HARVEY ELECTRONICS, INC.
205 Chubb Avenue
Lyndhurst, NJ 07071
NOTICE OF 2000 ANNUAL
MEETING OF STOCKHOLDERS TO BE
HELD AT 10:00 A.M. ON August 18, 2000
To the Stockholders of HARVEY ELECTRONICS, INC.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders (the
"Meeting") of HARVEY ELECTRONICS, INC. (the "Company") will be held on Friday,
August 18, 2000 (the "Meeting Date"), at 10:00 A.M. at the Marriott At Glen
Pointe, 100 Frank W. Burr Boulevard, Teaneck, NJ 07666 for the following
purposes:
1. To elect six directors;
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending October 28, 2000;
3. To amend the Harvey Electronics, Inc. Stock Option Plan, (the "Plan")
increasing the maximum aggregate number of shares of common stock
which may be granted under the Plan to any optionee during a fiscal
year from 50,000 to 100,000;
4. To transact such other business as may properly come before the
Meeting and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on July 18, 2000 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting, and only holders of record of shares of the Company's
common stock at the close of business on that day will be entitled to vote. The
stock transfer books of the Company will not be closed.
Enclosed is a copy of the Company's Annual Report on Form 10-KSB as filed
with the Securities and Exchange Commission for the fiscal year ended October
30, 1999.
A complete list of stockholders entitled to vote at the Meeting shall be
available at the offices of the Company during ordinary business hours from July
27, 2000 until the Meeting Date for examination by any stockholder for any
purpose germane to the Meeting. This list will also be available at the Meeting.
All stockholders are cordially invited to attend the Meeting in person.
However, whether or not you expect to be present at the Meeting, you are urged
to mark, sign, date and return the enclosed Proxy, which is solicited by the
Board of Directors, as promptly as possible in the postage-prepaid envelope
provided to ensure your representation and the presence of a quorum at the
Meeting. The shares represented by the Proxy will be voted according to your
specified response. The Proxy is revocable and will not affect your right to
vote in person in the event you attend the Meeting.
By Order of the Board of Directors
Joseph J. Calabrese, Jr., Secretary
Lyndhurst, New Jersey
July 21, 2000
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WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ACCOMPANYING
POSTPAID ENVELOPE. YOUR DOING SO MAY SAVE HARVEY ELECTRONICS, INC. THE EXPENSE
OF A SECOND MAILING.
-------------------------------------------------------------------------------
<PAGE>
HARVEY ELECTRONICS, INC.
205 Chubb Avenue
Lyndhurst, NJ 07071
------------------------------
PROXY STATEMENT
------------------------------
2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT 10:00 A.M. ON August 18, 2000
The enclosed Proxy Statement is solicited by the Board of Directors of
HARVEY ELECTRONICS, INC. (the "Company") in connection with the 2000 Annual
Meeting of Stockholders (the "Meeting") to be held on Friday, August 18, 2000
(the "Meeting Date"), at 10:00 a.m. at the Marriott At Glen Pointe, 100 Frank W.
Burr Boulevard, Teaneck, NJ 07666 and any adjournment thereof. The Board of
Directors has set July 18, 2000, at the close of business, as the record date
("Record Date") for the determination of stockholders entitled to notice of and
to vote at the Meeting. As of the Record Date, the Company had outstanding
3,282,833 shares of Common Stock $.01 par value per share (the "Common Stock").
A stockholder executing and returning a Proxy has the power to revoke it at any
time before it is exercised by filing a later Proxy with, or other communication
to, the Secretary of the Company or by attending the Meeting and voting in
person. The Proxy will be voted in accordance with your directions as to:
(1) The election of the persons listed herein as directors of the Company;
(2) The ratification of the appointment of Ernst & Young, LLP as the
Company's independent auditors for the fiscal year ending October 28,
2000;
(3) To amend the Harvey Electronics, Inc. Stock Option Plan, (the "Plan")
increasing the maximum aggregate number of shares of Common Stock
which may be granted under the Plan to any optionee during a fiscal
year from 50,000 to 100,000;
(4) The transaction of such other business as may properly come before the
Meeting and any adjournment or postponement thereof.
In the absence of direction, the Proxy will be voted in favor of these
proposals.
The entire cost of soliciting proxies will be borne by the Company. The
cost of solicitation, which represents an amount approximating $5,000, believed
to be normally expended for a solicitation relating to an uncontested election
of directors, will include the cost of supplying necessary additional copies of
the solicitation materials and the Company's 1999 Annual Report on Form 10-KSB
to Stockholders (the "Annual Report") to beneficial owners of shares held of
record by brokers, dealers, banks, trustees, and their nominees, including the
reasonable expenses of such recordholders for completing the mailing of such
materials and Annual Report to such beneficial owners.
In voting at the Meeting, each holder of record of Common Stock on the
Record Date will be entitled to one vote on all matters. Holders of a majority
of the outstanding shares of Common Stock must be represented in person or by
proxy in order to achieve a quorum to vote on all matters. The attached Notice
of Meeting, the Proxy Statement, the enclosed form of Proxy and the Annual
Report are being mailed to stockholders on or about July 21, 2000.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 2000, by (i) each
director of the Company, (ii) each person known to the Company to be the
beneficial owner of more than 5% of the Common Stock of the Company, (iii) the
executive officers named in the Summary Compensation Table below, and (iv) all
executive officers and directors as a group.
