unreasonably withheld or delayed. Tenant may,
without Landlord's consent, sublet all or any portion of the demised premises to
an affiliated company or companies or a related entity or assign this Lease to
an affiliated company or companies or a related entity, i.e. a company or entity
that controls Tenant, is controlled by Tenant or is under common control with
Tenant. Tenant's merger into or with another entity is not deemed an assignment.
If this lease be assigned, or if the demised or any party thereof be underlet or
occupied by anybody other than Tenant, Owner may, after default by Tenant,
collect rent from the assignee, under-tenant or occupant, and apply the net
amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of the covenant,
or the acceptance of the assignee, under-tenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Owner to an assignment or
underletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Owner to any further assignment or
underletting.
12. Electric Current: Rates and conditions in respect to submetering or
rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service in no way make Owner liable or responsible to
Tenant, for any loss, damages or expenses which Tenant may sustain.
<PAGE>
13. Access to Premises: Owner or Owner's agents upon notice and accompanied
by a representative of Tenant, as per Paragraph 64 hereof, shall have the right
(but shall not be obligated) to enter the demised premises in any emergency at
any time, and, at other reasonable times, to examine the same and to make such
repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to any portion of the building or which Owner may elect to
perform, in the premises, following Tenant's failure to make repairs or perform
any work which Tenant is obligated to perform under this lease, or for the
purpose of complying with laws, regulations and other directions of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein, provided they are concealed within the walls, floors or ceiling,
wherever practicable. Owner may during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof Owner
shall have the right to enter the demised premises at reasonable hours for the
purpose of showing the same to prospective purchasers or mortgagees of the
building, and during the last six months of the terms for the purpose of showing
the same to prospective tenants and may, during said six months period, place
upon the demised premises the usual notice "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the demised premises, Owner or Owner's
agents may enter the same whenever such entry may be necessary or permissible by
master key or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of term Tenant shall have removed all or
substantially all of Tenant's property therefrom, Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligations hereunder.
Owner shall have the right at any time, without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets, or other public parts of the building and
the change the name, number or designation by which the building may be known.
Landlord shall use reasonable efforts to minimize interference with Tenant's
business and access to the demised premises in the exercise of Landlord's rights
under the provisions herein.
<PAGE>
14. Vault, Vault Space, Area: No vaults, vault space or area, whether or
not enclosed or covered, not within the property line of the building is leased
hereunder, anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to the contrary notwithstanding,
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility. Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
15. Occupancy: Tenant will not at any time use or occupy the demised
premises in violation of Articles 2 or 37 hereof, or of the certificate of
occupancy issued for the building of which the demised premises are a part.
Tenant has inspected the premises and accepts them as is, subject to the riders
annexed hereto with respect to Owner's work, if any. In any event, Owner makes
no representation as to the condition of the premises and Tenant agrees to
accept the same subject to violations whether or not of record, to the extent
same do not interfere with Tenant's use of the demised premises and further
provided that Tenant shall have no obligation with respect to violations
existing as of the Commencement Date which shall be the sole responsibility of
Landlord. Landlord represents that the use permitted under Article 2 hereof is
permitted.
16. Bankruptcy: (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Landlord by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events: (1) the commencement of a case in bankruptcy or
under the laws of any state naming Tenant as the debtor (and which, in the case
of an involuntary case in bankruptcy, is not dismissed within sixty (60) days
after the commencement thereof) or (2) the making by Tenant of an assignment or
any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
demised premises but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the periods for
which such installment was payable shall be discounted to the date of
termination at the rate of four (4%) percent per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
<PAGE>
17. Default: (1) If tenant defaults beyond any applicable notice and grace
period, in fulfilling any of the covenants of this lease including the covenants
for the payment of rent or additional rent; or if the demised premises become
vacant or deserted; or if any execution or attachment shall be issued against
Tenant or any of Tenant's property whereupon the demised premises shall be taken
or occupied by someone other than Tenant; or if this lease be rejected under
Section 365 of Title II of the U.S. Code (Bankruptcy Code); or if Tenant shall
fail to move into or take possession of the premises within thirty (30) days
after the commencement of the term of this lease, of which fact Owner shall be
the sole judge; then, in any one or more of such events, upon Owner serving a
written fifteen (15) days notice upon Tenant specifying the nature of said
default and upon the expiration of said fifteen (15) days, if Tenant shall have
failed to comply with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely cured or
remedied within said fifteen (15) day period, and if Tenant shall not have
diligently commenced curing such default within such fifteen (15) day period,
and shall not thereafter with reasonable diligence and in good faith proceed to
remedy or cure such default, then Owner may serve a written five (5) days notice
of cancellation of this lease upon Tenant, and upon the expiration of said five
(5) days, this lease and the term thereunder shall end and expire as fully and
completely as if the expiration of such five (5) day period were the day herein
definitely fixed for the end and expiration of this lease and the term thereof
and Tenant shall then quit and surrender the demised premises to Owner but
Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and the
term shall expire as aforesaid; or if Tenant shall make default that is not
cured within seven (7) days after receipt of written notice, in the payment of
the rent reserved herein or any item of additional rent herein mentioned or any
part of either or in making any other payment herein required; then and in any
of such events Owner may without notice, re-enter the demised premises either by
force or otherwise, and dispossess Tenant by summary proceedings or otherwise,
and the legal representative of Tenant or other occupant of demised premises and
remove their effects and hold the premises as if this lease had not been made,
and Tenant hereby waivers the service of notice of intention to re-enter or to
institute legal proceedings to that end.
<PAGE>
18. Remedies of Owner and Waiver of Redemption: In case of any such
default, re-entry, expiration and/or dispossess by summary proceedings or
otherwise, (a) the rent, and additional rent, shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration. (b) Owner
may re-let the premises or any part or parts thereof, either in the name of
Owner or otherwise, for a term or terms which may at Owner's option be less than
or exceed the period which would otherwise have constituted the balance of the
term of this lease and may grant concessions or free rent or charge a higher
rental than that in this lease, and/or (c) Tenant or the legal representatives
of Tenant shall also pay Owner as liquidated damages for the failure of Tenant
to observe and perform said Tenant's covenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the subsequent lease or
leases of the demised premises for each month of the period which would
otherwise have constituted the balance of the term of this lease. The failure of
Owner to re-let the premises or any part or parts thereof shall not release or
affect Tenant's liability for damages. In computing such liquidated damages
there shall be added to the said deficiency such expenses as Owner may incur in
connection with re-letting, such as legal expenses, reasonable attorneys' fees,
brokerage, advertising and for keeping the demised premises in good order or for
preparing the same for re-letting. Any such liquidated damages shall be paid in
monthly installments by Tenant on the rent day specified in this lease. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgement,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operated or be construed to release Tenant from liability.
Owner shall in no event be liable in any way whatsoever for failure to re-let
the demised premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no event shall
Tenant be entitled to receive any excess, if any, of such net rent collected
over the sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant or any of the covenants or provisions hereof. Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present of future laws.
