-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MpJU8NYOKck7csSKOt2ayqtkAkTglXeQZsFGGZvbpnc04lmyi+4ex0BaivK+KTLl +Es4QwJGVv2m1VbWeSKfiQ== 0000950109-96-004063.txt : 19960627 0000950109-96-004063.hdr.sgml : 19960627 ACCESSION NUMBER: 0000950109-96-004063 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960612 ITEM INFORMATION: Other events FILED AS OF DATE: 19960626 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARVER CORP CENTRAL INDEX KEY: 0000766177 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 911043157 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14482 FILM NUMBER: 96585840 BUSINESS ADDRESS: STREET 1: 20121 48TH AVE W STREET 2: P O BOX 1237 CITY: LYNNWOOD STATE: WA ZIP: 98036 BUSINESS PHONE: 2067751202 MAIL ADDRESS: STREET 1: 20121 48TH AVE CITY: LYNNWOOD STATE: WA ZIP: 98036 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): June 12, 1996 ------------- CARVER CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Washington 0-14482 91-1043157 - ---------- ------- ---------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation or organization) File Number Identification No.)
20121 48th Avenue W., Lynnwood, Washington 98036 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (206) 775-1202 ----------------------------- - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) Exhibit Index Appears on Page 6 Page 1 of 74 Pages Item 5. Other Events. On June 12, 1996, Carver Corporation (the "Company") entered into a Stock Purchase Agreement with Renwick Capital Management, Inc. ("Renwick") and certain Renwick affiliates (the "Purchase Agreement"). The Purchase Agreement provides for the sale to affiliates of Renwick of up to 1,411,764 shares of Series A Cumulative Convertible Preferred Stock (the "Preferred Stock") and the issuance to Renwick of five year warrants (the "Warrants") to acquire up to 300,000 shares of the Company's common stock (the "Common Stock"). The financing is to be made over a 90 day period in three tranches each consisting of 470,588 shares of Preferred Stock and Warrants to purchase up to 100,000 shares of Common Stock. The number of shares of Common Stock potentially issuable upon conversion of the Preferred Stock and exercise of the Warrants (assuming no antidilution adjustment becomes necessary) are 1,411,764 and 300,000, respectively, for a potential cumulative total of 1,711,764. These represent approximately 38.3%, 8.1% and 46.4%, respectively, of the 3,687,330 shares of Common Stock outstanding at June 12, 1996. The number of shares of Common Stock which might be issued in payment of the mandatory dividend cannot be determined at this time as such number will vary with the market price of the Common Stock. Concurrently with entering into the Purchase Agreement, the Company closed on the first tranche of the financing (the "Initial Closing"). In connection with the Initial Closing, Renwick Alpha Fund L.P., a special situations investment fund and an affiliate of Renwick, purchased 470,588 shares of Preferred Stock for an aggregate of $1 million, and Renwick received Warrants to purchase 100,000 shares of Common Stock. The Preferred Stock and Warrants sold in connection with the Initial Closing are convertible into, or exercisable for, an aggregate of 570,588 shares of Common Stock, or approximately 15.5% of the 3,687,330 shares of Common Stock outstanding at June 12, 1996. The subsequent tranches of the financing are expected to raise $2.0 million through the issuance of additional shares of Preferred Stock and are expected to close within 90 days. The price of the Preferred Stock is $2.125 per share. The exercise price of the Warrants is $1.50 per share of Common Stock, if exercised from the date of the Initial Closing through the date two years from the date of the Initial Closing, $1.75 for the next year, $2.00 for the next year, and $2.125 for the final year, subject to certain potential antidilution adjustments. Each share of Preferred Stock is convertible at any time at the option of the holder into one share of Common Stock, subject to certain potential antidilution adjustments to be triggered by the issuance of additional shares of Common Stock at less than the lesser of the then current market price or $2.125. The Preferred Stock is entitled to an 8% compounding annual dividend payable quarterly. In the first year such dividend is to be paid with shares of Common Stock. In years two and three (the Preferred Stock will automatically be Page 2 of 74 Pages converted into Common Stock on the third anniversary of issuance, thereby terminating the accruing dividend) the Company has the option of paying the dividend either in cash or with shares of Common Stock. If paid with Common Stock, the number of shares will be based on the greater of $2.125 per share or the average of the closing bid prices for the Common Stock for the 30 days prior to the dividend payment date. The holders of Preferred Stock are entitled to one vote per share. Certain actions by the Company, such as a merger or liquidation, the sale of substantially all of its assets, payment of dividends, amendment of the Company's articles of incorporation, the issuance of additional securities or the incurrence of certain indebtedness, require the approval of the holders of at least a majority (or in some cases, two-thirds) of the holders of the Preferred Stock. Holders of the Preferred Stock and Warrants are also entitled to rights to have the Company register shares of Common Stock issued upon conversion of the Preferred Stock or exercise of the Warrants. In addition, the holders of the Preferred Stock are entitled to elect two representatives to the Company's Board of Directors. The Company's Board of Directors has been increased to up to seven members, and Raj K. Bhatia and James R. McCullough have been appointed to the Board of Directors to represent holders of the Preferred Stock. Bhatia and McCullough are partners of Renwick. By virtue of the number of votes to be controlled by Renwick and its affiliates, their right to elect two of the Company's seven directors and the fact that various actions may not be taken by the Company without the approval of the holders of at least a majority of the Preferred Stock, such holders may be deemed to have acquired control of the Company. Renwick is a New York-based investment banking firm founded in 1994 which specializes in the identification of undervalued growth companies exhibiting the potential for an operational turn-around. Renwick actively supports its principal investments through the involvement of industry and Wall Street professionals familiar with turn-around situations. The Company designs, develops, manufacturers and markets high-fidelity consumer audio components and systems which are known for their superior sound reproduction. Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: Statements in this Current Report on Form 8-K regarding the subsequent closings under the Purchase Agreement are forward looking statements. Subsequent closings under the Purchase Agreement are subject to, among other things, the absence of any material adverse changes in the business or financial condition of the Company. There can be no assurance that the Company will not experience any such material adverse change or that such subsequent closings will actually occur. Page 3 of 74 Pages
Item 7. Financial Statements and Exhibits. EXHIBIT DESCRIPTION ------- ----------- 2.1 Series A Preferred Stock Purchase Agreement, dated as of June 12, 1996, by and among the Company and each of those persons and entities whose names are set forth on Exhibit A thereto (the "Investors") 4.1 Warrant Agreement, dated as of June 12, 1996, by and among the Company and Renwick Capital Management, Inc. 4.2 Registration Rights Agreement, dated as of June 12, 1996, by and among the Company and the Investors 4.3 Certificate of Designation, as filed with the Secretary of State of the State of Washington on June 12, 1996 4.4 Form of Series A Cumulative Convertible Preferred Stock Certificate 4.5 Form of Warrant Certificate evidencing the right to acquire shares of the Company's Common Stock
Page 4 of 74 Pages SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CARVER CORPORATION By: /s/ John P. World ----------------------------------------- Name: John P. World Title: Executive Vice President, Secretary and General Manager (Principal Accounting Officer) DATE: June 26, 1996 Page 5 of 74 Pages EXHIBIT INDEX
SEQUENTIAL EXHIBIT DESCRIPTION PAGE NO. ------- ----------- ---------- 2.1 Series A Preferred Stock Purchase Agreement, dated as of June 12, 1996, by and among the Company and each of those persons and entities whose names are set forth on Exhibit A thereto (the "Investors") 7 4.1 Warrant Agreement, dated as of June 12, 1996, by and among the Company and Renwick Capital Management, Inc. 35 4.2 Registration Rights Agreement, dated as of June 12, 1996, by and among the Company and the Investors 50 4.3 Certificate of Designation, as filed with the Secretary of State of the State of Washington on June 12, 1996 59 4.4 Form of Series A Cumulative Convertible Preferred Stock Certificate 70 4.5 Form of Warrant Certificate evidencing the right to acquire shares of the Company's Common Stock 72
Paes 6 of 74 Pages EX-2.1 2 SERIES A PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 2.1 CARVER CORPORATION SERIES A PREFERRED STOCK PURCHASE AGREEMENT This Series A Preferred Stock Purchase Agreement, dated as of June 12, 1996, is among Carver Corporation, a Washington corporation (the "Company"), the investors listed on Exhibit A (the "Investors") and Renwick Capital Management, Inc. The parties agree as follows: 1. Definitions; Certain Rules of Construction. Certain capitalized ------------------------------------------ terms are used in this Agreement with the specific meanings defined below in this Section 1. Except as otherwise explicitly specified to the contrary or unless the context clearly requires otherwise, (a) the capitalized term "Section" refers to sections of this Agreement, (c) the capitalized term "Schedule" refers to schedules to this Agreement, (d) references to a particular Section include all subsections thereof, (e) the word "including" shall be construed as "including without limitation", (f) references to a particular statute or regulation include all rules and regulations thereunder and any successor statute, regulation or rules, in each case as from time to time in effect, (g) words in the singular or plural form include the plural and singular form, respectively, and (h) references to a particular Person include such Person's successors and assigns to the extent not prohibited by this Agreement. 1.1 "1933 Act" means the Securities Act of 1933, as amended. -------- 1.2 "1934 Act" means the Securities Exchange Act of 1934, as -------- amended. 1.3 "Certificate of Designation" means the "Certificate of -------------------------- Designation of Series A Cumulative Convertible Preferred Stock setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Such Series of Preferred Stock of Carver Corporation," attached as Exhibit B hereto. 1.4 "Articles of Incorporation" means the Articles of ------------------------- Incorporation of the Company, as amended and in effect from time to time. 1.5 "Closing" is defined in Section 2.4. ------- 1.6 "Common Stock" means the Company's Common Stock, $.01 par ------------ value per share. 1.7 "Company" is defined in the preamble to this Agreement. ------- 1.8 "Initial Closing" is defined in Section 2.4.1 --------------- 1.9 "Investors" is defined in the preamble to this Agreement. --------- Page 7 of 74 Pages 1.10 "Material Adverse Effect" means a material adverse effect ----------------------- on the Company's business as presently conducted and as proposed to be conducted, financial condition, results of operations or ability to perform its obligations under the Transaction Documents. 