<PAGE>
<TABLE>
<CAPTION>
Amount and Acquirable
Name and Address of Nature of Within 60 Percent of
Beneficial Owner Title of Class Beneficial Owner Days Class
---------------- -------------- ---------------- ---- -----
<S> <C> <C> <C> <C>
Harvey Acquisition Common 253,932 - 6.9%
Company LLC "HAC")
c/o Michael E. Recca
949 Edgewood Avenue
Pelham Manor, NY 10803
Michael E. Recca Common 343,298 (1) - 9.3%
Recca & Co., Inc.
949 Edgewood Avenue
Pelham Manor, NY 10803
William F. Kenny, III Common 18,989 (2) - *
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
Fredric J. Gruder Common 12,500 (2) - *
Dorsey & Whitney LLP
250 Park Avenue, 16th Floor
New York, NY 10177
Jeffrey A.Wurst (Nominee) Common 15,050 (6) - *
c/o Ruskin, Moscou, Evans &
Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501-4366
Franklin C. Karp Common 112,833 (3) - 3.1%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
Joseph J. Calabrese, Jr. Common 95,035 (4) - 2.6%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
Michael A. Beck Common 90,833 (4) - 2.5%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
Roland W. Hiemer Common 36,667 (5) - 1.0%
Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, NJ 07071
---------------------
All Directors and Officers as Common 725,205 (7) 19.6%
a group (8 persons)
<FN>
* Less than 1% of outstanding shares of Common Stock
(1) Includes Shares owned by HAC, of which Mr. Recca is a member and one of
three managers, plus options to purchase up to 78,333 shares of the
Company's Common Stock which are exercisable at an exercise price of
between $1.00-$1.86 per share.
(2) Includes an option to purchase up to 10,000 shares of the Company's
Common Stock, which is exercisable at an exercise price of $1.00 per
share.
(3) Includes options to purchase up to 95,833 shares of the Company's Common
Stock, which are exercisable at an exercise price of between $1.00-$3.00
per share.
(4) Includes options to purchase up to 83,333 shares of the Company's Common
Stock, which are exercisable at an exercise price of between $1.00-$3.00
per share.
(5) Includes options to purchase up to 34,167 shares of the Company's Common
Stock, which are exercisable at an exercise price of between $1.00-$3.00
per share.
(6) Represents a warrant to purchase 15,000 shares of Common Stock, in Mr.
Wurst's firm's name of Ruskin, Moscou, Evans & Faltichek, of which he is
Partner, at an exercise price of $5.00.
(7) Includes options and warrants to purchase up to 409,999 shares of Common
Stock, which are exercisable at an exercise price of between $1.00 - $5.00
per share.
</FN>
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock to file reports of ownership and changes in ownership of
such stock with the Securities and Exchange Commission (the "SEC"). Directors,
executive officers and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based upon a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
as of June 30, 2000, the Company believes that its directors, executive
officers, and greater than 10% stockholders complied with all Section 16(a)
filing requirements.
ELECTION OF DIRECTORS
Six directors are to be elected by a plurality of the votes cast at the
Meeting, each to hold office until the next Annual Meeting of Stockholders and
until his respective successor is duly elected and qualified.
The persons named below have been nominated for election as directors. The
persons named in the accompanying Proxy have advised the Company that it is
their intention to vote for the election of the persons named below as directors
unless authority is withheld.
Michael E. Recca
Franklin C. Karp
Joseph J. Calabrese, Jr.
Jeffrey A. Wurst, (Nominee) (1)
Fredric J. Gruder
William F. Kenny, III
(1) Jeffrey A. Wurst was elected to the Board on January 10, 2000 and appointed
as a member of the Company's Audit and Compensation and Stock Option
Committees. Mr. Wurst replaced Stewart L. Cohen, who resigned January 10,
2000.
The Company believes that each nominee will be able to serve. If any
nominee becomes unable or unwilling to serve, Proxies may be voted for the
election of such person or persons as the Board of Directors determines.
Information Regarding Officers and Directors
The following table sets forth the names and ages of the Company's current
and nominated directors and executive officers and the positions they hold with
the Company:
<TABLE>
<CAPTION>
Name Age (1) Position
---- ------- --------
<S> <C> <C>
Michael E. Recca ........................ 49 Chairman and Director
Franklin C. Karp ........................ 46 President and Director
Joseph J. Calabrese, Jr.................. 40 Executive Vice President,
Chief Financial Officer,
Treasurer, Secretary and
Director
Jeffrey A. Wurst......................... 51 Director (Nominee)
Fredric J. Gruder........................ 54 Director
William F. Kenny, III.................... 69 Director
Michael A. Beck ......................... 41 Vice President of
Operations
Roland W. Hiemer ........................ 39 Director of Inventory
Control
<FN>
(1) As of June 30, 2000.