19. Fees and Expenses: If Tenant shall default in the observance or
performance of any term or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms and provisions in any article of this
lease, after notice if required and upon expiration of any applicable grace
period if any, (except in an emergency), then, unless otherwise provided
elsewhere in this lease, Owner may immediately or at any time thereafter and
without notice perform the obligation of Tenant thereunder, and if Owner, in
connection therewith or in connection with any default by Tenant in the covenant
to pay rent hereunder, makes any expenditures or incurs any obligations for the
payment of money, including but not limited to reasonable attorney's fees, in
instituting, prosecuting or defending any actions or proceeding and prevails in
any such action or proceeding, such sums so paid or obligations incurred with
interest and costs shall be deemed to be additional rent hereunder and shall be
paid by Tenant to Owner within ten (10) days of rendition of any bill or
statement to Tenant therefor, and if Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
<PAGE>
20. No Representations by Owner: Except as set forth in this lease, neither
Owner nor Owner's agent have made any representations or promises with respect
to the physical condition of the building, the land upon which it is erected or
the demised premises, the rents, leases, expenses of operation, or any other
matter or thing affecting or related to the premises except as herein expressly
set forth and no rights, easements or licenses are acquired by Tenant by
implication or otherwise except as expressly set forth in the provisions of this
lease. Tenant has inspected the building and the demised premises and is
thoroughly acquainted with their condition, and agrees to take the same "as is"
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
21. End of Term: Except as set forth in Articles 9 and 10, upon the
expiration or other termination of the term of this lease, Tenant shall quit and
surrender to Owner the demised premises, broom clean, in good order and
condition, ordinary wear excepted, and Tenant shall remove all its property.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of this lease. If the last day of the term of
this lease or any renewal thereof, falls on Sunday, this lease shall expire at
noon on the preceding Saturday unless it be a legal holiday in which case it
shall expire at noon on the preceding business day.
22. Quiet Enjoyment: Owner covenants and agrees with Tenant that upon
Tenant paying the rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 33 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
23. Failure to Give Possession: If Owner is unable to give possession of
the demised premises on the date of the commencement of the term hereof, because
of the holding-over or retention of possession of any tenant, undertenant or
occupants, or if the premises are located in a building being constructed,
because such building has not been sufficiently completed to make the premises
ready for occupancy or because of the fact that a certificate of occupancy has
not been procured or for any other reason, Owner shall not be subject to any
liability for failure to give possession on said date and the validity of the
lease shall not be impaired under such circumstances, nor shall the same be
construed in any way to extend the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for the inability
to obtain possession or complete construction) until after Owner shall have
given Tenant written notice that the Owner is able to deliver possession in the
condition required by this lease. If permission is given to Tenant to enter into
the possession of the demised premises or to occupy premises other than the
demised premises prior to the date specified as the commencement of the term of
this lease, Tenant covenants and agrees that such possession and/or occupancy
shall be deemed to be under all the terms, covenants, conditions and provisions
of this lease except the obligation to pay the fixed annual rent set forth in
page one of this lease. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law. Landlord represents the demised
premises are vacant.
<PAGE>
24. No Waiver: The failure of Owner or Tenant to seek redress for violation
of, or to insist upon the strict performance of any covenant or condition of
this lease or of any of the Rules or Regulations set forth or hereinafter
adopted by Owner, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner of rent and/or additional rent with knowledge of
the breach of any covenant of this lease shall not be deemed a waiver of such
breach and no provision of this lease shall be deemed to have been waived by
Owner unless such waiver be in writing signed by Owner. No payment by Tenant or
receipt by Owner of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the earliest stipulated rent, nor
shall any endorsement or statement of any check or any letter accompanying any
check or payment as rent be deemed an accord and satisfaction, and Owner may
accept such check or payment without prejudice to Owner's rights to recover the
balance of such rent or pursue any other remedy in this lease provided. No act
or thing done by Owner or Owner's agent during the term hereby demised shall be
deemed in acceptance of a surrender of said premises and no agreement to accept
such surrender shall be valid unless in writing signed by Owner. No employee of
Owner or Owner's agents shall have any power to accept the keys of said premises
prior to the termination of the lease and the delivery of keys to any such agent
or employee shall not operate as a termination of the lease or a surrender of
the premises.
25. Waiver of Trial by Jury: It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any proceeding or
action for possession including a summary proceeding for possession of the
premises, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding, including a counterclaim under Article 4
except for statutory mandatory counterclaims.
<PAGE>
26. Inability to Perform: This lease and the obligation of Tenant to pay
rent hereunder and perform all of the other covenants and agreements hereunder
on part of Tenant to be performed shall in no way be affected, impaired or
excused because Owner is unable to fulfill any of its obligations under this
lease or to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repair,
additions, alterations or decoration or is unable to supply or is delayed in
supplying any equipment, fixtures or other materials if Owner is prevented or
delayed form so doing by reason of strike or labor troubles, government
preemption or restrictions or by reason of any rule, order or regulation of any
department or subdivision thereof of any government agency or by reason of the
conditions of which have been or are affected, either directly or indirectly, by
war or other emergency, or when, in the judgement of Owner, temporary
interruption of such services is necessary by reason of accident, mechanical
breakdown, or to make repairs, alterations or improvements.
27. Bills and Notices: Except as otherwise in this lease provided, a bill,
statement, notice or communication which Owner may desire or be required to give
to Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail addressed
to Tenant at the building of which the demised premises form a part or at the
last known residence address or business address of Tenant or left at any of the
aforesaid premises addressed to Tenant, and the time of the rendition of such
bill or statement and of the giving of such notice or communication shall be
deemed to be the time when the same is delivered to Tenant, mailed, or left at
the premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
28. Water Charges: If Tenant requires, uses or consumes water for any
purpose in addition to ordinary lavatory purposes (of which fact Tenant
constitutes Owner to be the sole judge) Owner may install a water meter and
thereby measure Tenant's water consumption for all purposes. Tenant shall pay
Owner for the cost of the meter and the cost of the installation thereof and
throughout the duration of Tenant's occupancy Tenant shall keep said meter and
installation equipment in good working order and repair at Tenant's own cost and
expense. Tenant agrees to pay for water consumed, as shown on said meter as and
when bills are rendered. Tenant covenants and agrees to pay the sewer rent,
charge or any other tax, rent, levy or charge which now or hereafter is
assessed, imposed or a lien upon the demised premises or the realty of which
they are part pursuant to law, order or regulation made or issued in connection
with the use, consumption, maintenance or supply of water, water system or
sewage or sewage connection or system. The bill rendered by Owner shall be
payable by Tenant as additional rent. If the building or the demised premises or
any part thereof be supplied with water through a meter through which water is
also supplied to other premises Tenant shall pay to Owner as additional rent, on
the first day of each month, _________________0% ($___________) of the total
meter charges, as Tenant portion. Independently of and in addition to any of the
remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may sue
for and collect any monies to be paid by Tenant or paid by Owner for any of the
reasons or purposes hereinabove set forth.
<PAGE>
29. Sprinklers: Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the Insurance
Services Office or any bureau, department or official of the federal, state or
city government require or recommend the installation of a sprinkler system or
that any changes, modifications, alterations, or additional sprinkler heads or
other equipment be made or supplied in an existing sprinkler system by reason of
Tenant's business, or the location of partitions, trade fixtures, or other
contents of the demised premises, or for any other reason, or if any such
sprinkler system installations, changes, modifications, alterations, additional
sprinkler heads or other such equipment, become necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate set by any said Exchange or by any fire
insurance company, Tenant shall, at Tenant's expense, promptly make such
sprinkler system installations, changes, modifications, alterations, and supply
additional sprinkler heads or other equipment as required whether the work
involved shall be structural or non-structural in nature. Tenant shall pay to
Owner as additional rent the sum of _____________ $__________, on the first day
of each month during the term of this lease, as Tenant's portion of the contract
price for sprinkler supervisory service.