1.11 "Person" means any present or future natural person or any ------ corporation, association, partnership, limited liability company, limited partnership, joint venture, joint stock or other company, business trust, trust, organization, business or government or any governmental agency or political subdivision thereof. 1.12 "Preferred Shares" means the shares of Common Stock ---------------- issuable upon conversion of the Series A Preferred. 1.13 "Preferred Stock" means the Company's Preferred Stock, $.01 --------------- par value per share. 1.14 "Registration Rights Agreement" means the Registration ----------------------------- Rights Agreement dated as of June 12, 1996, as amended and in effect from time to time, among the Company and the Investors attached as Exhibit C. 1.15 "Related Party" is defined in Section 3.19. ------------- 1.16 "Securities" shall mean the Series A Preferred, the ---------- Warrants, the Preferred Shares and the Warrant Shares. 1.17 "Series A Preferred" means the Company's Series A ------------------ Cumulative Convertible Preferred Stock, par value, $.01 per share. 1.18 "Shares" means each of the Preferred Shares and the Warrant ------ Shares. 1.19 "Subsequent Closing" is defined in Section 2.4.2. ------------------ 1.20 "Transaction Documents" means each of (a) this Agreement, --------------------- (b) the Registration Rights Agreement, (c) the Certificate of Designation, (d) the Warrant Agreement, (e) the Investment Banking Agreement in the form of Exhibit F hereto, (f) any other agreements, instruments, or documents entered into by the Company or its Subsidiaries pursuant to this Agreement; 1.21 "Warrant Agreement" means the form of Common Stock Warrant ----------------- Agreement, dated June 12, 1996 between the Company and Renwick Capital Management, Inc. ("Warrants") to purchase up to 300,000 shares of Common Stock at prices ranging from $1.50 per share to $2.125 per share. 1.22 "Warrant Shares" means the shares of Common Stock issuable -------------- upon exercise of the Warrants. Page 8 of 74 Pages 2. Authorization, Sale and Purchase of Series A Preferred and ---------------------------------------------------------- Warrants -------- 2.1 Authorization of Series A Preferred and Warrants. The ------------------------------------------------ Company has authorized the issuance and sale of up to 1,411,764 shares of Series A Preferred and the Warrants. The rights, privileges, and preferences of the Series A Preferred are as set forth in the Certificate of Designation, a copy of which is attached hereto as Exhibit B and the Articles of Incorporation. 2.2 Sale and Purchase of Series A Preferred. Subject to the --------------------------------------- terms and conditions of this Agreement and on the basis of the representations and warranties set forth herein, the Company agrees to sell to each Investor, and each Investor severally and not jointly agrees to purchase from the Company, the number of shares of Series A Preferred to purchase the number of shares of Common Stock set forth opposite such Investor's name on Exhibit A for a purchase price of $2.125 per share of Series A Preferred. 2.3 Issuance of Warrants. In consideration of the time and --------------------- efforts expended by RCM in connection with the transaction contemplated by this Agreement, the Company agrees to issue to RCM at each Closing, Warrants to acquire one share of Common Stock for every $10 invested in Series A Preferred by the Investors. 2.4 The Closings. The purchase and sale of the Series A ------------ Preferred and Warrants will take place at up to three closings (each a "Closing") at the offices of Renwick Capital Management, Inc., 900 Third -------- Avenue, New York, New York or at such other place as the parties shall mutually agree. At each Closing, the Company will deliver to each Investor a certificate or certificates, registered in each Investor's name, representing the number of shares of Series A Preferred and Warrants to be acquired by such Investor pursuant to this Agreement at such Closing, against payment of the purchase price thereof in lawful money of the United States of America by wire transfer or check payable to the Company. 2.4.1 Initial Closing. The Initial Closing (the "Initial --------------- ------- Closing") shall take place at 12:00 noon (New York time) on June 12, 1996 ------- or at such other time or on such other date as the parties shall mutually agree. Subject to the terms and conditions of this Agreement, and on the basis of the representations and warranties set forth herein, at the Initial Closing each Investor shall purchase the number of Series A Preferred set forth opposite such Investor's name on Exhibit A. 2.4.2 Subsequent Closings. Each subsequent Closing (each a ------------------- "Subsequent Closing") shall take place at such time and on such date as the ------------------- Investors shall designate, but in any event not more than 90 days after the Initial Closing. 3. Representations and Warranties of the Company. In order to induce --------------------------------------------- the Investors to enter into this Agreement and to purchase the Series A Preferred hereunder, the Company hereby represents and warrants to each Investor that: Pages 9 of 74 Pages 3.1 Organization and Corporate Power. The Company and each -------------------------------- subsidiary of the Company ("Subsidiaries") is a corporation (a) duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and (b) qualified to do business as a foreign corporation in each jurisdiction in which such qualification is required and in which the failure to so qualify would have a Material Adverse Effect on such Person other than as set forth on Schedule 3.1. The Company and each Subsidiary have all required corporate power and authority (i) to own its property, (ii) to carry on its business as presently conducted or proposed to be conducted and (iii) to carry out the transactions contemplated hereby. The Company has furnished to the counsel for the Investors correct and complete copies of the charter and by-laws of the Company as amended and in effect on the date hereof. 3.2 Authorization. Each of the Transaction Documents has been ------------- duly executed and delivered by the Company and is the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. The execution, delivery and performance of each of the Transaction Documents have been duly authorized by all necessary corporate action of the Company. 3.3 Capitalization. After the filing of the Certificate of --------------- Designation with the Washington Secretary of State and immediately prior to the Initial Closing, the entire authorized capital stock of the Company will consist of (i) 2,000,000 shares of Preferred Stock, of which 1,411,767 shares will be designated Series A Preferred and of which no shares will be issued and outstanding, and (ii) 20,000,000 shares of Common Stock, of which 3,687,330 shares will be issued and outstanding. The Company holds no shares of Series A Preferred and no shares of Common Stock in its treasury. When issued in accordance with the terms of this Agreement, the Series A Preferred will be duly authorized, validly issued and outstanding, fully paid and nonassessable. When issued, the Warrants will be a valid and binding obligation of the Company, enforceable in accordance with their terms. When issued, upon the conversion of the Series A Preferred, or upon the exercise of the Warrants, the Preferred Shares and the Warrant Shares, respectively, will be duly issued, fully paid and non-assessable. Other than as set forth on Schedule 3.3 and except for the securities, there are no outstanding warrants, options or other rights to purchase or acquire from the Company or exchangeable for or convertible into, any shares of Preferred Stock or Common Stock. There are no preemptive rights with respect to the issuance or sale by the Company of the Shares which have not been waived. Except as provided in the Registration Rights Agreement or as imposed by applicable securities laws, there are no restrictions on the transfer or voting of any shares of Series A Preferred or Common Stock. Other than as set forth in the Registration Rights Agreement, there are no existing rights with respect to registration under the 1933 Act of any of the Company's securities. The Company has not violated the 1933 Act or any state blue sky or securities laws in connection with the issuance of any of its securities. 3.4 Noncontravention. Neither the execution and the delivery of ---------------- the Transaction Documents, nor the consummation of the transactions contemplated hereby, will (i) violate any statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Page 10 of 74 Pages the Company or any Subsidiary is subject or any provision of the charter or bylaws of any of the Company or any Subsidiary nor (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Company or any Subsidiary is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any security interest upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or security interest would not have a Material Adverse Effect on the ability of the parties to consummate the transactions contemplated by the Transaction Documents. The Company need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the parties to consummate the transactions contemplated by the Transaction Documents, which has not been given, made or obtained, except where the failure to give notice, to file, or to obtain any authorization, consent, or approval would not have a Material Adverse Effect on the ability of the parties to consummate the transactions contemplated by this Agreement. 3.5 Financial Statements. Attached hereto as Exhibit G are the -------------------- following financial statements (collectively the "Financial Statements"): (i) audited consolidated balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal years ended December 31, 1993, December 31, 1994 and December 31, 1995 for the Company; and (ii) unaudited consolidated balance sheets and statements of income, changes in stockholders' equity, and cash flow (the "Most Recent Financial Statements") as of and for the three months ended March 31, 1996, (the "Most Recent Fiscal Month End") for the Company and its Subsidiaries. The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly the financial condition of the Company and its Subsidiaries as of such dates and the results of operations of the Company and its Subsidiaries for such periods; provided, however, that the Most Recent Financial Statements are subject to normal year-end adjustments and lack footnotes and other presentation items. 3.6 Absence of Certain Developments. Except as disclosed in ------------------------------- Schedule 3.6, there has not been since the date of the Most Recent Financial Statements, any (a) change in the condition, financial or otherwise, of the Company or any Subsidiary or in the assets, liabilities, properties, or business of the Company or any Subsidiary or in the prospects of the Company or any Subsidiary, which has had or will have Material Adverse Effect, (b) declaration, setting aside or payment of any dividend or other distribution with respect to the capital stock of the Company, (c) loss, destruction or damage to any property of the Company or any Subsidiary whether or not insured, which loss will have a Material Adverse Effect, (d) labor trouble involving, or any material change in, any of their respective personnel or the terms and conditions of employment, (e) waiver by the Company or any Subsidiary of any valuable right, (f) loan or extension of credit by the Company or any Subsidiary to any of their respective officers or employees or (g) acquisition or disposition of any material assets (or any contract or Page 11 of 74 Pages arrangement therefor) or any other material transaction by the Company or any Subsidiary otherwise than for fair value in the ordinary course of business. 