</FN>
</TABLE>
Michael E. Recca became the Chairman of the Board of Directors of the
Company in November 1996. Mr. Recca has been the President of Recca & Company,
Inc., a financial consulting firm based in New York City since 1992. Mr. Recca
is also a member and one of the three managers of Harvey Acquisition Company,
LLC, which is a principal shareholder of the Company. Mr. Recca was an employee
of Taglich Brothers, D'Amadeo, Wagner & Co., Inc., an NASD registered
broker-dealer, through December 31, 1998.
Franklin C. Karp has been with the Company since 1990. Before being
appointed as the Company's President in April 1996, Mr. Karp served as
Merchandise Manager and later as Vice President In Charge of Merchandising. Mr.
Karp has been employed in various sales, purchasing and management positions in
the retail consumer electronics business in the New York Metropolitan area for
26 years.
Joseph J. Calabrese, Jr., a certified public accountant, joined the Company
as Controller in 1989. Since 1991, Mr. Calabrese has served as Vice President,
Chief Financial Officer, Treasurer and Secretary of the Company. Mr. Calabrese
was elected Executive Vice President and a Director of the Company in 1996. Mr.
Calabrese began his career with Ernst & Young LLP in 1981 where for the eight
year period prior to his joining the Company he performed audit services with
respect to the Company.
Jeffrey A. Wurst, Senior Partner at the law firm of Ruskin, Moscou, Evans &
Faltischek ("Ruskin"), where he chairs the firm's Financial Services Group. Mr.
Wurst began his career with Ruskin in 1987. Mr.Wurst has great expertise in
asset based lending, factoring, and all areas of commercial finance and
bankruptcy matters. Mr. Wurst attended the Jacob D. Fuchsburg Law Center of
Touro College and earned his B.S. and M.A. from Hofstra University. Mr. Wurst's
law firm has been involved in the legal representation of the Company since it
reorganized under the bankruptcy laws in 1996. He has served on the Board since
February, 2000.
Fredric J. Gruder, a director since July 1998, has since July 1999 been of
counsel to Dorsey & Witney LLP. From September 1996 to July 1999, he was a
partner in the law firm of Gersten, Savage, Kaplowitz & Fredericks, LLP
("Gersten"), which represented Thornwater Company, L.P. ("Thornwater"),
Representative of the Company's underwriters in the Offering. From March 1996
through September 1996, Mr. Gruder was of counsel to Gersten, having been a sole
practitioner from May 1995 through March 1996. From March 1992 until March 1996,
Mr. Gruder served as vice president and general counsel to Sbarro, Inc., a
publicly traded corporation which owns, operates, and franchises Italian
restaurants. Prior to this time, Mr. Gruder practiced law in New York for over
twenty years, specializing in corporate securities and retail real estate.
William F. Kenny, III has been a director of the Company since 1975. For
the past eight years Mr. Kenny has been a consultant to Meenan Oil Co., Inc.
Prior to 1992, Mr. Kenny was the President and Chief Executive Officer of Meenan
Oil Co. Inc. Mr. Kenny has also served as a director of the Empire State
Petroleum Association, Petroleum Research Foundation and is the President of the
East Coast Energy Council. Mr. Kenny was also the President of the Independent
Fuel Terminal Operators Association and the Metropolitan Energy Council.
Board Recommendation and Vote Required. The Board recommends that the
stockholders vote "FOR" the election of each of the above named nominees. The
affirmative vote of a majority of the shares of Common Stock present or
represented and entitled to vote at the meeting is required for the election of
each director.
Michael A. Beck has been Vice President of Operations of the Company since
April 1997. From June 1996 until such date he was the Company's Director of
Operations and from October 1995 until April 1996 he served as Director of
Operations for Sound City, a consumer electronics retailer. Mr. Beck was a store
manager for the Company from August 1989 until October 1995. Mr. Beck holds a BA
in Psychology from Merrimack College.
Roland W. Hiemer is an executive officer of the Company and Director of
Inventory Control. Mr. Hiemer has been with the Company for nine years. He
started with the Company as a salesman and advanced to Senior Sales Manager for
the Paramus store in 1991. He was further promoted to Inventory Control Manager
in 1991. In 1997, he was promoted to Director of Inventory Control. Mr. Hiemer
holds a BA in Business Administration from Hofstra University.
Committees of the Board of Directors
The Board of Directors, which met six times either in person or
telephonically during fiscal 1999, has an Audit Committee and a Compensation and
Stock Option Committee.
Audit Committee. The function of the Audit Committee includes making
recommendations to the Board of Directors with respect to the engagement of the
Company's independent auditors and the review of the scope and effect of the
audit engagement. William F. Kenny, III, Fredric J. Gruder and Jeffrey A. Wurst
are the current members of the Audit Committee. The Audit Committee met once,
relating to the fiscal year 1999 audit.
Compensation and Stock Option Committee. The function of the Compensation
and Stock Option Committee is to make recommendations to the Board with respect
to the compensation of management employees and to administer plans and programs
relating to stock options, pension and other retirement plans, employee
benefits, incentives, and compensation. Jeffrey A. Wurst, Fredric J. Gruder and
William F. Kenny, III are the current members of the Compensation and Stock
Option Committee. The Compensation and Stock Option Committee met in February
1999 and October 1999.