30. Elevators, Heat, Cleaning: Owner shall, if and insofar as existing
facilities permit furnish heat to the demised premises, when and as required by
law, on business days from 8:00 a.m. to 10:00 p.m. and on Saturday and Sundays
from 8:00 a.m. to 7:00 p.m. Tenant shall at Tenant's expense, keep demised
premises clean and in order, to the satisfaction to Owner, and if demised
premises are situated on the street floor, Tenant shall, at Tenant's own
expense, and keep said sidewalks and curbs free from snow, ice, dirt and
rubbish. Tenant shall pay to Owner the cost of removal of any of Tenant's refuse
and rubbish from the building. Bills for the same shall be rendered by Owner to
Tenant at such times as Owner may elect and shall be due and payable when
rendered, and the amount of such bills shall be deemed to be, and be paid as,
additional rent. Tenant shall, however, have the option of independently
contracting for the removal of such rubbish and refuse in the event that Tenant
does not wish to have same done by employees of Owner. Under such circumstances,
however, the removal of such refuse and rubbish by others shall be subject to
such rules and regulations as, in the judgment of Owner, are necessary for the
proper operation of the building.
<PAGE>
31. Security: Tenant has deposited with Owner the sum of nineteen thousand
($19,000) dollars as security for the faithful performance and observance by
Tenant of the terms, provisions and conditions of this lease; said security
shall be held in an interest bearing account (passbook savings rate) and the
interest shall be paid to Tenant annually, less the 1% administrative fee
permitted to be retained by Landlord. It is agreed that in the event Tenant
defaults in respect of any of the terms, provisions and conditions of this
lease, including, but not limited to, the payment of rent and additional rent,
Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency accrued before or after summary
proceedings or other re-entry by Owner. In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this lease, the security shall be returned to Tenant after the date fixed as the
end of the Lease and after delivery of entire possession of the demised premises
to Owner. In the event of a sale of the land and building or leasing of the
building, of which the demised premises form a part, Owner shall have the right
to transfer the security to the vendee or lessee and Owner shall thereupon be
released by Tenant from all liability for the return of such security, and
Tenant agrees that the provisions hereof shall apply to every transfer or
assignment made of the security to a new Owner. Tenant further covenants that it
will not assign or encumber or attempt to assign or encumber the monies
deposited herein as security and that neither Owner nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance.
32. Captions: The Captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this lease
nor the intent of any provision thereof.
33. Definitions: The term "Owner" as used in this lease means only the
Owner, or the mortgagee in possession, for the time being of the land and
building (or the Owner of a lease of the building or of the land and building)
of which the demised premises form a part, so that in the event of any sale or
sales of said land and building or of said lease, or in the event of a lease of
said building, or of the land and building, the said Owner shall be and hereby
is entirely freed and relieved of all covenants and obligations of Owner
hereunder, and it shall be deemed and construed without further agreement
between the parties of their successors in interest, or between the parties and
the purchaser, at any such sale, or the said lessee of the building, or the land
and building, that the purchase or the lessee of the building has assumed and
agreed to carry out any and all covenants and obligations of Owner hereunder.
The words "re-enter" and "re-entry" as used in this lease are not restricted to
their technical legal meaning. The term "business days" as used in this lease
shall exclude Saturdays, Sundays and all days designated as holidays by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service. Wherever
it is expressly provided in this lease that consent shall not be unreasonably
withheld, such consent shall not be unreasonably delayed.
34. Adjacent Excavation-Shoring: If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem necessary to preserve the wall or the building of which
demised premises form a part from injury or damage and to support the same by
proper foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
<PAGE>
35. Rules and Regulations: Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with the
Rules and Regulations and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rent or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
Landlord agrees not to discriminate against Tenant in its enforcement of any
Rules and Regulations.
36. Glass: Owner shall replace, at the expense of Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Owner may insure, and keep insured, at Tenant's expense, all
plate and other glass in the demised premises for and in the name of Owner.
Bills for the premiums therefor shall be rendered by Owner to Tenant at such
times as Owner may elect, and shall be due from, and payable by, Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid as,
additional rent.
37. Pornographic Uses Prohibited: Tenant agrees that the value of the
demised premises and the reputation of the Owner will be seriously injured if
the premises are used for any obscene or pornographic purposes or any sort of
commercial sex establishment. Tenant agrees that Tenant will not bring or permit
any obscene or pornographic material on the premises, and shall not permit or
conduct any obscene, nude, or semi-nude live performances on the premises, nor
permit use of the premises for nude modeling, rap sessions, premises, nor permit
use of the premises for nude modeling, rap sessions, or as a so called rubber
goods shops, or as a sex club of any sort, or as a "message parlor." Tenant
agrees further that Tenant will not permit any of these uses by any sublessee or
assignee of the premises. This Article shall directly bind any successors in
interest to the Tenant. Tenant agrees that if at any time Tenant violates any of
the provisions of this Article, such violation shall be deemed a breach of
substantial obligation of the terms of this lease and objectionable conduct.
Pornographic material is defined for purposes of this Article as any written or
pictorial manner with prurient appeal of any objects of instrument that are
primarily concerned with lewd or prurient sexual activity. Obscene material is
defined here as it is in Penal law ~235.00.
<PAGE>
38. Estoppel Certificate: Tenant, at any time, and from time to time, upon
at least 10 days prior notice by Owner, shall execute, acknowledge and deliver
to Owner, and/or to any other person, firm or corporation specified by Owner, a
statement certifying that this lease is unmodified and in full force and effect
as there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates which the rent and
additional rent have been paid, and stating whether or not there exists any
defaults by Owner under this lease, and, if so, specifying each such default.
Landlord will furnish a similar certificate to Tenant upon request.
39. Successors and Assigns: The covenants, conditions and agreements
contained in this lease shall bind and insure to the benefit of Owner and Tenant
and their respective heirs, distributees, executors, administrators, successors,
and except as otherwise provided in this lease, their assigns. Tenant shall look
only to Owner's estate and interest in the land and building for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) against Owner in the event of any default by Owner hereunder,
and no other property or assets of such Owner (or any partner, member, officer
or director thereof, disclosed or undisclosed), shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this lease, the relationship of Owner and
Tenant hereunder, or Tenant's use and occupancy of the demised premises.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
Witness for Owner: BENDER REALTY
_______________________ By:_____________________________
Witness for Tenant: HARVEY ELECTRONICS, INC.
_______________________ By:_____________________________
<PAGE>
ACKNOWLEDGMENTS
CORPORTE OWNER
STATE OF NEW YORK ss.:
County of
On this _______ day of ____________________ 19__, before me personally came
__________________________________________ to me known, who being by me duly
sworn, did depose and say that he resides in
_________________________________________ that he is the
__________________________ of _________________________________ the corporation
described in and which executed the foregoing instrument, as OWNER; that he
knows the seal of said corporation; the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
---------------------------------
CORPORTE TENANT
STATE OF NEW YORK ss.:
County of
On this _______ day of ____________________ 19__, before me personally came
__________________________________________ to me known, who being by me duly
sworn, did depose and say that he resides in
__________________________________________ that he is the
__________________________ of _________________________________ the corporation
described in and which executed the foregoing instrument, as TENANT; that he
knows the seal of said corporation; the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
---------------------------------
<PAGE>
INDIVIDUAL OWNER
STATE OF NEW YORK ss.:
County of
On this _______ day of ____________________ 19__, before me personally came
__________________________________________ to me known, and known to me to be
the individual described in and who, as OWNER; executed the foregoing instrument
and acknowledged to me that _______________________________ he executed the
same.
---------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK ss.:
County of
On this _______ day of ____________________ 19__, before me personally came
__________________________________________ to me known, and known to me to be
the individual described in and who, as TENANT; executed the foregoing
instrument and acknowledged to me that _______________________________ he
executed the same.