3.7 Legal Compliance. Except as disclosed in Schedule 3.7, to ---------------- ----------- the Company's knowledge, each of the Company and the Subsidiaries has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local and foreign governments (and all agencies thereof), except where the failure to comply would not have a Material Adverse Effect. 3.8 Title to Properties. Except as disclosed in Schedule 3.8, ------------------- ------------ other than (a) any lien in respect of current taxes not yet due and payable and (b) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company and which have arisen in the ordinary course of business and shall be removed within a reasonable period, the Company has good and marketable title to all properties and assets necessary to its business as presently conducted and as proposed to be conducted and to all of its properties and assets, free and clear of all mortgages, security interests, liens, restrictions or encumbrances. All machinery and equipment included in such properties which is necessary to the business of each of the Company and its Subsidiaries is in good condition and repair except for reasonable wear and tear, and all leases of real or personal property to which each of the Company and its Subsidiaries is a party are fully effective and afford the party thereto peaceful and undisturbed possession of the subject matter of the lease. To the best knowledge of the Company, neither it nor any Subsidiary is in material violation of any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of owned or leased properties that is likely to impede the normal operation of the business of the Company or any Subsidiary and the Company has not received any written notice of violation with which it has not complied. 3.9 Tax Matters. Except as set forth in Schedule 3.9, there are ----------- no federal, state, county or local taxes due and payable by the Company or any of its Subsidiaries, which have not been paid. There have been no examinations or audits of any tax returns or reports by any applicable federal, state or local governmental agency. The Company has duly filed all federal, state, county and local tax returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to taxes for any year. 3.10 Contracts and Commitments. Except for the contracts ------------------------- described in Schedule 3.10, copies of which have been made available to the ------------- counsel for the Investors, neither the Company nor any Subsidiary is a party to (a) any contract, obligation or commitment (other than the negotiations and preparation of the Transaction Documents) which involves by its terms a commitment in excess of $100,000 or (b) any agreements with any officer, director or affiliate of the Company, including employment contracts (including contracts with any common law employee, agent or independent contractor), management agreements, stock redemption or purchase agreements, financing agreements, distribution right agreements, royalty agreements, licenses under which the Page 12 of 74 Pages Company is licensee or licensor, leases of real property or pension, profit-sharing, retirement or stock option plans. 3.11 No Defaults. Except as disclosed on Schedule 3.11 and ----------- ------------- except for those which will not have a Material Adverse Effect, the Company is not in default (a) under its Articles of Incorporation or by-laws or any note, indenture, mortgage, lease, agreement, contract, purchase order or other instrument, document or agreement to which it is a party or by which it or any of its property is bound or affected or (b) with respect to any order, writ, injunction or decree of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. To the best knowledge of the Company, there does not exist any condition, event or act which after notice, lapse or time, or both, could constitute a default by the Company under any of the foregoing except for those which will not have a Material Adverse Effect. To the best knowledge of the Company, no third party is in default under any agreement, contract or other instrument, document or agreement to which the Company is a party or by which any of them or any of their property is affected, which default would have a Material Adverse Effect. 3.12 The Company possesses sufficient right and authority to use all know-how, proprietary information, copyrights, trademarks, patent rights and other proprietary and intellectual properties necessary to the conduct of its business as presently conducted and as proposed to be conducted ("Intellectual Properties") without infringing the rights of others. The Company has taken reasonable and appropriate steps and precautions to protect and preserve the confidentiality of all trade secrets and confidential information of the Company or others entrusted to it including, without limitation, entering into appropriate confidentiality and nondisclosure agreements with all those employees and other parties with access to or knowledge of confidential or proprietary information relating to or included in the Intellectual Properties. The Company's operations do not infringe any copyright, trademark, service mark, trade name, patent, patent right or any other right of any person, whether registered or unregistered, nor do they involve the misappropriation of any trade secret of any person, except for such infringements or misappropriation as will not have a Material Adverse Effect. The Company has not received notice from any person alleging that such infringement or misappropriation has occurred or is continuing. 3.13 No Governmental Consent or Approval Required. Based in -------------------------------------------- part on the representations made by the Investors in Section 4, other than (a) federal or state securities law filings which have been made or which will be made in a timely manner and (b) the filing of the Certificate of Designation (which, as of the Initial Closing, will have been filed), no authorization, consent, approval or other order of, declaration to, or filing with, any governmental agency or body is required for or in connection with the valid and lawful authorization, execution and delivery by the Company of any of the Transaction Documents or the authorization, issuance, sale and delivery of the Securities. 3.14 Litigation. Except as disclosed on Schedule 3.14, there is ---------- not any action, suit, proceeding or investigation pending or, to the best knowledge of the Company, threatened against the Company or any of its Subsidiaries which questions the Page 13 of 74 Pages validity of any of the Transaction Documents or the right of the Company to enter into them or to consummate the transactions contemplated hereby or thereby, or which would have either individually or in the aggregate, a Material Adverse Effect or any change in the current equity ownership of the Company or any of its Subsidiaries, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending, or to the best knowledge of the Company and its Subsidiaries, threatened, involving the prior employment of any of the employees of the Company or any of its Subsidiaries, their use in connection with the business of the Company or any of its Subsidiaries of any information, creations or techniques allegedly proprietary to any of their former employers or other Persons or entities, or their obligations under any agreements with prior employers or other Persons or entities. Neither the Company nor any of its Subsidiaries nor, to the best of the Company's knowledge, any of their respective officers or directors is a party to, or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality which would have a Material Adverse Effect. Except as disclosed on Schedule 3.14, there is no action, suit or proceeding by the Company or any of its Subsidiaries presently pending or which the Company or any of its Subsidiaries presently intends to initiate. 3.15 Securities Laws. The Common Stock is registered under --------------- Section 12(g) of the 1934 Act and the Company is currently in compliance with, and, except as set forth in Schedule 3.15, at all times for the last ------------- five (5) years has been, in compliance with the periodic reporting requirements and the rules and regulations of the 1934 Act and The Nasdaq National Market except for such failures to comply as will not have a Material Adverse Effect. 3.16 Business. Each of the Company and its Subsidiaries has all --------- franchises, permits, licenses and other rights and privileges necessary to permit it to own its property and to conduct its present business. Neither the Company nor any of its Subsidiaries is in violation of any law, regulation, authorization or order of any public authority relevant to the ownership of its properties or the carrying on of its present business which in the aggregate would have a Material Adverse Effect. 3.17 Brokerage. There are no claims for brokerage commissions --------- or finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement made by or on behalf of the Company or any of its Subsidiaries, and the Company agrees to pay any such brokerage commissions, finder's fees or similar compensation and to indemnify and hold the Investors harmless against any damages incurred as a result of any such claim. 3.18 Books and Records. The minute books of each of the Company ----------------- and its Subsidiaries contain complete and accurate records of all meetings and other corporate actions of its stockholders, its Board of Directors and all committees, if any, appointed by its Board of Directors. The stock ledger of each of the Company and its Subsidiaries is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company or such Subsidiary, as the case may be. The books of account, ledgers, order books, records and documents of each of the Company Page 14 of 74 Pages and its Subsidiaries accurately and completely reflect all material information relating to its business, the nature, acquisition, maintenance, location and collection of their respective assets and the nature of all transactions giving rise to its obligations and accounts receivable. 3.19 Material Facts. This Agreement, the Exhibits, the -------------- Schedules and each other agreement, document, certificate or written statement furnished, or to be furnished, to the Investors through each Subsequent Closing by or on behalf of the Company or any of its Subsidiaries in connection with the transactions contemplated hereby inclusive of the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1996 do not, or will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein in light of the circumstances in which they were made not misleading. 4. Representations, Warranties and Certain Other Agreements of the --------------------------------------------------------------- Investors and RCM. ------------------ 4.1 Representations and Warranties of the Investors. Each ----------------------------------------------- Investor severally and not jointly hereby represents and warrants that: 4.1.1. Authorization. Such Investor has full power and ------------- authority to execute, deliver and perform this Agreement and the Registration Rights Agreement and to acquire the Series A Preferred and Preferred Shares. Each of this Agreement and the Registration Rights Agreement constitutes the legal, valid and binding obligation of such Investor, enforceable against such Investor in accordance with its terms. 