Directors' Compensation
In fiscal 1999, directors of the Company received no compensation for
service as members of the Board, other than reimbursement of expenses incurred
in attending meetings. Since February 1, 2000, the Directors have received a
monthly $500 director's fee. Michael E. Recca, Chairman of the Board, received
an annual director's fee of $95,000 through April 30, 2000. Effective May 1,
2000, Mr. Recca has been placed on the Company's payroll and has a current
salary of $120,000 per annum.
Limitation of Liability of Directors; Indemnification of Directors and Officers;
Directors and Officers Insurance
The Company's Certificate of Incorporation provides that a director shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability if a judgment
or other final adjudication adverse to him establishes that his acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that his acts violated
Section 719 of the New York Business Corporation Law. Any repeal or modification
of what is set forth hereinabove will not adversely affect any right or
protection of a director of the Company existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such repeal or
modification. The effect of this provision is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in certain limited situations.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. These provisions will not
alter the liability of directors under federal securities laws.
The Company's By-Laws provide that the Company shall to the fullest extent
permitted by applicable law, as amended from time to time, indemnify any person
who is or was made, or threatened to be made, a party to any action or
proceeding, whether civil or criminal, whether involving any actual or alleged
breach of duty, neglect or error, any accountability, or any actual or alleged
misstatement, misleading statement or other act or omission and whether brought
or threatened in any court or administrative or legislative body or agency,
including any action by or in the right of the Company to procure a judgment in
its favor and an action by or in the right of any other corporation of any type
or kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the Company
is serving or served in any capacity at the request of the Company, by reason of
the fact that he, his testator or intestate, is or was a director or officer of
the Company, or is serving or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and expenses (including
attorneys' fees, cost and charges) incurred as a result of such action or
proceeding, or appeal therein, except to such person who is a director or
officer of the Company and a judgment or other final adjudication adverse to
such director or officer establishes that (i) his acts were committed in bad
faith or were the result of active and deliberate dishonest and, in either case,
were material to the cause of action so adjudicated, or (ii) he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled.
Section 722 of the New York Business Corporation Law empowers a New York
corporation to indemnify any person, made, or threatened to be made, a party to
an action or proceeding other than one by or in the right of the corporation to
procure a judgment in its factor, whether civil or criminal, including an action
by or in the right of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the corporation served in any
capacity at the request of the corporation, by reason of the fact that he, his
testator or intestate, was a director or officer of the corporation, or served
such other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees actually and
necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in, or in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the corporation and, in
criminal actions or proceedings, in addition, had no reasonable cause to believe
that his conduct was unlawful.
In addition, Section 722 of the New York Business Corporation Law states
that a New York corporation may indemnify any person made, or threatened to be
made, a party to an action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he, his testator or intestate,
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of any other corporation of
any type of kind, domestic or foreign, of any partnership, joint venture, trust,
employee benefit plan or other enterprise, against amounts paid in settlement
and reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court on which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
The Company maintains directors and officers liability insurance. The
current annual premium for such insurance is approximately $61,000, all of which
is paid by the Company.
EXECUTIVE COMPENSATION
The following table sets forth the cash and stock compensation paid by the
Company, as well as any other compensation paid to or earned by the Chairman of
the Company, the President of the Company and those executive officers
compensated at or greater than $100,000 for services rendered to the Company in
all capacities during the three most recent fiscal years.
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Stock
Name of Individual and Annual Compensation Compensation Compensation
Principal Position Year Salary Bonus (6) (5)
------------------ ---- ------ ----- --- ---
<S> <C> <C> <C> <C> <C>
Michael E. Recca 1999 $95,000 $--- $--- $---
Chairman (1) 1998 $55,000 (1) $--- $--- $---
1997 $0 $--- $--- $---
Franklin C. Karp 1999 $126,000 $ 5,000 $--- $---
President (2) 1998 $125,000 $15,000 $--- $10,313
1997 $126,000 $--- $--- $---
Joseph J. Calabrese, Jr. 1999 $117,000 $ 3,750 $--- $---
Executive Vice President, 1998 $116,000 $10,000 $--- $ 6,875
Chief Financial Officer, 1997 $117,000 $--- $--- $---
Treasurer & Secretary (3)
Michael A. Beck 1999 $101,000 $ 3,750 $--- $---
Vice President of 1998 $ 92,000 $ 2,000 $--- $ 5,156 (2)
Operations (4) 1997 $ 87,000 $ 500 $--- $---
<FN>
(1) Since April 1, 1998, Mr. Recca has been receiving an annual director's fee
of $95,000 at the rate of $7,917 per month, in his capacity as the Chairman
of the Board of Directors of the Company. Effective May 1, 2000, Mr. Recca
has been placed on the Company's payroll at an annual salary of $120,000.
(2) Effective January 1, 2000, Mr. Karp's annual salary was increased to
$140,000.
(3) Effective January 1, 2000, Mr. Calabrese's annual salary was increased to
$130,000.
(4) Effective January 1, 2000, Mr. Beck's annual salary was increased to
$115,000.