---------------------------------
<PAGE>
Rent Schedule
<TABLE>
<CAPTION>
Dates Annual Rent Monthly Rent
<S> <C> <C>
January 1-December 31, 1999 $ 114,000 $ 9,500.00
January 1-December 31, 2000 117,420 9,785.00
January 1-December 31, 2001 120,943 10,078.58
January 1-December 31, 2002 124,571 10,380.92
January 1-December 31, 2003 128,308 10,692.33
January 1-December 31, 2004 132,157 11,013.08
January 1-December 31, 2005 136,122 11,343.50
First Option Period
January 1-December 31, 2006 140,206 11,683.83
January 1-December 31, 2007 144,412 12,034.33
January 1-December 31, 2008 148,744 12,395.33
</TABLE>
<PAGE>
RIDER ATTACHED TO AND MADE A PART OF STORE LEASE
DATED DECEMBER 3, 1998
Premises: 927 Broadway, New York New York
BENDER REALTY COMPANY (Landlord) and
HARVEY ELECTRONICS INC. (Tenant)
40.01 The rent (the "Basic Rent" or "Fixed Rent") which Tenant agrees to
pay in advance monthly installments shall be due and payable on the first day of
each and every calendar month beginning on the Rent Commencement Date,
continuing through the Lease term and shall be paid at the following rates:
TERM MONTHLY ANNUALLY
For year 1 at the annual rate of $114,000 payable in equal monthly
installments of $9,500.00 per month which shall be the "BASE RENT" as
hereinafter referred to in this lease. Notwithstanding the foregoing, there
shall be a rent concession of one month of free rent applied to the first month
of Tenant's possession. Landlord waives payment of rent for said month but this
does not relieve tenant of its other obligations under this lease. Furthermore,
there shall be a partial rent concession applied to the following four months of
$2,000.00 per month resulting in rental payments due in the amount of $7,500.00
per month for months 2 through 5 and rent to begin at the rate of $9,500.00 per
month for the remainder of the first year of this lease. See Paragraph 75.
A rent schedule reflecting the yearly rent shall be annexed hereto.
The commencement date shall be the date that Landlord delivers to the
Tenant keys to the Premises and said date will be January 1, 1999. Rent shall
commence as of February 1, 1999.
The term of this tenancy shall be seven (7) years. Tenant shall have at its
option the right to renew and extend the Lease for an additional three (3) years
at the same annual rent increase of three (3%) percent as applies to the initial
term as shown on the annexed Schedule. Tenant shall have at its option the right
to renew and extend the lease for an additional two (2) years subsequent thereto
at a fair market value rent as determined in good faith by Landlord and Tenant.
If Landlord and Tenant cannot agree, each shall appoint a licensed real estate
broker having at least ten (10) years leasing experience in the downtown New
York City area, and said brokers shall appoint a third licensed real estate
broker having the said qualification and said brokers shall determine the fair
market rent for the final two (2) years of the option period.
<PAGE>
This lease may be cancelled by Tenant at any time after December 31, 2003
without cost but only upon written notice received by Landlord at least six (6)
months prior to the date of cancellation.
[The terms of this Rider control over the printed form and inserts.]
40.02 SECURITY DEPOSIT:
Upon the execution of this lease, the Tenant shall deposit the sum of
$19,000.00, which sum Landlord agrees to hold as security for the faithful
performance of the Tenant's duties and obligations hereunder. The security
deposit shall be held in an annual interest bearing account (passbook savings
rate) and interest shall be paid to Tenant at the conclusion of the Tenancy upon
the same terms as the return of security deposit less a 1 percent administrative
fee retained by Landlord. Landlord shall credit 1 month of rent to Tenant by
reduction of security deposit after thirty (30) months of Tenancy, i.e. July 1,
2001.
40.03 Tenant shall accept the Demised Premises "as is" condition.* It is
understood and agreed that there are no repairs, alterations or decorating of
any kind to be done by the Landlord.
40.04 Throughout the lease term Tenant, at Tenant's expense, shall, with
Landlord's reasonable prior approval, make all non-structural necessary repairs
to the interior store front of the Demised Premises. Landlord shall be
responsible for all structural repairs, including, without limitation, the roof
and for the building systems, i.e., plumbing, heating, etc.
40.05 Tenant agrees to keep the premises clean and free of debris and
rubbish.
41.01 As used in this Article the words and terms which follow mean and
include the following:
(a) "Tax Year" shall mean each period of twelve months commencing on the
first day of July of each such period in which occurs any part of the term of
this Lease, or such other fiscal year as hereafter may be duly adopted as the
fiscal year for real estate tax purpose of the taxing agency or authority having
jurisdiction.
<PAGE>
(b) "Real Estate Taxes" shall mean any and all taxes, fees, rates licenses,
penalties (unless due to landlord's delay) and assessments (including, but not
limited to special and extraordinary assessments) imposed upon the Building and
the Lands of which the Demised Premises forms a part and any change in the
method of taxation which results in any franchise, income, rent, profit or other
tax, however designated, being levied against Landlord and/or the owner of the
lands and buildings in substitution of, or in addition to any Real Estate Tax
for the purpose hereof.
41.02 Tenant shall pay to landlord as additional rent for the Demised
Premises for such Tax Year, thirty (30%) percent of all Real Estate taxes
assessed to the building for which the premises forms a part, over and above the
real estate taxes for the "Base Year" of calendar year 1999. In the first year
of tenancy, the Tenant shall pay its proportionate share of the aforementioned
tax increase assessment based upon the portion of the year that it was a tenant.
Notwithstanding anything contained herein to the contrary, Tenant shall not pay
any tax increases for any period prior to January 1, 2000.
41.03 Any adjustments payable by reason of the provisions of section 41.02
hereof shall be payable within fifteen (15) days after Landlord shall furnish to
Tenant a Statement or copy of the bill pertaining to such charge with respect to
Real Estate Taxes for any Tax Year and the Base Year. Tenant may pay such
increases in monthly installments, so long as Landlord can pay in installments.
41.04 In the event (i) that the date of the expiration or other termination
of this Lease shall be a day other than the last day of a Tax Year, or (ii) if
any increase or decrease in the Area of the Demised Premises (as may be provided
herein), then in each such event in applying the provisions of this Article with
respect of any Tax Year in which such event shall have occurred, appropriate
adjustments shall be made to reflect the occurrence of such event on a basis
consistent with the principles underlying the provisions of this Article taking
into consideration (a) the portion of such Tax Year which shall have elapsed
prior to the date of such expiration or termination or (b) in the case of any
such increase or decrease, the portion of the Demised Premises to which the same
relate. Similarly, if the terms of this Lease shall begin or end on a date which
is not the first (with respect to Term Commencement) or the last (with respect
to expiration or termination) day of a calendar month, appropriate adjustments
shall be made to Fixed Rent and additional rent for the first or last month of
the term, as the case may be, to reflect the portion of a month falling within
the term of this lease.
41.05 Payments accruing during the lease term, shall be made pursuant to
this Article notwithstanding the fact that a Statement or Bill is furnished to
Tenant after the expiration of the term of this Lease.
<PAGE>
41.06 In case the Real Estate Taxes for any Tax Year, or part thereof shall
be reduced before Tenant shall have paid Tenant's Proportionate Share in respect
of such Tax Year, pursuant to Section 41.02 hereof, the Real Estate Taxes for
such Tax Year shall be deemed to include any expenses, including counsel fees
(at percentages outlined in paragraph 41.02), incurred by Landlord in connection
with reducing the assessed valuation and/or in obtaining such reduction.