4.1.2. Purchase Entirely for Own Account. The Series A --------------------------------- Preferred and Preferred Shares to be acquired by such Investor will be acquired for investment for such Investor's own account, not as a nominee or agent and not with a view to the distribution of any part thereof. Such Investor has no present intention of selling, granting any participation in, or otherwise distributing the Series A Preferred and Preferred Shares acquired by such Investor. Such Investor does not have any contract, undertaking, agreement or arrangement with any Person to sell or transfer, or grant any participation to such Person or to any third Person, with respect to any of the Series A Preferred and Preferred Shares to be acquired by such Investor. 4.1.3. Restricted Securities. Such Investor understands --------------------- that the Series A Preferred and Preferred Shares to be acquired by such Investor have not been registered under the 1933 Act or the laws of any state and may not be sold or transferred, or otherwise disposed of, without registration under the 1933 Act and applicable state securities laws, or an exemption therefrom, and that in the absence of an effective registration statement covering the Series A Preferred and Preferred Shares to be acquired by such Investor must be held indefinitely. In the absence of an effective registration statement covering the Securities to be acquired by such Investor, such Investor will sell or transfer, or otherwise dispose of, the Securities to be acquired by Page 15 of 74 Pages such Investor only in a manner consistent with its representations and agreements set forth herein and the terms and conditions set forth in the Registration Rights Agreement. 4.1.4 Formation. Such Investor represents that it was not --------- organized for the purpose of making an investment in the Company. 4.1.5 Financial Condition. Such Investor's financial ------------------- condition is such that it is able to bear the risk of holding the Series A Preferred and Preferred Shares to be acquired by such Investor for an indefinite period of time and can bear the loss of its entire investment in the Securities to be acquired by such Investor. Investor has substantial experience in evaluating and investing in private placement transactions of securities and companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company. Renwick Alpha Fund, L.P. is an "accredited investor", as that term is defined in Rule 501 promulgated under the 1933 Act. Renwick Special Situations, L.P. does not, and as of the date of each Closing in which it participates will not, have more than 30 equity owners who are not "accredited investors." 4.1.6 Receipt of Information. Such Investor has been ---------------------- furnished access to the business records of the Company and its Subsidiaries and such additional information and documents as such Investor has requested and has been afforded an opportunity to ask questions of, and receive answers from, representatives of the Company and its Subsidiaries concerning the terms and conditions of this Agreement, the purchase of the Securities, the business, operations, market potential, capitalization, financial condition and prospects of the Company and its Subsidiaries, and all other matters deemed relevant to such Investor. Such Investor confirms that it has been furnished (i) the Company's Annual Report on Form 10-K with respect to the Company's fiscal year ending December 31, 1995, (ii) the Company's Quarterly Report on Form 10-Q with respect to the Company's fiscal quarter ending March 31, 1996, (iii) the proxy statement with respect to the Company's 1996 annual shareholders' meeting, (iv) a Current Report of the Company on Form 8-K dated May 1, 1996, and (v) a description of the Securities and the use of proceeds from the sale thereof. 4.1.7 Brokerage. There are no claims for brokerage --------- commissions or finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of such Investor, and such Investor agrees to indemnify and hold the Company and its Subsidiaries and other Investors harmless against any damages incurred as a result of any such claims. 4.2 Representations and Warranties of RCM. RCM represents and ------------------------------------- warrants that: 4.2.1. Authorization. RCM has full power and authority to ------------- execute, deliver and perform this Agreement, the Warrant Agreement and the Registration Rights Agreement and to acquire Warrants and Warrant Shares. Each of this Agreement, the Warrant and the Registration Rights Agreement constitutes the legal, Page 16 of 74 Pages valid and binding obligation of such Investor, enforceable against RCM in accordance with its terms. 4.2.2. Purchase Entirely for Own Account. The Warrants and --------------------------------- Warrant Shares to be acquired by RCM will be acquired for investment for RCM's own account, not as a nominee or agent and not with a view to the distribution of any part thereof. RCM has no present intention of selling, granting any participation in, or otherwise distributing the Warrants and Warrant Shares acquired by RCM other than to certain officers, employees or consultants to RCM. RCM does not have any contract, undertaking, agreement or arrangement with any Person to sell or transfer, or grant any participation to such Person or to any third Person, with respect to any of the Warrants and Warrant Shares to be acquired by RCM other than with respect to such limited number of officers or consultants of RCM. 4.2.3. Restricted Securities. RCM understands that the --------------------- Warrants and Warrant Shares to be acquired by RCM may not be sold or transferred, or otherwise disposed of, without registration under the 1933 Act and applicable state securities laws, or an exemption therefrom, and that in the absence of an effective registration statement covering the Warrants and Warrant Shares to be acquired by RCM must be held indefinitely. In the absence of an effective registration statement covering the Warrants and Warrant Shares to be acquired by RCM, RCM will sell or transfer, or otherwise dispose of, the Warrants and Warrant Shares to be acquired by RCM only in a manner consistent with its representations and agreements set forth herein and the terms and conditions set forth in the Registration Rights Agreement. 4.2.4 Formation. RCM represents that it was not organized --------- for the purpose of making an investment in the Company. 4.2.5 Financial Condition. RCM's financial condition is ------------------- such that it is able to bear the risk of holding the Warrants and Warrant Shares to be acquired by RCM for an indefinite period of time and can bear the loss of its entire investment in the Warrants and Warrant Shares to be acquired by RCM. RCM has substantial experience in evaluating and investing in private placement transactions of securities and companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company. RCM is an "accredited investor", as that term is defined in Rule 501 promulgated under the 1933 Act. 4.2.6 Receipt of Information. RCM has been furnished ---------------------- access to the business records of the Company and its Subsidiaries and such additional information and documents as RCM has requested and has been afforded an opportunity to ask questions of, and receive answers from, representatives of the Company and its Subsidiaries concerning the terms and conditions of this Agreement, the purchase of the Warrants and Warrant Shares, the business, operations, market potential, capitalization, financial condition and prospects of the Company and its Subsidiaries, and all other matters deemed relevant to RCM. Page 17 of 74 Pages 4.2.7 Brokerage. There are no claims for brokerage --------- commissions or finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of RCM, and RCM agrees to indemnify and hold the Company and its Subsidiaries and other Investors harmless against any damages incurred as a result of any such claims. 4.3 Further Limitations on Disposition. Each Investor and RCM ---------------------------------- further agree not to make any disposition of all or any portion of the Securities unless and until: (a) there is in effect a registration statement under the 1933 Act covering such proposed disposition and such disposition is made in accordance with such registration statement and all applicable state securities laws; or (b) (i) such Investor or RCM shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition and (ii) such Investor or RCM shall have furnished the Company with an opinion of counsel reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the 1933 Act and that all requisite action has been or will, on a timely basis, be taken under any applicable state securities laws in connection with such disposition notwithstanding the provisions of clauses (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by any Investor or RCM(i) pursuant to Rule 144(k) promulgated under the 1933 Act, (ii) pursuant to Rule 144A promulgated under the 1933 Act or (iii) a transfer by an Investor or RCM to a partner, Subsidiary, shareholder, officer, employee or affiliate of such Investor, if, in the case of clauses (ii) and (iii) above, the transferee agrees in writing to be subject to the terms hereof to the same extent as if such transferee were an original Investor hereunder. 4.4 Legends. It is understood that the certificates evidencing ------- the Securities may bear substantially the following legends: (a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND SUCH SECURITIES MAY NOT BE OFFERED FOR RESALE, SOLD, ASSIGNED OR OTHERWISE HYPOTHECATED FOR VALUE (INCLUDING BY ANY PLEDGEE) UNLESS (A) THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND THE SECURITIES LAWS OF ALL APPLICABLE STATES OF THE UNITED STATES, OR (B) THE SECURITIES ARE OFFERED AND SOLD IN COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS AND, AT THE OPTION OF THE COMPANY, THE HOLDER PROVIDES AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO SUCH EFFECT. Page 18 of 74 Pages (b) Any legend required by the Registration Rights Agreement or the laws of any applicable jurisdiction. 5. Conditions to the Investors' Obligations at Each Closing. The -------------------------------------------------------- obligations of the Investors under Section 2 to purchase the Series A Preferred to be acquired by the Investors at any Closing are subject to the fulfillment at or prior to such Closing of each of the following conditions (unless waived by the Investors in accordance with Section 11.5): 5.1 Representations and Warranties. The representations and ------------------------------ warranties of the Company contained in Section 3 shall be true and correct on and as of the date of such Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 5.2 Performance. The Company shall have performed and complied ----------- with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before such Closing. 5.3 Compliance Certificate. The Company shall deliver to the ---------------------- Investors at such Closing a certificate signed by the chief executive officer or general counsel of the Company certifying that the conditions specified in Sections 5.1, 5.2, 5.5, 5.6 and 5.8 have been fulfilled. 5.4 Certificate of Designation. The Company shall have filed -------------------------- with the Washington Secretary of State a certificate of designation to the Articles of Incorporation of the Company in the form of Exhibit B. --------- 5.5 Qualifications. All authorizations, approvals, or permits, -------------- if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities to the Investors pursuant to this Agreement shall have been duly obtained and shall be effective on and as of such Closing other than those which are not required to be obtained before such Closing. 