(5) Represents stock compensation at fair market value from Common Stock
received from HAC, on October 12, 1998.
(6) See "Stock Option Plan" for related information relating to stock option
grants.
</FN>
</TABLE>
Severance Agreements
In May, 2000, the Company's Board of Directors approved and the Company
entered into substantially similar Amended and Restated Severance Agreements
(each a "Severance Agreement") with each of Franklin C. Karp, Joseph J.
Calabrese, and Michael A. Beck, executives of the Company.
Each Severance Agreement provides that in the event of a change in control
(as defined), such as a merger, sale or disposition of assets, change in the
constitution of the Board of Directors or the current Chairman, the assignment
to the executive of a position inconsistent with the executive's current
position or relocation of the corporate office (as defined), or in the event of
a potential change in control (as defined), or disability (as defined), and
within one hundred eighty (180) days from the day of one of the foregoing events
the executive is terminated for reasons other than for cause or the executive
terminates his employment for any reason, the respective executive shall
receive, among other things:
(i) a cash amount equal to the higher of: (x) the executive's base salary
prior to the event giving rise to the change in control, potential change in
control or disability, or (y) the executive's base salary prior to the event
giving rise to the executive's right to terminate his employment for any reason;
(ii) a cash payment equal to the higher of: (x) twelve (12) months of the
executive's highest monthly car allowance or monthly average travel
reimbursement in effect within the six (6) month period immediately prior to the
change in control, potential change in control or disability, not to exceed
twelve thousand and 00/100 ($12,000) dollars, or (y) twelve (12) months of the
executive's highest monthly car allowance or monthly average travel
reimbursement in effect within the six (6) month period immediately prior to the
date the executive terminates his employment for any reason, not to exceed
twelve thousand and 00/100 ($12,000) dollars;
(iii) the maximum/highest benefits which the executive was receiving at any
time during a two-year period prior to termination, relating to health
insurance, accident insurance, long-term care, life insurance and disability,
which shall continue for one (1) year beyond the date of termination of the
executive's employment;
In the event the executive is terminated for any reason other than for
cause, as defined in the agreement, and absent a change in control, potential
change in control or disability, then the Company shall pay each executive
one-half (1/2) of the previous amounts for base salary and car allowance while
all benefits will continue for one (1) year.
On June 28, 2000, the Compensation Committee approved an identical
severance agreement for Michael A. Recca, the Company's Chairman of the Board of
Directors.
Roland W. Hiemer's severance agreement provides that in the event the
Company is sold or merged with another company, involved in a corporate
reorganization, or if a change of the current management takes place, and Mr.
Hiemer, for the foregoing reasons, is terminated or asked to accept a position
other than that of a senior officer requiring similar responsibilities to those
that he currently performs, or if the current corporate office is moved to a new
location which is more than thirty miles Lyndhurst, New Jersey, as a result of a
reorganization or change in ownership or control, and he declines the new
position or relocation, the Company or its successor in control will be
obligated, and continue, to pay him at the same salary and car allowance, if
any, he had most recently been earning, for a period of six months. In addition,
he will be fully covered under the Company's benefit plans, including, without
limitation, the Company's medical, dental, life and disability insurance
programs, during the during the six month period.
If, following termination of Mr. Hiemer as described in the preceding
paragraph, Mr. Hiemer obtains employment at a lesser compensation than Mr.
Hiemer's compensation by the Company, the Company will pay Mr. Hiemer the
difference between the two salaries for the remainder of the six month period,
plus continued coverage of the Company's benefit plans for the same period. The
severance agreement for Mr. Hiemer also provides that in the event he is
terminated for any other reasons, except conduct that is materially injurious to
the Company or conviction of any crime involving moral turpitude, the Company
will be obligated and continue to pay Mr. Hiemer at the same salary he has most
recently been earning, for a period following termination of three months plus
full coverage of the Company's benefits for the same period.
Employment Agreement
On April 3, 1998, the Company entered into an agreement with Franklin C.
Karp, the Company's President. The employment agreement provides that Mr. Karp
continue as the Company's President with the same compensation and benefits
which Mr. Karp currently receives, subject to annual adjustment to be determined
and made by the Board of Directors of the Company.
STOCK OPTION PLAN
In April 1997, the Company adopted The Harvey Electronics, Inc. Stock
Option Plan (the "Stock Option Plan"), which currently covers 1,000,000 shares
of Common Stock. Options may be designated as either (i) incentive stock options
("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code") or
(ii) non-qualified stock options. ISOs may be granted under the Stock Option
Plan to employees and officers of the Company. The Stock Option Plan was
approved by the Company's shareholders in fiscal 1998.
The Stock Option Plan is intended to encourage stock ownership by employees
of the Company, so that they may acquire or increase their proprietary interest
in the Company and to encourage such employees and directors to remain in the
employ of the Company and to put forth maximum efforts for the success of the
business. Options granted under the Stock Option Plan may be accompanied by
either stock appreciation rights ("SARs") or limited stock appreciation rights
(the "Limited SARs"), or both.