41.07 In case the Real Estate Taxes for any Tax year or part thereof shall
be reduced after Tenant shall have paid Tenant's Proportionate Share in respect
of such Tax year pursuant to Section 41.02 hereof, Tenant shall be entitled to
receive Tenant's Proportionate Share of such reduction after Landlord's receipt
of a refund or credit for said reduction, less Landlord's reasonable attorney's
fees incurred by Landlord in connection with obtaining said reduction.
41.08 All taxes, charges, costs and expenses which the Tenant is required
to pay under any terms of this Lease, together with all interest and penalties
that may accrue thereon, in the event of the Tenant's failure to pay such
amounts and all damages, costs and expenses which the Landlord may incur by
reason of any default of the Tenant or failure on the Tenant's part to comply
with the terms of this Lease, shall be deemed to be additional rent and, in the
event of nonpayment by the Tenant, the Landlord shall have all the rights and
remedies with respect thereto as the Landlord has for the nonpayment of the
fixed rent. If Landlord does not receive full payment for rent (i.e., Fixed Rent
and/or additional rent) within fifteen (15) days after the date on which payment
is due Tenant shall be liable to Landlord for the interest on late payments at a
rate equal to ten percent per year, to the date on which Landlord collects
payment in full. However, if the collection of interest at the rate specified
herein would be usurious or otherwise unenforceable, interest on late payments
shall accrue at the highest lawful rate.
42. Tenant shall be solely responsible for the payment of ALL utility bills
for electricity. Tenant's use of utility service shall not exceed the capacity
of existing installations, or such installations as Tenant may hereafter
construct in compliance with this Lease Agreement and applicable laws, rules and
regulations. Landlord shall not be liable for the establishment, commencement,
interruption, payment or discontinuation of utility service, nor shall Landlord
be liable for any changes in the character, quantity, or quality of utility
service, even if such changes make same unsuitable for Tenant's purposes
(provided not through landlord's negligence). To the extent that the utility
company serving the Demised Premises is not responsible for furnishing,
repairing, replacing and maintaining installations providing utility service to
the Demised Premises, and to the extent (and to the physical point) that such
installations serve Tenant exclusively, Tenant shall be responsible therefor. As
used herein, the term "installations" shall include, but shall not be limited
to, feeders, risers, pipes and wiring. Landlord represents and warrants that
there is a separate meter to measure Tenant ' 5 electricity usage with Con
Edison.
<PAGE>
In the event that Tenant desires to install separate meters for gas or
heating, the Tenant may do so at its option and sole cost at any time during the
leased period. Landlord is responsible for furnishing heat to the demised
premises at Landlord ' 5 cost and expense. In the event that Tenant desires to
install separate heating or air-conditioning service or systems, then Tenant may
do so at its option and sole cost and Tenant shall be responsible to pay for all
utility bills received therefor and Tenant shall install separate meters for
same.
In the event that Tenant determines that the existing heating system is
insufficient for its needs, it shall be required to obtain Landlord's permission
to add systems which use heat from the existing systems and Landlord shall not
unreasonably withhold permission upon the advice and opinion of its heating
engineer regarding the capacity of the existing systems and the safety of adding
additional use to it.
Tenant shall notify Landlord of the amount of electric power required for
its operations which amount is represented to be [insert] amps per square foot
and Landlord bear the expense of installing additional capacity into Tenant's
premises in an amount not to exceed $2,000.00 if so required.
43. If the Landlord or any successor in interest to an individual,
corporation, joint venture, tenancy in common, co-partnership, unincorporated
association, or other unincorporated aggregate of individuals, then anything
contrary to this elsewhere notwithstanding, Tenant shall look solely to the
interest and property of the Landlord in the land and building of which the
leased premises are a part for the satisfaction of Tenant's remedies for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default or breach by Landlord with respect
to any of the terms, covenants or conditions of the lease to be observed and/or
process) requiring the payment of money by the Landlord in the event of any
default or breach by Landlord with respect to any of the terms, covenants or
conditions of the lease to be observed and/or performed by Landlord, and no
other property or assets of Landlord shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies.
43.01 Landlord represents that it is the fee owner of the Premises.
44. All notices required herein shall be in writing addressed to Landlord
and Tenant at the addresses set forth herein, and shall be sent by certified
mail, return receipt requested. Notices to Tenant shall be delivered or
addressed to Tenant at the Demised Premises. The date of delivery and/or/mailing
3 days after shall be deemed to be the date on which notice is given. Either
party may change the address to which notices to it are to be sent on seven (7)
days' prior notice.
<PAGE>
45. Landlord and Tenant warrant to each other that they had no dealings in
connection with the demised premises with any real estate agent except for
Jeffrey Tendler and New Spectrum Realty Services Inc. Tenant shall pay any
commissions due to New Spectrum. Each party agrees to indemnify and defend the
other on demand against all claims made by brokers and agents for fees or
commissions with respect to this Lease resulting from the indemnifying party's
breach of warranty hereunder. Landlord shall be responsible to pay commissions
due to Jeffrey Tendler.
46.01 From and after the date the Demised Premises are made available for
Tenant's Occupancy until the end of the Lease term, Tenant agrees to maintain in
full force, at its own cost and expense, one or more policies of comprehensive,
general public liability and property damage insurance, insuring against
liability for injury to person and/or properties (and death) to person or
persons in or about the Demised Premises with standard commercial liability
coverage. The limits of liability of such insurance shall not be less than a
combined single limit of $1,000,000.00 for (injury or death) to one or more than
one person arising from any one occurrence, and not less than $1,000,000.00 with
respect to damage to property. In no event shall the limits of said policies be
considered as limiting the liability of Tenant under this lease.
46.02 Tenant agrees to indemnify, defend and hold harmless Landlord or any
person or persons in privity of estate or contract with Landlord with respect to
the Demised Premises from and against any and all claims and demands of third
parties (including, but not limited to, those for death, for personal injuries,
or for loss or damage to property) occurring in or arising directly or
indirectly out of or in connection with the use and occupancy of the Demised
Premises, the business conducted in the Demised Premises, or (without limiting
the foregoing) as a result of any acts, omissions or negligence of Tenant, or
their respective contractors licensees, invitees, agents, servants, employees,
subtenants, or other persons in or about the Demised Premises, and from and
against all costs, expenses and liability occurring in connection with any such
claim or proceeding brought thereon. Tenant shall reimburse, Landlord as
additional rent for any increase in insurance premium incurred by Landlord
relative to Landlord's insurance policies insuring the Building which may result
due to the nature of Tenant's business.
Tenant shall cause Landlord and the managing agent to be named as an
additional insured on each policy of insurance required herein and shall arrange
and cause to be procured insurance on behalf of Landlord which names Landlord
and the managing agent as an additional insured and shall deliver a certificate
of insurance naming Landlord and the managing agent as additional insured for
both personal injury, liability and property loss to Landlord prior to taking
possession hereunder. The failure to procure all insurance required herein after
twenty (20) days written notice to Tenant including the failure to name Landlord
as an additional insured on Tenant's insurance policies shall be considered to
be a material breach of this Lease.
<PAGE>
46.03 The original of each policy, and the original of all renewal policies
or certificates, shall be delivered to Landlord within fifteen (15) days of
inception of same. If any policy required to be delivered hereunder shall not be
delivered, or if any such policy shall for any reason be canceled after twenty
(20) days written notice to Tenant, Landlord may procure and pay for the same,
and the amount so paid shall become due and payable as additional rent with the
next installment of fixed rent; the foregoing shall not constitute a waiver or
release of any other rights and remedies of Landlord upon a default by Tenant
hereunder.