5.6 Proceedings and Documents. All corporate and other ------------------------- proceedings in connection with the transaction contemplated at such Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investors and to the special counsel for the Investors, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 5.7 Opinion of Company Counsel. The Investors shall have -------------------------- received from Heller, Ehrman, White & McAuliffe, counsel for the Company, an opinion dated as of the date of such Closing in substantially the form of Exhibit H. --------- 5.8 Secretary's Certificate. The Company shall have delivered ----------------------- to the Investors a certificate dated as of the date of such Closing and signed by the secretary of Page 19 of 74 Pages the Company certifying: (a) that attached thereto is a true and complete copy of the by-laws of the Company as in effect on the date of such certification; (b) that attached thereto is a true and complete copy of all resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of each of the Transaction Documents the issuance, sale and delivery of the Shares, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by the Transaction Documents; (c) that attached thereto is a true and complete copy of the Articles of Incorporation, as amended and in effect on the date of such certification, and (d) as to the incumbency and specimen signature of certain officers of the Company. 5.9 Registration Rights Agreement. The Company shall have ----------------------------- executed and delivered to the Investors the Registration Rights Agreement. 5.10 Investment Banking Agreement. The Company shall have ---------------------------- executed and delivered an Investment Banking Agreement substantially in the form as attached as Exhibit F. --------- 5.11 Warrant. The Company shall have issued a Warrant ------- Certificate in the form included as Exhibit E hereto to purchase such number of shares of Common Stock as shall equal one share of Common Stock for every $10 invested by the Investors in Series A Preferred at the Closing. 6. Conditions of the Company's Obligations at Each Closing. The ------------------------------------------------------- obligations of the Company under Section 2 to sell Securities at any Closing are subject only to the fulfillment at or prior to such Closing of each of the following conditions (unless waived by the Company). 6.1 Representations and Warranties. The representations and ------------------------------ warranties of the Investors and RCM contained in Section 4 shall be true and correct as of the date of such Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 6.2 Payment of Purchase Price. The Investors shall have ------------------------- delivered payment of the aggregate purchase price of the Securities to be acquired at such Closing as set forth in Section 2.2. 6.3 Qualifications. All authorizations, approvals, or permits, -------------- if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities to the Investors pursuant to this Agreement shall have been duly obtained and shall be effective on and as of such Closing other than those which are not required to be obtained before such Closing. 6.4 Proceedings and Documents. All corporate and other ------------------------- proceedings in connection with the transactions contemplated at such Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company Page 20 of 74 Pages and to counsel for the Company, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 6.5 Registration Rights Agreement. The Investors shall have ----------------------------- executed and delivered to the Company the Registration Rights Agreement. 6.6 Investment Representations. The individual equity owners of -------------------------- Renwick Special Situations, L.P. who elect to participate in the purchase by that fund of Series A Preferred shall have provided written investment representations to the Company consistent with those set forth in Section 4.1 and otherwise in form acceptable to the Company. 7. Affirmative Covenants of the Company and its Subsidiaries. --------------------------------------------------------- 7.1 Financial and Other Information. ------------------------------- 7.1.1. Annual Financial Statements. The Company will --------------------------- deliver to each Investor holding at least 250,000 shares of Series A Preferred or Preferred Shares: (a) within 90 days after the end of each fiscal year, a copy of the audited consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such fiscal year and the audited consolidated and consolidating statements or income and of cash flows of the Company and its Subsidiaries for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles, consistently applied, and certified in an audit report by independent public accountants of national standing selected by the Board of Directors of the Company which may include Moss Adams; and (b) copies of all financial statements and reports which the Company or any of its Subsidiaries shall send to its stockholders generally or file with the Securities and Exchange Commission or any stock exchange on which any securities of the Company or any of its Subsidiaries may be listed. 7.1.2. Quarterly Financial Statements. The Company will ------------------------------ deliver to each Investor, within 45 days after the end of each of the first three quarters of each fiscal year, (a) a copy of the unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such fiscal quarter and the unaudited consolidated and consolidating statements of income and of cash flows of the Company and its Subsidiaries for such fiscal quarter and for the portion of the fiscal year ending on the last day of such fiscal quarter, each of the foregoing balance sheets and statements (i) to set forth in the comparative form the corresponding figures for the same period of the prior fiscal year, (ii) to be in reasonable detail, (iii) to be prepared in accordance with generally accepted accounting principles, consistently applied, except that such financial statements may be subject to normal year-end audit adjustments and may not contain all footnotes required under generally accepted accounting principles, and (iv) to be certified, subject to normal year-end audit adjustments, by the principal Page 21 of 74 Pages financial officer of the Company as true and accurate in all material respects as of the date thereof. 7.1.3. Other Information. The Company will also ----------------- furnish to each Investor with reasonable promptness such other information and data with respect to the Company or any of its Subsidiaries as such Investor may from time to time reasonably request. 7.1.4 Directors and Officers Insurance. The Company --------------------------------- shall maintain insurance reasonably acceptable in form to the Investors covering liability of directors and officers of the Company which shall include the nominees of the Investors as beneficiaries for as long as the Investors have the right to nominate directors to the Board of the Company. 7.2 Confidentiality. Each Investor covenants and agrees that --------------- such Investor and any Person controlled by such Investor receiving information under Section 7.1 shall maintain the confidentiality of all financial, confidential and proprietary information of the Company and any of its Subsidiaries acquired by such Person in receiving such information and exercising any rights. Notwithstanding the preceding sentence, each Investor or Person controlled by such Investor may (a) disclose such information when required by a subpoena or other process, provided that such Investor or Person first gives the Company advance notice of such disclosure as soon as practicable; (b) disclose such information to the extent necessary to enforce this Agreement and the transactions contemplated hereby; (c) disclose such information to its attorneys, accountants, consultants and other professionals to the extent necessary to obtain their services in connection with its investment in the Company, provided that the requirements of this Section 7.2 shall in turn be binding on any such attorney, accountant, consultant or other professional; and (d) disclose such information as may be required by any prospective purchaser of any Securities from such Investor. Each Investor may also disclose such information to any Subsidiary, affiliate, partner or shareholder who shall first agree in writing to be bound by the provisions of this Section 7.2. 7.3 Change in Nature of Business. Neither the Company nor any ---------------------------- of its Subsidiaries shall make any material change in the nature of its business as carried on at the date hereof or as contemplated in written materials delivered to the Investors prior to the date hereof. 7.4 Payment of Expenses. The Company shall pay at each Closing ------------------- all reasonable expenses of the Investors (including all out-of-pocket expenses and the reasonable fees and disbursements of special counsel for the Investors) not to exceed an aggregate of $50,000, incurred through the date of such Closing in connection with the discussion, evaluation, negotiation and documentation of the transactions contemplated by the Transaction Documents and all amendments, waivers, consents and other operations thereunder. Page 22 of 74 Pages 7.5 Termination of Covenants. The covenants set forth in this ------------------------ Section 7 shall terminate and be of no further force or effect on the earlier of (i) the fifth anniversary of the initial Closing hereunder or (ii) such time as no Investor continues to own shares of Series A Preferred Stock or Warrants convertible into or exercisable for an aggregate of 50,000 shares of Common Stock. 8. Notices. Any notice required to be given pursuant to this ------- Agreement shall be given in writing. Any notice, consent, approval, demand and other communication in connection with this Agreement shall be deemed to be given if given in writing (including facsimile, telecopy or similar transmission) addressed as provided below (or to the addressee at such other address as the addressee shall have specified by notice actually received by the addressor), and if either (a) actually delivered in fully legible form to such address (evidenced in the case of a telecopy by receipt of a telecopy transmission confirmation) or (b) in the case of a letter, five days shall have elapsed after the same shall have been deposited in the United States mails (i) with first-class postage prepaid and registered or certified, with return receipt requested, or (ii) with express delivery postage prepaid, with receipt required for delivery. If to the Company, to it at 20121-48th Avenue West, Lynnwood, Washington 98036. If to any Investor, or RCM, to it at its address set forth on Exhibit ------- A, with a copy to Crummy, Del Deo, Dolan, Griffinger & Vecchione, a - Professional Corporation, One Riverfront Plaza, Newark, New Jersey 07102- 5497, Telecopy: (201) 596-0545 to the attention of Jeffrey A. Baumel, Esq. 9. Survival of Covenants; Assignability of Rights. All covenants, ---------------------------------------------- agreements, representations and warranties of the Company made in this Agreement (including the Exhibits and Schedules), the other Transaction Documents and any other written information delivered or furnished to any Investor in connection herewith or therewith: (a) shall be deemed material and to have been relied upon by such Investor; and (b) except as provided otherwise in this Agreement: (i) shall survive the delivery of the Shares; (ii) shall bind each of the Company and its successors and assigns (whether so expressed or not); and (iii) shall inure to the benefit of each of the Investors and their respective successors and assigns and each transferee of any Shares (whether so expressed or not), but only if such transferee is (A) an affiliate, partner or stockholder of such Investor or transferee or an account managed or advised by the manager or advisor of such Investor or transferee or (B) a transferee or assignee of at least 50,000 Shares, as Page 23 of 74 Pages adjusted for any stock split, stock dividend or other recapitalization, provided in any event that the Company is given written notice at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and provided, further, that the transferee or assignee agrees in writing to abide by and assume each and every duty and obligation of an Investor pursuant to this Agreement. 