The Plan is administered by the Company's Compensation and Stock Option
Committee as the Board may establish or designate (the "Administrators"). The
Committee shall be comprised of not less than two members, all of whom shall be
outside, disinterested directors. The members of the Compensation and Stock
Option Committee are Jeffrey A. Wurst, Fredric J. Gruder and William F. Kenny
III, each an outside director.
The Administrators, within the limitation of the Stock Option Plan, shall
have the authority to determine the types of options to be granted, whether an
Option shall be accompanied by SARs or Limited SARs, the purchase price of the
shares of Common Stock covered by each Option (the "Option Price"), the persons
to whom, and the time or times at which, Options shall be granted, the number of
shares to be covered by each Option and the terms and provisions of the option
agreements.
The maximum aggregate number of shares of Common Stock as to which Options,
Rights and Limited Rights may be granted under the Stock Option Plan to any one
optionee during any fiscal year of the Company is 50,000. The Company is
recommending that the shareholders vote to increase the maximum aggregate number
of shares of Common Stock, which may be granted under the Plan to 100,000, to
any Optionee during a fiscal year.
With respect to the ISOs, in the event that the aggregate fair market
value, determined as of the date the ISO is granted, of the shares of Common
Stock with respect to which Options granted and all other option plans of the
Company, if any, become exercisable for the first time by any optionee during
any calendar year exceeds $100,000, Options granted in excess of such limit
shall constitute non-qualified stock options for all purposes. Where the
optionee of an ISO is a ten (10%) percent stockholder, the Option Price will not
be less than 110% of the fair market value of the Company's Common Stock,
determined on the date of grant, and the exercise period will not exceed five
(5) years from the date of grant of such ISO. Otherwise, the Option Price will
not be less than one hundred (100%) percent of the fair market value of the
shares of the Common Stock on the date of grant, and the exercise period will
not exceed ten (10) years from the date of grant. Options granted under the Plan
shall not be transferable other than by will or by the laws of descent and
distribution, and Options may be exercised, during the lifetime of the optionee,
only by the optionee or by his guardian or legal representative. 1999 Option
Grants
The following table sets forth information relating to the 222,500 options
granted in the fiscal year ended October 30, 1999, all of which were granted to
the named executive officers and directors:
Individual Grants
<TABLE>
<CAPTION>
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise or Base
Name Granted in Fiscal Year Price ($/sh) Expiration Date
---- ------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Michael E. Recca 50,000 22.5% (1) 10/28/2000
Franklin C. Karp 12,500 5.6% (1) 2/11/2009
37,500 16.9% (1) 10/28/2009
Joseph J. Calabrese, Jr. 12,500 5.6% (1) 2/11/2009
37,500 16.9% (1) 10/28/2009
Michael A. Beck 12,500 5.6% (1) 2/11/2009
37,500 16.9% (1) 10/28/2009
Roland W. Hiemer 7,500 3.3% (1) 2/11/2009
15,000 6.7% (1) 10/28/2009
Total 222,500 100.0%
======= ======
------------------
<FN>
(1) Options are exercisable immediately at $1.50.
</FN>
</TABLE>
Option Exercises and Holdings
The following table sets forth information concerning the exercise of stock
options by the named executives and directors during the Company's fiscal year
ended October 30, 1999, the number of options owned by the named executives and
directors and the value of any in-the-money unexercised stock options as of June
30, 2000.
Aggregated Option Exercises in Last Fiscal Year and Option Values
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at June 30, In-the-Money Options
2000 at June 30, 2000
Shares Acquired on Exercisable (E) Exercisable (E)
Name Exercise Value Realized $ Unexercisable (U) Unexercisable (U)
---- -------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Michael E. Recca 0 0 50,000 (E) $18,750 (E)
Franklin C. Karp 0 0 50,000 (E) $18,750 (E)
Joseph J. Calabrese, Jr. 0 0 50,000 (E) $18,750 (E)
Michael A. Beck 0 0 50,000 (E) $18,750 (E)
Roland W. Hiemer 0 0 22,500 (E) $ 8,438 (E)
Total
0 0 222,500 $83,438
= = ======= =======
</TABLE>
HARVEY ELECTRONICS, INC. SAVINGS AND INVESTMENT PLAN
The Harvey Electronics, Inc. Savings and Investment Plan, as amended,
includes a defined contribution, profit sharing and 401(K) provision.
An employee is eligible to participate in the plan after he or she has
attained age twenty-one (21) and has completed one (1) year of service with the
Company. The Board of Directors of the Company may elect to provide for those
participants who are employed full time by the Company, as of the last day of
the plan year, a contribution of up to three percent (3%) of each employee's
compensation. The election by the Board of Directors is based solely on the
performance of the Company. For the three fiscal years ended October 31, 1998,
no defined contribution percentage was contributed by the Company. In addition,
employees participating in the salary deferral aspect of the plan, may elect to
defer up to fifteen (15%) of their salary. Effective January 1, 1995 the
Company's Board of Directors temporarily elected to eliminate the employer
401(k) match (which was 25% of the first 6% of the amount contributed by
participants prior to such date) on employee contributions. Employee
contributions, any Company contribution and the earnings thereon, will be
paid-out upon the employee's termination of employment, retirement, death,
disability, or if elected, while still employed by the Company upon attaining
age 59 1/2. Employees will be one hundred percent (100%) vested at all times in
the full value of their salary deferral account. After seven (7) years of
service with the Company, employees will be fully vested in the Company's
matching and defined contribution account.