46.04 Tenant shall cooperate with Landlord and any mortgagee in connection
with the collection of any insurance proceeds that may be due in the event of
loss and shall execute and deliver to Landlord such proofs of loss and any other
instruments that may be required for the purpose of facilitating the recovery of
any insurance proceeds, and in the event that Tenant shall fail to do so,
Landlord, in addition to any other remedies, as the agent or attorney in fact of
Tenant, may execute and deliver any such instruments, and Tenant hereby
irrevocably nominates, constitutes and appoints Landlord as Tenant's legal
attorney in fact for such purpose, hereby ratifying all that Landlord may do as
such attorney in fact of Tenant.
47. Any signs which may be hereafter placed by Tenant on the exterior of
the Demised Premises or visible from the outside of the Demised Premises must
first be submitted to Landlord for Landlord's approval (which approval shall not
be unreasonably withheld) and must conform to all applicable governmental laws
and regulations. On the expiration or earlier termination of the term hereof,
Tenant, at Tenant's sole cost and expense shall promptly remove all signs
installed or displayed by Tenant and, at Tenant's sole cost and expense, shall
promptly repair in good and workmanlike manner in conformity with law and all
applicable provisions of this Lease, all damage to the Building caused by such
removal. Tenant shall pay all governmental charges imposed for the usage of any
signs.
Landlord consents to the sign proposed by Tenant. The sign specifications
annexed hereto as Exhibit B are incorporated herein by this reference Tenant
agrees that the sign shall not extend to a location which blocks or interferes
with the windows of the second floor Tenant. Landlord shall remove existing
signs prior to January 10, 1999.
Tenant's signs shall not extend above that portion of the Premises to which
this lease entitles Tenant to possession.
48. In the event the plate glass on the Demised Premises is damaged or
destroyed, Tenant shall repair or replace same at its sole cost and expense. In
the event Tenant fails to do so within forty eight hours, Landlord may do so,
and bills for the cost thereof shall be rendered by Landlord to Tenant and shall
be due from the Tenant upon presentation, payable together with the next monthly
installment of rent to be due hereunder, and the amount of such bill shall be
deemed to be additional rent hereunder and shall be payable and collectible in
the same manner as the Fixed Rent provided for herein.
<PAGE>
49. Anything herein contained to the contrary notwithstanding, if after
default in the payment of rent, or a violation of any other provision of this
Lease, or upon the expiration of this Lease, the Tenant moves out or is
dispossessed and fails to remove any of its property prior to such default,
removal expiration of Lease, or prior to the issuance of a final order of
execution of the warrant, then and in that event the said property shall be
deemed abandoned by said Tenant and shall become the property of Landlord.
50. Landlord represents that a sprinkler system is existing and in good
working order in the Demised Premises. In the event that Tenant's alterations to
the Premises require or make necessary additions or changes to the existing
sprinkler system, Tenant shall be responsible to make such installations,
changes and modifications at Tenant's sole cost and expense.
51. Article 11 of this Lease is modified to the following extent. If Tenant
shall desire to assign this Lease or sublet the Leased Premises in whole or in
part, Landlord will not unreasonably withhold or delay its consent thereto
provided:
(A) Tenant shall give Landlord at least ten (10) days' prior written notice
of its desire to assign or sublet, which notice shall include reliable
information indicating that the proposed assignee or subtenant is reputable,
financially responsible and of good and sound financial condition and shall use
the Premises for the same or a similar or related use permitted hereunder for
Tenant.
(B) Landlord's consent is conditional upon Tenant delivering to Landlord
the following:
1) The assignee or sublessee shall be of sufficient financial worth and
soundness adequate to operate such business.
2) A counterpart executed copy of such assignment, which shall include an
assumption by the assignee, from and after the effective date of such
assignment, of the performance and observance of the covenants and conditions in
this Lease contained on Tenant's part to be performed and observed; or
3) If a sublease be involved, a counterpart executed copy of the proposed
sublease, which sublease shall specify that the premises to be sublet shall be
use solely for the same use permitted hereunder for Tenant, that such sublease
shall not be assigned, nor the premises further sublet, nor such use changed
without the prior written consent of the Landlord as herein provided and not to
be unreasonably withheld or delayed;
<PAGE>
4) Tenant has the right to assign this Lease or sublet all or part of the
Demised Premises without further consent by Landlord to Bang & Olufsen upon the
terms contained in paragraph 77 hereof.
(C) Tenant shall have no right to sublet or assign the Demised Premises if
it is in default under this Lease after receipt of notice of default and time to
cure. No assignment or sublease permitted hereunder shall relieve Tenant or any
subsequent assignee of liability to Landlord for breach of this Lease.
52. Tenant shall permit Landlord to erect, use, maintain and repair walls,
floors and other structures, pipes, ducts, cables, conduits, plumbing, vents and
wires in, to and through the premises as and to the extent that the same may be
necessary for the proper operation and maintenance of the Building in which the
Demised Premises are located or to the extent necessary to accommodate the
requirements of the other tenants and landlord. Landlord shall use its best
efforts to avoid unreasonable interference, damage or change with Tenant's use
of the premises.
53.01 Tenant shall, at Tenant's own cost and expense, keep all drains or
waste pipes and sewer and connections with mains, free from obstruction to the
satisfaction of all authorities having jurisdiction. Tenant shall be liable for
any damage blockage emanating from the Demised Premises, unless caused by the
Landlord, its agents, employees, assigns or other tenants in the building.
53.02 Tenant shall be responsible for and pay the cost of removal of its
own refuse.
53.03 Tenant shall at no time leave any merchandise, supplies, or refuse in
the hallways or other common portions of the Building. Tenant covenants that all
refuse, garbage and rubbish shall be kept in proper containers, securely
covered. Tenant further covenants that no refuse and/or garbage shall be
permitted to remain on the sidewalks adjacent to the building. Storage and
removal of rubbish and refuse by Tenant shall be subject to such reasonable
rules and regulations as in Landlord's reasonable judgement are necessary for
the proper operation of the Building.
53.04 Tenant's installation of equipment shall comply with all laws, rules
and regulations of all governmental authorities including the Department of
Health and all insurance companies and shall not cause the dissemination of
unpleasant odors. Nor shall Tenant store its rubbish and garbage in a manner
which will cause noxious and/or unpleasant odors form emanating from its
premises and Tenant shall do all things necessary to maintain said Demised
Premises in a neat and orderly manner.
<PAGE>
53.05 Tenant shall not place any signs, displays, stands, equipment,
merchandise, food or beverages of any kind whatsoever on the sidewalk in front
of the Building or utilize such sidewalk for any purpose whatsoever, except for
ingress or egress to and from the Demised Premises, except as permitted by law.
53.06 Tenant covenants and agrees that it will cause the Demised Premises
to be free at all times of all roaches, waterbugs, other insects and vermin, and
that it will take whatever, reasonable precautions that Landlord deems necessary
to prevent any such vermin or insects from existing in the Demised Premises or
permeating into any other parts of the Building as a result of Tenant's business
operations.
54. OMIT.
55. In any instance where Landlord brings an action or summary proceeding
for any default of the Tenant under the Lease, whether for the non-payment of
rent or additional rent or any other default, Landlord shall be entitled to
reasonable attorney's fees in the event that it is successful; such attorney's
fees may be claimed as additional rent in the said action. It is specifically
agreed that reasonable attorney's fees for any one action or proceeding plus
actual disbursements shall not be less than $750.00.