10. Parties in Interest. All covenants, agreements, representations, ------------------- warranties and undertakings in this Agreement made by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto (whether so expressed or not). 11. Course of Dealing; Amendments, Waivers and Consents. No course --------------------------------------------------- of dealing between any Investor, on one hand, and the Company, on the other hand, shall operate as a waiver of any Investor's rights under this Agreement or any other Transaction Document. The Company acknowledges that if any Investor, without being required to do so by this Agreement or any other Transaction Document, gives any notice of information to, or obtains any consent from, the Company, the Investors shall not by implication have amended, waived or modified any provision of this Agreement or any other Transaction Document, or created any duty to give any such notice or information or to obtain such consent on any future occasion. No delay or omission on the part of any Investor in exercising any right under this Agreement or any other Transaction Document shall operate as a waiver of such right or any other right hereunder or thereunder. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. No amendment, waiver or consent with respect to this Agreement shall be binding unless it is in writing and signed by each of the Company and the holders of a majority of the aggregate shares of Series A Preferred and or the Shares into which such Series A Preferred have been converted. Any amendment or waiver effected in accordance with this Section 11 shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible or exercisable), each future holder of any of such securities and the Company. 12. General. All Exhibits and Schedules are hereby incorporated by ------- reference and made a part of this Agreement. If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum extent allowable by law, be modified by such court so that it becomes enforceable, and, as modified, shall be enforced as any other provision hereof, all the other provisions hereof continuing in full force and effect. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation hereof. This Agreement and the other Transaction Documents constitute the entire understanding of the parties with respect to the subject matter hereof and supersede any and all prior understandings and agreements, whether written or oral, with respect to such subject matter. This Agreement may be executed in counterparts, which together shall constitute one and the same instrument. This Agreement shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the State of New York. Page 24 of 74 Pages IN WITNESS WHEREOF, each of the undersigned has caused this Stock Purchase Agreement to be executed by a duly authorized officer as an agreement under seal as of the date first above written. COMPANY CARVER CORPORATION [Corporate Seal] By: /s/ Stephen M. Williams ------------------------ Title: President Attest: ------------------------ Title: INVESTORS RENWICK SPECIAL SITUATIONS, L.P. By: /s/ Raj K. Bhatia ------------------ Title: General Partner RENWICK ALPHA FUND, L.P. By: /s/ Raj K. Bhatia ------------------ Title: General Partner RCM RENWICK CAPITAL MANAGEMENT, INC. By: /s/ Raj K. Bhatia ------------------ Title: Co-President Page 25 of 74 Pages EXHIBITS/SCHEDULES
Exhibits -------- A -Investors B -Certificate of Designation C -Registration Rights Agreement D -Intentionally Omitted E -Warrant Agreement F -Investment Banking Agreement G -Financial Statements H -Opinion of Company Counsel Schedules --------- 3.1 -Organization and Corporate Power 3.3 -Capitalization 3.6 -Absence of Certain Developments 3.7 -Legal Compliance 3.8 -Properties 3.9 -Tax Matters 3.10 -Contracts 3.11 -Defaults 3.12 -Intellectual Property 3.14 -Litigation 3.15 -Securities Laws Compliance
Page 26 of 74 Pages EXHIBIT A Investor Address Purchase Price No. of Shares ------------- Closing I Renwick Alpha Fund, L.P. 900 Third Avenue, 27th Floor New York, NY 10022 $1,000,000 470,588 Closing II Renwick Special Situations Fund, L.P. 900 Third Avenue, 27th Floor New York, NY 10022 $1,000,000 470,588 Closing III Renwick Special Situations Fund, L.P. 900 Third Avenue, 27th Floor New York, NY 10022 $1,000,000 470,588 Page 27 of 74 Pages EXHIBIT B Certificate of Designation See Exhibit 4.3 to this Current Report on Form 8-K Page 28 of 74 Pages EXHIBIT C Registration Rights Agreement See Exhibit 4.2 to this Current Report on Form 8-K Page 29 of 74 Pages EXHIBIT E Warrant Agreement See Exhibit 4.1 to this Current Report on Form 8-K Page 30 of 74 Pages EXHIBIT F CONSULTING AGREEMENT June 12, 1996 Carver Corporation 20121 48th Avenue West Lynnwood, Washington 98036 Attention: Stephen Williams, President Dear Mr. Williams: This will confirm the arrangements, terms and conditions pursuant to which Renwick Capital Management, Inc. (the "Consultant"), has been retained to serve as a financial consultant and advisor to Carver Corporation, a Washington corporation (the "Company"), on a non-exclusive basis for a period of three (3) years commencing on June 12, 1996. The undersigned hereby agrees to the following terms and conditions: 1. Duties of Consultant. Consultant shall, at the request of the -------------------- Company, upon reasonable notice, render the following services to the Company from time to time: (a) Consulting Services. Consultant will provide such financial ------------------- consulting services and advice pertaining to the Company's business affairs as the Company may from time to time reasonably request. Without limiting the generality of the foregoing, Consultant will assist the Company in developing, studying and evaluating financing and merger and acquisition proposals based upon documentary information provided to the Consultant by the Company. (b) Financing. Consultant will assist and represent the Company in --------- obtaining both short and long-term financing. The Consultant will be entitled to additional compensation under certain circumstances in accordance with the terms set forth in Section 3 hereof. (c) Wall Street Liaison. Consultant will, when appropriate, arrange ------------------- meetings between representatives of the Company and individuals and financial institutions in the investment community, such as security analysts, portfolio managers and market makers. (d) Consultant will provide counsel with respect to initiating or conducting discussions and negotiations with potential acquirers and, if requested by the Company, participate in such discussions and negotiations. Consultant will also provide advice with respect to the pricing, structure and form of any such transaction. If requested, for an additional reasonable fee to be agreed upon by the Consultant and the Company, Page 31 of 74 Pages Consultant will assist the Company in preparing a descriptive memorandum which shall be made available or used in discussions with prospective investors, lenders or acquirers. (e) Fairness Opinion. If requested in connection with a transaction ------------------- pursuant to which we are entitled to receive the completion fee provided for in Section 3 below, we will render an opinion as to the fairness from a financial point of view to the Company and its shareholders of the consideration to be received by the Company and/or its shareholders in connection with such transaction. If, for any reason, a transaction is not consummated and the fee provided for below is not paid, the Company will reimburse the Consultant for its services rendered on the basis of the amount of time devoted to preparing the opinion or the draft thereof, at a reasonable hourly rate to be agreed upon by the Consultant and the Company. In addition to the foregoing services, Consultant will render such additional services as may be requested by the Company and determined to be reasonable by the Consultant. The services described in this Section 1 shall be rendered by Consultant at such time and place and in such manner (whether by conference, telephone, letter or otherwise) as Consultant may reasonably determine. 2. Compensation. As compensation for Consultant's services ------------ hereunder, the Company shall pay to Consultant a monthly fee of $4,167. 3. Additional Compensation in Certain Circumstances. In addition to ------------------------------------------------ the financial consulting services described in Section 1 above, Consultant may introduce the Company to persons, whether individuals or entities, that may be suitable candidates for providing the Company with debt or equity financing or that may be suitable candidates to purchase substantially all of the stock or assets of the Company, merge with the Company, or enter into a joint venture or other transaction with the Company. If, at any time up until the first anniversary of the date hereof, the Company enters into an agreement with any such persons or their affiliates, pursuant to which the Company obtains debt or equity financing or pursuant to which substantially all of the Company's stock or assets is purchased or the Company is merged with or into another entity the Company will pay to Consultant, in accordance with the formula set forth below, additional compensation based on the aggregate of all proceeds received by the Company (the "Consideration") in such transaction (the "Transaction"), provided, however, that no such compensation shall be payable in connection with Transactions with any of the parties listed on Attachment A. The additional compensation to be paid will be paid upon the closing of the Transaction, by certified check, in the following amounts: a) 2% of the first $8,000,000 of the consideration paid in the Transaction; b) 3% of the consideration in excess of $8,000,000 and up to $11,000,000; c) 3.25% of the consideration in excess of $11,000,000 and up to 12,000,000 Page 32 of 74 Pages d) 3.50% of the consideration in excess of 12,000,000 and up to $13,000,000; e) 4.00% of the consideration in excess of $13,000,000 and up to $14,000,000; and f) 5.00% of the consideration in excess of $14,000,000. 4. Available Time. Consultant shall make available such time as it, -------------- in its sole discretion, shall deem appropriate for the performance of its obligations under this agreement. 5. Relationship. Nothing herein shall constitute Consultant as an ------------ employee or agent of the Company, except to such extent as might hereinafter be agreed upon for a particular purpose. Except as might hereinafter be expressly agreed, Consultant shall not have the authority to obligate or commit the Company in any manner whatsoever. 6. Confidentiality. Except in the course of the performance of its --------------- duties hereunder, Consultant agrees that it shall not disclose any trade secrets, know-how, or other proprietary information not in the public domain learned as a result of this Agreement unless and until such information becomes generally known. 