CERTAIN TRANSACTIONS
In 1995 and 1996, during the Company's reorganization, the Company borrowed, in
the aggregate, approximately $2,822,500 (the "Loan") from HAC. As of the
Effective date of the Company's Reorganization Plan, and pursuant to certain
provisions contained therein, HAC's claims in connection with the Loan was
satisfied by issuing HAC 2,000,000 shares of the Company's Common Stock.
Subsequently, Michael Recca was elected as a member and Chairman of the
Company's Board of Directors. Interest paid to HAC in fiscal 1998 was
approximately $66,000. In fiscal 1998, the Company recorded $40,000 in
management consulting fees to Recca & Co. Inc., of which Michael Recca is the
sole shareholder, of which $23,000 was payable at October 30, 1999 and October
31, 1998.
Effective April 1, 1998, Mr. Recca has been receiving $7,917 per month,
representing an annual director's fee in the annual amount of $95,000, in his
capacity as the Chairman of the Board of Directors of the Company. Effective May
1, 2000, Mr. Recca has been placed on the Company's payroll at an annual salary
of $120,000.
Reference is made to "Management's Discussion and Analysis or Plan of Operation
- Liquidity and Capital Resources" regarding the Company's revolving line of
credit facility with Paragon, which the Company entered into on November 5,
1997. Stewart L. Cohen, a former director of the Company, is the Chief Executive
Officer and a director of Paragon.
In February and March, 1997, Mr. E. H. Arnold ("Arnold"), a member of HAC and a
holder of Preferred Stock, loaned the Company the principal amount of $350,000,
with an interest rate of 12% per annum. On April 9, 1998, this loan was repaid
with interest ($48,000) and without prepayment penalty.
In November 1997, HAC transferred 85,000 shares of Common Stock to certain
employees and directors of the Company and Arnold. Such transfer is to be
treated for accounting purposes as if such shares were issued by the Company as
compensation to such persons. In fiscal 1998, the Company recorded $297,500 as
stock compensation expense (see Note 3 to the Financial Statements).
On April 7, 1998, HAC reimbursed the Company $70,000 of the estimated expenses
of $475,000 in the Offering in addition to the underwriting discounts and
commissions and non-accountable expense allowance related to the Shares sold by
it in the Offering. In the future the Company will present all proposed
transactions between the Company and its officers, directors or 5% shareholders,
and their affiliates to the Board of Directors for its consideration and
approval. Any such transaction, including forgiveness of loans, will require
approval by a majority of the disinterested directors and such transactions will
be on terms no less favorable than those available to disinterested third
parties.
In October 1998, the Company received a promissory note from a previous member
of its Underwriter, in lieu of an outstanding trade receivable for $73,321.
Payments, including interest at 9% per annum, aggregating $11,277, were made to
the Company in fiscal 1999. The balance of the original note was due on October
30, 1999. However, in November 1999, an amendment to the promissory note was
executed, deferring the payment of the remaining principal balance and interest
at 9% per annum as follows: one payment of $44,994 due January 25, 2000 with the
remaining balance of $24,141 due March 25, 2000. As a result, the amended "note
receivable from the previous member of Underwriter" ($68,430), has been
presented as a current asset at October 30, 1999. Subsequently, the Company
received $44,617 from this individual.
Effective November 1, 1998, the Company signed a consulting agreement with a
previous member of its Underwriter. Pursuant to the terms of the two-year
agreement, the consultant received an annual fee of $75,000 for fiscal 1999.
This agreement was terminated by the Company effective February 29, 2000.
SHARES ELIGIBLE FOR FUTURE SALE
All of the 2,257,833 shares of Common Stock outstanding as of the Effective
Date, were issued in connection with the Company's Reorganization Plan, in
exchange for either a claim against, or an interest in, or a claim for an
administrative expense in the Company's bankruptcy proceeding. These shares are
deemed exempted securities under Section 1145 of the United States Bankruptcy
Code and, therefore, are freely tradable. A sale of shares in significant
amounts may have substantial adverse effects on the price of the Common Stock.
HAC had initially entered into a written agreement with Thornwater that it
would not publicly sell an aggregate of 1,750,000 shares of the Company's Common
Stock without the prior consent of Thornwater for a period of 12 months from the
Effective Date as to 25% of such shares; for a period of 18 months from such
date, as to an additional 25% of such shares; and for a period of 24 months from
such date, as to the remaining 50% of such shares. Certain directors, officers
and employees of the Company, and a member of HAC had also originally agreed
with Thornwater not to publicly sell an aggregate of 85,000 Shares for two years
following the Effective Date.
As of October 31, 1998, the financial advisory and consulting agreement
between the Company and Thornwater was mutually terminated. Additionally,
Thornwater agreed to modify the lock-up arrangement with respect to shares owned
by the Company's majority shareholder, HAC, and members of management. The
termination of the lock-up was accelerated to January 1, 1999.