56. In addition to and not in lieu of paragraph 3 of the printed form, it
is agreed that any alterations consented to by Landlord shall be subject to the
following terms and conditions:
a) That all such Tenant's work shall comply with all applicable provisions
of this Lease and all applicable governmental rules and regulations and the
rules and regulations of any Board of Fire Underwriters or similar agency having
jurisdiction;
b) Tenant shall submit in letter form a description of its plans and
specifications for the alteration and renovation of the Demised Premises. Upon
their preparation, Tenant shall submit blueprints and plans for Landlord's
approval, which approval shall not be unreasonably withheld or delayed.
c) That prior to engaging in or commencing such Tenant's work, Tenant will
furnish Landlord with Waivers of Mechanics Liens duly executed by each and every
contractor sub-contractor who, in any way, is involved with the performance of
such Tenant's work;
<PAGE>
1. In the event that mechanic's lien(s) shall be filed against the
premises, the Tenant shall within 60 days, at its own cost and expense, cause
such lien(s) to be discharged by filing a bond or bonds required by law for that
purpose, provided the amount of lien exceeds $2,000.00.
d) That Tenant, at its expense, shall procure each and every permit,
license, franchise, or other authorization required for performance of such
Tenant's work;
e) That promptly following the completion of all of said Tenant's work, and
as soon as reasonably feasible, Tenant shall obtain and furnish to Landlord all
appropriate certifications from all authorities having jurisdiction to the
effect that all such Tenant's work has been performed and completed in
accordance with the filed plans, if any, and with all laws, rules regulations,
and orders of said authorities having jurisdiction, or sufficient proof by
letter from a licensed architect;
f) With respect to any alteration of the storefront, the alteration must be
in good taste and image, use quality materials, and otherwise be consistent in
appearance with the use of the rest of the building.
g) Tenant or through its contractors shall maintain adequate insurance such
as Worker's Compensation, Disability, Fire and Liability coverage. Proof of same
shall be forwarded to Landlord prior to commencement of Tenant's work.
h) All contractors and subcontractors hired by Tenant for repair and
renovation and alteration of the Premises shall comply with the provisions of
paragraphs 46.01, 46.02 and 46.03 to the same extent that Tenant is required and
bound thereby. See Paragraph 78 hereof.
57. Tenant shall be responsible for maintaining the sidewalk in front of
premises, which maintenance shall include the removal of snow, application of
salt, removal of garbage, debris, sweeping the sidewalk and 18" into the street
and do whatever is required to maintain same in a safe and unobstructed manner,
except as otherwise provided for herein. Violations or summonses of any kind and
nature shall be the sole liability of the Tenant, provided same accrued during
tenancy and. due to Tenant's acts or omissions. Tenant agrees to indemnify and
hold Landlord harmless from any resulting fines or judgments that may be imposed
upon the Landlord in connection with the sidewalk maintenance. (Provided
landlord is not negligent).
<PAGE>
58. Tenant agrees to pay for all sidewalk repairs occasioned by and caused
by its own use fault or negligence. Except for the foregoing, Landlord shall
repair the sidewalk and replace the sidewalk when necessary or required by law.
59. OMIT
60. If the Demised Premises shall be acquired or condemned by eminent
domain for any public or quasi-public purpose in whole or in part, Tenant shall
have no claim against the Landlord and expressly waives all claims to any
condemnation award for any taking, whether whole or partial and whether for
diminution in value of leasehold or to the fee, although Tenant shall have the
right, to the extent that same shall not reduce Landlord's award, to claim from
the condemnor, but not from Landlord, such compensation as may be recoverable by
Tenant in its own right for damage to Tenant's business and fixtures, if such
claim can be made separate and apart from any award to Landlord and without
prejudice to Landlord's award, provided Landlord's award does not include any
value for Tenant's leasehold, fixtures or goodwill
61. If Tenant shall store flammable or combustible material or any cooking
appliances, Tenant shall install chemical extinguishing devices (such as ansul)
approved by the applicable fire insurance rating organization and shall keep
these devices under service as required by the fire insurance rating
organization; and shall also install a gas cut-off, if gas is used in the
Demised Premises. If Tenant fails to install said installations, Landlord may do
so and bill Tenant as additional rent. If Landlord does not elect to make such
installations, Tenant shall pay as additional rent any increase in Landlord's
insurance premium attributable to the failure to make such installation.
62. If any term or provision of this lease or the application thereof to
any person or circumstances shall, to any extent, be invalid or unenforceable,
the remainder of this Lease shall remain in full force and effect and
enforceable to the fullest extent of the law.
64. Tenant shall provide access to its Demised Premises through and by the
interior door located adjacent to the elevator and which opens from the elevator
and stairs area to the Demised Premises. Access shall be provided to Landlord or
Landlord's representative for purposes of entry to the Premises to allow for
entry to the basement for emergency boiler maintenance and other necessary
entries as required.
65. OMIT
<PAGE>
66. If Tenant shall default after receipt of written notice and expiration
of all cure periods in the timely payment of the fixed rent or additional rent,
and any legal proceedings shall commence more than two times in any calendar
year then, notwithstanding that such defaults shall have each been cured within
the applicable period, if any, as above provided any further similar default
shall be deemed to be deliberate and Landlord thereafter may serve three (3)
days notice of termination upon Tenant without affording to Tenant an
opportunity to cure such further default and Tenant shall remain liable for all
damages and rent due during the period of occupancy by tenant.
67. Tenant has not brought and in the future will not knowingly bring any
material upon the leased premises or conduct any activity thereon in violation
of any federal, state, municipal, environmental or hazardous waste law,
ordinance, rule or regulation.
68. Landlord to deliver premises free and clear of hazardous materials,
including, without limitation, asbestos.
69. Tenant shall have the right to place a satellite dish and antennae on
the roof of the Premises and shall do so without causing damage or destruction
to the Premises, and without blocking access to motor rooms, hatchways or
obstructing the skylights.
70. Landlord represents that there is a certificate of occupancy for
Tenant's portion of the Premises which allows for the uses of Tenant pursuant to
this Lease.
71. During the Lease term, Tenant shall grant the following discounts to
Landlord and Michael S. Bender, up to total annual purchases not to exceed
$5,000 in the aggregate: (a) 25% on retail price of Bang & Olufsen audio
equipment and (b) 10% on retail price of video equipment, telephones and
accessories.
72. Simultaneously with the execution of this Lease, Landlord shall execute
and deliver to Tenant the form of Landlord's Waiver annexed hereto. Landlord
agrees to execute such further documentation as Tenant's lender may request.
73. Landlord represents and warrants that the heating and current air
conditioning systems serving the Demised Premises are in good working order and
shall be maintained by Landlord during the Lease Term.
74. Intentionally Deleted.
<PAGE>
75. The bathroom in the demised premises shall be delivered to Tenant in
broom clean condition and in good working order. In the event that it is
required by appropriate governmental authorities that the bathroom be made ADA
compliant, Tenant shall perform the work and Landlord shall grant to Tenant an
additional $2,000 rent concession in the sixth (6th) month of the Lease Term.
76. Landlord represents that the sidewalks adjacent to the demised premises
are free of any violations.
77. If Landlord terminates the lease, Landlord will so notify Bang &
Olufsen ("BOA") in writing and BOA will then have the first right, but not the
obligation (Right of First Refusal) to: (i) enter into a new lease for the
Tenant's store location for a period equal to the unexpired portion of Tenant's
lease term, which new lease would contain the identical terms and conditions
contained in Tenant's lease (excluding BOA's Right of First Refusal) and (ii)
pay the Landlord an amount equal to the accrued but unpaid amount owed by Tenant
under its lease less any sums paid by or on behalf of Tenant subsequent to said
event of default. BOA's Right of First Refusal would be exercisable by written
notice to the Landlord for a period of 14 days from the date BOA first received
written notice that the Landlord terminated Tenant's lease. In the event that
BOA does not exercise its Right of First Refusal within said 14-day period,
Landlord would be free to dispose of the demised premises in its sole
discretion.