As of the Effective Date, all holders of the Preferred Stock entered into
lock-up agreements with Thornwater, which agreements provide that Common Stock
issued upon conversion of Preferred Stock, Warrants owned by such holders and
Common Stock exercisable upon the exercise of such warrants will not be sold
publicly for two years following the Effective Date or one year from the
conversion (whichever is longer). The lock-up will be suspended, however, if the
closing bid price of the Common Stock on the NASDAQ SmallCap or the last sales
price of the Common Stock if listed on the NASDAQ National Market or a national
exchange, exceeds $7.50 for 45 consecutive trading days.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's securities are traded on the NASDAQ SmallCap Market under the
symbols "HRVE" for the Common Stock and "HRVEW" for Warrants to purchase Common
Stock.
The outstanding shares of Common Stock are currently held by approximately
1,600 shareholders of record, and the Preferred Stock by five holders of record.
The following table indicates the quarterly high and low prices for fiscal
year 1999, and the first two quarters of fiscal year 2000.
Quarter Ended High Low
---------------------------- ---------------- ---------------
January 29, 2000 $ 3.3125 $ 1.00
April 29, 2000 3.25 1.3125
January 30, 1999 2.0625 .875
May 1, 1999 3.25 1.4688
July 31, 1999 2.6875 1.875
October 30, 1999 1.9375 1.2812
January 31, 1998 N/A N/A
May 2, 1998 6.00 2.00
August 1, 1998 4.50 1.625
October 31, 1998 2.625 .625
The Company has paid no dividends on its Common Stock for the last two
years and does not expect to pay dividends in the future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and Warrant Agent for
the Warrants is Registrar and Transfer Company, 10 Commerce Drive, Cranford, New
Jersey 07016.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of its Audit Committee, none of
whose members is an officer of the Company, has reappointed the firm of Ernst &
Young LLP as independent auditors to make an examination of the financial
statements of the Company and a review of its fiscal quarters (beginning with
the second fiscal quarter ended April 29, 2000), for the fiscal year ending
October 28, 2000, subject to approval by the shareholders. The firm of Ernst &
Young LLP has examined the financial statements of the Company since the fiscal
year ended February 2, 1974.
The Board of Directors believes that the retention of the services of Ernst
& Young LLP will be in the best interests of the Company and recommends that the
shareholders approve their appointment as independent auditors. Ernst & Young
LLP does not have any financial interest in the Company and during the last
three years has not had any connection with the Company in any capacity other
than that of independent auditors and providing certain advisory services. The
affirmative vote by the holders of a majority of the Company's voting shares
represented at the Meeting is required for the approval of the auditors. Under
applicable New York law, in determining whether this proposal has received the
requisite number of affirmative votes, abstentions and broker non-votes will be
disregarded and will have no effect on the outcome of the vote.
A representative of Ernst & Young LLP is expected to be present at the
Meeting, and will be available to make a statement if he desires to do so and to
respond to appropriate questions from shareholders.
ANNUAL REPORT ON FORM 10-KSB
An annual report on Form 10-KSB as filed with the SEC for the year ending
October 30, 1999, containing financial and other information about the Company,
is being mailed to all stockholders of record as of the Record Date, at the
Company's cost.
OTHER MATTERS
Management does not know of any other matters, which are likely to be
brought before the Meeting. However, in the event that any other matters
properly come before the Meeting, including, but not limited to any proposals
made by shareholders, the persons named in the enclosed proxy will vote the
proxy in accordance with their best judgment. Under the Company's By-laws,
advance notice is required for nomination of directors and for certain business
to be brought before an annual meeting of shareholders of the Company. Such
advance notice must generally be received by the Company not less than 50 days
nor more than 75 days prior to the date of such meeting. A copy of the Company's
By-laws specifying the advance notice requirements will be furnished to any
stockholder upon written request to the Secretary of the Company.
SOLICITATION OF PROXIES
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Meeting, and the enclosed proxy card will be borne by the Company.
In addition to the solicitation of proxies by use of the mails, the Company
may utilize the services of some of its officers and regular employees (who will
receive no compensation therefore in addition to their regular salaries) to
solicit proxies personally and by telephone and telecopy. The Company has
requested banks, brokers and other custodians, nominees, and fiduciaries to
forward copies of the proxy material to their principals and to request
authority for the execution of proxies, and will reimburse such persons for
their expenses in so doing.
SHAREHOLDERS PROPOSALS
Any shareholder of the Company who wishes to present a proposal to be
considered at the next annual meeting of shareholders of the Company and who
wishes to have such proposal presented in the Company's proxy statement for such
meeting must deliver such proposal in writing to the Company at 205 Chubb
Avenue, Lyndhurst, New Jersey 07071, on or before December 31, 2000. In order to
curtail controversy as to the date on which the proposal was received by the
Company, it is suggested that proponents submit their proposals by certified
mail, return receipt requested.
By Order of the Board of Directors
/s/ Joseph J. Calabrese, Jr.
----------------------------
Joseph J. Calabrese, Jr., Secretary
Lyndhurst, New Jersey
Dated: July 21, 200