Tenant shall have the right to assign its lease to BOA or a BOA licensed
dealer, without Landlord's consent, provided that: (i) Tenant is not in default
under its lease at the time of said assignment, (ii) Landlord receives a true,
correct and complete copy of such written document evidencing said assignment,
(iii) BOA expressly assumes Tenant's obligations under the lease, even if the
lease is assumed by a BOA licensed dealer, (iv) the store location shall
continue to be operated only under the trade name and only for use as a BOA
store.
78. Notwithstanding anything contained in this Lease to the contrary,
Landlord consents to Tenant's proposed alterations to be made at the demised
premises which will be similar to other Bang & Olufsen stores in the New York
area.
79. Tenant shall make reasonable efforts and take reasonable steps to
soundproof the demised premises, not to exceed a cost of $5,000, above the cost
of Tenant's installing a dropped ceiling in the demised premises.
Landlord:
BENDER REALTY
By: ____________________________
Tenant:
HARVEY ELECTRONICS, INC.
By: ____________________________
<PAGE>
LANDLORD'S WAIVER
PARAGON CAPITAL LLC
Date: December __, 1998
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged,
Bender Realty
- ---------------------------------------------------------------------------
Name of Landlord
- ---------------------------------------------------------------------------
No. And Street (City or Town) (State) (Zip Code)
(Hereinafter, the "Landlord") executes this waiver in favor of Paragon
Capital LLC, a Delaware Limited Liability Company, with a place of business
located at Hillsite Office Building 75 Second Street Needham, MA 02494
(hereinafter, the "Lender").
1. Landlord represents that it is the owner of certain premises
(hereinafter, the "Premises") known and numbered as
927 Broadway
- ---------------------------------------------------------------------------
(No. And Street)
New York, NY
- ---------------------------------------------------------------------------
(City or Town) (State) (Zip Code)
2. Landlord represents that the Premises (or a portion thereof) are
currently occupied by Harvey Electronics, Inc., a ____________________
corporation with its principal offices at 205 Chubb Avenue, Lyndhurst, NJ
(hereinafter, the "Obligor") pursuant to a lease between the Landlord and the
Obligor.
3. The Landlord has been advised that the Lender has been granted a
security interest by the Obligor in and to all of the Obligor's assets
(hereinafter, the "Collateral"), including, without limitation, the Obligor's
inventory, equipment, stock-in-trade and trade fixtures located in, at, or upon
the Premises. Any fixtures or improvements affixed to the property shall be
excluded.
<PAGE>
4. The Landlord agrees:
(A) That until such time as all liabilities of the Obligor to the Lender
are paid in full, the Landlord disclaims any interest in such of the Collateral
as is now or hereafter located in, at, or upon the Premises and agrees not to
distrain any of the Collateral nor to assert any claim against the Collateral
for any reason;
(B) Not to interfere with any enforcement by the Lender of the Lender's
rights in and to the Collateral;
(C) To permit the Lender access to the Premises and any other premises
owned or leased by the Landlord at which the Collateral may be found upon
reasonable notice and reasonably from time to time, in order to exercise the
Lender's rights with respect to the Collateral;
(D) Following an event of default under the Obligor's obligations to the
Lender or the lease for the Premises, to permit the Lender upon 5 days prior
written notice to Landlord of Lender's intent to occupy the Premises, subject to
the rights of Bang & Olufsen under the Lease to take possession of the Premises
for purposes of operation and/or sale of the Collateral at a strategic or
extraordinary value sale for a period of up to two months from the date of such
event of default, subject to payment by Lender to the Landlord of the rental
provided in the lease for the Premises on a month to month basis, and for the
amount of Obligor's deficiency; Landlord shall retain all remedies contained in
the Lease in the event of an uncured default by Obligor or Lender, subject to
the rights afforded to Lender under this Agreement.
(E) To permit the Lender to remove the Collateral from the Premises, and
from any other premises at which the Collateral may be found, without any
liability upon the Lender, in which event the Lender shall promptly repair at
the Lender's expense, any physical damage to the Premises actually caused by
such removal, but shall not be liable for any diminution in value of the
Premises caused by the removal or absence of the Collateral;
(F) To provide the Lender with written notice (with reasonable
particularity) of any default by the Obligor under the lease pursuant to which
the Obligor is occupying the Premises and to provide the Lender with a copy of
any notice of any such breach, or of any default, of such lease as and when such
notice if forwarded to the Obligor;
<PAGE>
(G) Not to terminate any lease pursuant to which the Obligor is occupying
the Premises except upon prior written notice (with reasonable particularity) to
the Lender; and
(H) To accept any cure proffered by the Lender of any breach of the lease
pursuant to which the Obligor is occupying the Premises, if such cure is
proffered not more than 15 days after the Lender's receipt of written notice
(with reasonable particularity) of such breach.
5. In the event the Obligor has ceased making payments due to the Landlord
under the lease for the Premises, the Lender shall pay the Landlord rental
thereunder on a month to month basis (but not any percentage rent), for the use
and occupancy of the Premises from the date on which the Obligor has defaulted
until the date of the Lender's vacating the Premises (on which date, the Lender
shall surrender the Premises to the Landlord as per Obligor's lease). There will
be no refund of rent if Lender vacates prior to the end of the month.
6. The execution of the within waiver by the undersigned person on behalf
of the Landlord constitutes a representation by such person that he is
authorized to so execute the within waiver.
7. The within waiver shall inure to the benefit of the Lender, its
successors and assigns, shall be binding upon the Landlord, its heirs, assigns,
representatives, and successors, and shall take effect as a sealed instrument.
LANDLORD:
BENDER REALTY
By:______________________________
Print Name:_______________________
Address:__________________________
<PAGE>
Dated:___________________
State of _________________
County of _______________
Then personally appeared the above-named
___________________________________ and acknowledged the foregoing to be
____________ free act and deed of _________________. Before me
-----------------------
Notary Public
My Commission Expires:_______
<PAGE>
Exhibit B
Signage Language:
The Logotype "Bang & Olufsen" can be used centrally on our store facade.
The logo type will be either 8 inch or 12 inch text height with a total length
of 8 feet to 12 feet. Mounted directly on the facade, the single cut letters
will be in black or natural anodized aluminum finish. The sign will have a
built-in `corona light' that illuminates the background, and gives a discrete
"night warming" effect. The light source will be positioned inside the building
and leads the light to the facade lettering via a fiber optic cable. This system
will be of lower energy consummation, requiring no inflammable or electrical
components positioned on the facade. Best efforts will be made to prevent any
light from the sign from shining into the windows above the sign.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000046043
<NAME> HARVEY ELECTRONICS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 122,795
<SECURITIES> 0
<RECEIVABLES> 477,124
<ALLOWANCES> (25,000)
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0
402,037
<COMMON> 32,828
<OTHER-SE> 5,836,633
<TOTAL-LIABILITY-AND-EQUITY> 8,784,797
<SALES> 6,408,484
<TOTAL-REVENUES> 6,429,781
<CGS> 3,876,170
<TOTAL-COSTS> 2,158,941
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,000
<INCOME-PRETAX> 370,670
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 330,670
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<EPS-DILUTED> .10
</TABLE>