7. Assignment. This Agreement shall not be assignable by any party ---------- except to successors to all or substantially all of the business of either party for any reason whatsoever without the prior written consent of the other party, which consent may be arbitrarily withheld by the party whose consent is required. 8. Governing Law. This Agreement shall be deemed to be a contract ------------- made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State. Very truly yours, RENWICK CAPITAL MANAGEMENT, INC. By: /s/ Raj K. Bhalia ------------------------------ Name: Raj K. Bhalia Title: Co-President AGREED AND ACCEPTED: CARVER CORPORATION By: /s/ Stephen M. Williams -------------------------------- Name: Stephen M. Williams Title: President Page 33 of 74 Pages EXHIBIT G FINANCIAL STATEMENTS Financial statements attached as Exhibit G to the Stock Purchase Agreement consist of (i) the Company's audited consolidated balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal years ended December 31, 1993, December 31, 1994 and December 31, 1995 included in the Company's Annual Report on Form 10-K with respect to the Company's fiscal year ending December 31, 1995 previously filed with the U.S. Securities and Exchange Commission; and (ii) the Company's unaudited consolidated balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the three months ended March 31, 1996 included in the Company's Quarterly Report on Form 10-Q with respect to the Company's fiscal quarter ending March 31, 1996 previously filed with the U.S. Securities and Exchange Commission. Page 34 of 74 Pages EX-4.1 3 WARRANT AGREEMENT, DATED AS OF JUNE 12,1996 EXHIBIT 4.1 WARRANT AGREEMENT WARRANT AGREEMENT dated as of June 12, 1996 (the "Closing Date") between CARVER CORPORATION, a Washington corporation (the "Company"), and RENWICK CAPITAL MANAGEMENT, INC. (hereinafter referred to as the "Holder"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company proposes to issue to the Holder, warrants (the "Warrants") to purchase up to 100,000 shares (the "Shares") of Common Stock of the Company, par value $.01 per share (the "Common Stock") at prices ranging from $1.50 to $2.125 per share pursuant to and in connection with the Series A Preferred Stock Purchase Agreement dated June 12, 1996 by and among the Company, the investors on Schedule A thereof and Renwick Capital Management, Inc.; and NOW, THEREFORE, in consideration of the premises, the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Holder is hereby granted the right to purchase, at ----- any time from the Closing Date until 5:00 P.M., New York time, on the fifth anniversary of the Closing Date (the "Warrant Exercise Term"), up to 100,000 fully-paid and non-assessable Shares at an initial exercise price (subject to adjustment as provided in Article 6 hereof) ("Exercise Price") as follows: a. $1.50 per share if the Warrants are exercised at any time between the Closing Date and 5:00 P.M., New York time, on the second anniversary of the Closing Date; b. $1.75 per share if the Warrants are exercised on or between the day after the second anniversary of the Closing Date and 5:00 P.M., New York time, on the third anniversary of the Closing Date; c. $2.00 per share if the Warrants are exercised on or between the day after the third anniversary of the Closing Date and 5:00 P.M., New York time, on the fourth anniversary of the Closing Date; and d. $2.125 per share if the Warrants are exercised on or between the day after the fourth anniversary of the Closing Date and 5:00 P.M., New York time, on the fifth anniversary of the Closing Date. Page 35 of 74 Pages 2. Warrant Certificates. The warrant certificates (the "Warrant -------------------- Certificates") delivered pursuant to this Agreement shall be in the form set forth in Exhibit A attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. The Warrants are exercisable at the prices ------------------- set forth in Section 1 hereof, payable in cash by certified or official bank check in New York Clearing House Funds payable to the order of the Company, or by wire transfer of immediately available funds to an account designated by the Company, subject to adjustment as provided in Article 7 hereof. Upon surrender of the Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Shares purchased, at the Company's principal offices (currently located at 20121 48th Avenue West, Lynnwood, Washington 98036), the registered holder of a Warrant Certificate shall be entitled to receive a certificate or certificates for the Shares so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder hereof, in whole or in part (but not as to fractional Shares) in increments of at least 50,000 shares (or, if the number of shares available for purchase is less than 50,000, such lesser amount). In the case of the purchase of less than all the Shares purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Shares purchasable thereunder. 4. Issuance of Certificates. ------------------------ Upon the exercise of the Warrants, the issuance of certificates for the Shares purchased shall be made forthwith (and in any event within three business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Article 5 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the Shares shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future President or Vice President of the Company attested to by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. Upon exercise, in part or in whole, of the Warrants, certificates representing the Shares shall bear a legend substantially similar to the following: Page 36 of 74 Pages THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND SUCH SECURITIES MAY NOT BE OFFERED FOR RESALE, SOLD, ASSIGNED OR OTHERWISE HYPOTHECATED FOR VALUE (INCLUDING BY ANY PLEDGEE) UNLESS (A) THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND THE SECURITIES LAWS OF ALL APPLICABLE STATES OF THE UNITED STATES, OR (B) THE SECURITIES ARE OFFERED AND SOLD IN COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS AND, AT THE OPTION OF THE COMPANY, THE HOLDER PROVIDES AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO SUCH EFFECT. 5. Restriction on Transfer of Warrants. ----------------------------------- By acceptance of a Warrant Certificate each Holder represents and agrees that such Holder is acquiring the Warrants evidenced thereby, and that upon exercise thereof it will acquire the Shares, not with a view to any sale, distribution or transfer thereof in violation of the Securities Act of 1933, as amended (the "Act") and acknowledges and agrees that the Warrants and the Shares may not be sold, transferred or otherwise disposed of without registration under the Act or any applicable exemption from the registration requirements of the Act. Holder further acknowledges that the Shares will not be issued pursuant to the exercise of a Warrant unless the exercise of the Warrant and the issuance and delivery of such Shares shall comply with all relevant provisions of law, including without limitation, the Act, and other federal and state securities laws and regulations and the requirements of any stock exchange on which the Shares may then be listed, as established to the reasonable satisfaction of Company. The shares are subject to a Registration Rights Agreement of even date herewith between the Company and the Holder. 6. Price. ----- 6.1 Initial and Adjusted Exercise Price. The initial exercise ----------------------------------- price of each Warrant shall be as set forth in Section 1 hereof. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Article 7 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean -------------- the initial exercise price or the adjusted exercise price, depending upon the context. 7. Anti-Dilution Provisions. The Exercise Price in effect at any ------------------------ time and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: Page 37 of 74 Pages a. In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. b. In case the Company shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (the "Subscription Price") (or having a conversion price per share) less than the lesser of the current market price of the Common Stock (as defined in Subsection (h) below) on the record date mentioned below, or the Exercise Price on such record date (the lesser of such two being the "Adjustment Trigger Price") the Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of such issuance by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on the record date mentioned below and the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at the Adjustment Trigger Price and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such record date and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants; and to the extent that shares of Common Stock are not delivered or securities convertible into Common Stock are not delivered) after the expiration of such rights or warrants the Exercise Price shall be readjusted to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. c. In case the Company shall hereafter distribute to the holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions and dividends or distributions referred to in Subsection (b) above) or subscription rights or warrants (excluding those referred to in Subsection (6) above), then in each such case the Exercise Price in effect thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding Page 38 of 74 Pages multiplied by the current market price per share of Common Stock (as defined in Subsection (h) below), less the fair market value (as determined by the Company's Board of Directors) of said assets or evidences of indebtedness so distributed or of such rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such current market price per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution. d. In case the Company shall issue shares of its Common Stock [excluding shares issued (i) in any of the transactions described in Subsection (a) above, (ii) any Permitted Issuance (as defined in Subsection (m) below), (iii) to shareholders of any corporation which merges into the Company in proportion to their stock holdings of such corporation immediately prior to such merger, upon such merger, or issued in a bona fide public offering pursuant to a firm commitment underwriting, but only if no adjustment is required pursuant to any other specific subsection of this Section (7) (without regard to Subsection (i) below) with respect to the transaction giving rise to such rights] for a consideration per share (the "Offering Price") less than the Adjustment Trigger Price the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares and the number of shares of Common Stock which the aggregate consideration received or to be received [determined as provided in Subsection (g) below] for the issuance of such additional shares would purchase at the Adjustment Trigger Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made. e. In case the Company shall issue any securities convertible into or exchangeable for its Common Stock [excluding securities issued in transactions described in Subsections (b) and (c) above] for a consideration per share of Common Stock (the "Conversion Price") initially deliverable upon conversion or exchange of such securities [determined as provided in Subsection (g) below] less than the Adjustment Trigger Price, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such securities and the number of shares of Common Stock which the aggregate consideration received or to be received [determined as provided in Subsection (g) below] for such securities would purchase at the Adjustment Trigger Price and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance and the maximum number of shares of Common Stock of the Company deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate. Such adjustment shall be made successively whenever such an issuance is made. Page 39 of 74 Pages f. Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsections (a), (b), (c), (d) and (e) above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date of such adjustment and dividing the product so obtained by the Exercise Price, as adjusted, such quotient to be rounded up to the next whole number. g. For purposes of any computation respecting consideration received pursuant to Subsections (b), (c), (d) and (e) above the following shall apply: (i) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith. (ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and (iii) in the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof [the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this Subsection (g)]. (h) For the purpose of any computation under Subsections (b), (c), (d) and (e) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for 30 consecutive business days before such date The closing price for each day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the average of the highest reported bid and lowest reported asked prices as reported by NASDAQ, or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price as determined by the Board of Directors, whose determination shall be conclusive. (i) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least ten cents ($0.10) in such price; provided, however, that any adjustments which by reason of this Subsection (i) are not required to be made shall be carried forward and taken into account in any Page 40 of 74 Pages subsequent adjustment required to be made hereunder. All calculations under this Section 7 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section 7 to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Section 7, as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any Federal Income tax liability to the holders of Common Stock or securities convertible into Common Stock (including Warrants). (j) Whenever the Exercise Price is adjusted, as herein provided, the Company shall promptly, but no later than 10 days after any request for such an adjustment by the Holder, cause a notice setting forth the adjusted Exercise Price and adjusted number of Shares issuable upon exercise of each Warrant, and, if requested, information describing the transactions giving rise to such adjustments, to be mailed to the Holders at their last addresses appearing in the Warrant register, and shall cause a certified copy thereof to be mailed to its transfer agent, if any. The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Section (7), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. (k) In the event that at any time, as a result of an adjustment made pursuant to Subsection (a) above, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (a) to (i), inclusive above. (l) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants therefore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Agreement. (m) "Permitted Issuance" shall mean (i) shares issued in connection with an underwritten public offering, (ii) shares issued pursuant to the Company's employee benefit plans in existence on the Closing Date or as subsequently adopted with the approval of the shareholders of the Company in the manner required by any shareholders of the Company in the manner required by any applicable law, (iii) shares of Common Stock in an amount not greater than ten percent of the Company's then outstanding shares of Common Stock issued to strategic partners, (iv) Common Stock issued as a stock dividend to holders of Common Stock or Series A Cumulative Convertible Preferred Stock or upon any subdivision or combination of such shares, (v) shares issued upon conversion of Series A Cumulative Convertible Preferred Stock or as payment of dividends thereon, (vi) securities issued in connection with the merger or consolidation of the Company or any subsidiary with any other operating entity, or the Page 41 of 74 Pages exchange of securities for stock of another operating entity; (vii) the issuance of securities in connection with the purchase of all or substantially all of the assets of another operating business entity or a division of another operating business entity; (viii) the offering or issuance of securities in connection with the purchase of any tangible or intangible assets for use in the Company's business, including, without limitation, patents, trade secrets and leasehold interests, the lease of equipment by the Company, the provision of lease financing to the Company or the purchase of capital equipment by the Company; or (ix) shares of Common Stock issued upon exercise of the Warrants. 8. Exchange and Replacement of Warrant Certificates. ------------------------------------------------ Each Warrant Certificate is exchangeable without expense, upon the surrender hereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of securities in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 9. Elimination of Fractional Interests. ----------------------------------- The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of Shares. 10. Reservation and Listing of Securities. ------------------------------------- The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all Shares issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any shareholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed on or quoted by NASDAQ. 11. Notices to Warrant Holders. -------------------------- Page 42 of 74 Pages Nothing contained in this Agreement shall be construed as conferring upon the Holder or Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company (other than under circumstances covered by Subsection 7(a) above); or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor (other than under circumstances covered by Subsection 7(a) above); or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; or (d) reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or a sale or conveyance to another corporation of the property of the Company as an entirety is proposed; or (e) the Company or an affiliate of the Company shall propose to issue any rights to subscribe for shares of Common Stock or any other securities of the Company or of such affiliate to all the shareholders of the Company; then, in any one or more of said events, the Company shall give written notice to the Holder or Holders of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or the issuance of any convertible or exchangeable Page 43 of 74 Pages securities or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 12. Notices. ------- Any notice required to be given pursuant to this Agreement shall be given in writing. Any notice, consent, approval, demand and other communication in connection with this Agreement shall be deemed to be given if given in writing (including facsimile, telecopy or similar transmission) addressed as provided below (or to the addressee at such other address as the addressee shall have specified by notice actually received by the addressor), and if either (a) actually delivered in fully legible form to such address (evidenced in the case of a telecopy by receipt of a telecopy transmission confirmation) or (b) in the case of a letter, five days shall have elapsed after the same shall have been deposited in the United States mails (i) with first-class postage prepaid and registered or certified, with return receipt requested, or (ii) with express delivery postage prepaid, with receipt required for delivery. If to the Company, to it at 20121-48th Avenue West, Lynnwood, Washington 98036. If to any Investor, to it at 900 Third Avenue, 27th Floor, New York, New York 10022, with a copy to Crummy, Del Deo, Dolan, Griffinger & Vecchione, a Professional Corporation, One Riverfront Plaza, Newark, New Jersey 07102-5497, Telecopy: (201) 596-0545 to the attention of Jeffrey A. Baumel, Esq. 13. Course of Dealing; Amendments, Waivers and Consents. ---------------------------------------------------- No course of dealing between any Holder, on one hand, and the Company, on the other hand, shall operate as a waiver of any Holder's rights under this Agreement or any other Transaction Document. The Company acknowledges that if any Holder, without being required to do so by this Agreement or any other Transaction Document, gives any notice of information to, or obtains any consent from, the Company, the Holder shall not by implication have amended, waived or modified any provision of this Agreement or any other Transaction Document, or created any duty to give any such notice or information or to obtain such consent on any future occasion. No delay or omission on the part of any Investor in exercising any right under this Agreement or any other Transaction Document shall operate as a waiver of such right or any other right hereunder or thereunder. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. No amendment, waiver or consent with respect to this Agreement shall be binding unless it is in writing and signed by each of the Company and the Holder.. Any amendment or waiver effected in accordance with this Section 11 shall be binding upon each Holder of any securities Page 44 of 74 Pages purchased under this Agreement at the time outstanding (including securities into which such securities are convertible or exercisable), each future holder of any of such securities and the Company. 14. Survival of Covenants; Assignability of Rights. ---------------------------------------------- The Warrants may not be sold, assigned, or transferred except in compliance with Section 5 above. All covenants, agreements, representations and warranties of the Company made in this Agreement and any other written information delivered or furnished to any Investor in connection herewith or therewith: (a) shall inure to the benefit of each of the Holder and its respective successors and assigns and each permitted transferee of any Warrants (whether so expressed or not), but only if such transferee is (A) an affiliate, partner or stockholder of Holder or transferee or (B) a transferee or assignee of Warrants to purchase at least 50,000 Shares, as adjusted for any stock split, stock dividend or other recapitalization, provided in any event that the Company is given written notice at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and provided, further, that the transferee or assignee agrees in writing to abide by and assume each and every duty and obligation of an Investor pursuant to this Agreement. 15. Termination. ----------- This Agreement shall terminate on the earlier of the fifth anniversary of the Closing Date or the date on which all Warrants have been exercised in full. 16. Governing Law. ------------- This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Washington and for all purposes shall be construed in accordance with the laws of said State without regard to the conflicts of laws provisions thereof. 17. Benefits of This Agreement. -------------------------- Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Holder and any other permitted registered holder or holders of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Holder and any other permitted holder or holders of the Warrant Certificates. Page 45 of 74 Pages 18. Counterparts. ------------ This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be duly executed, as of the day and year first above written. [SEAL] CARVER CORPORATION By: /s/ Stephen M. Williams -------------------------------- Name: Stephen M. Williams Title: President Attest: ----------------------- RENWICK CAPITAL MANAGEMENT, INC. By: /s/ Raj K. Bhatia ----------------- Name: Raj K. Bhatia Title: Co-President Page 46 of 74 Pages EXHIBIT A Warrant Certificate See Exhibit 4.5 to this Current Report on Form 8-K Page 47 of 74 Pages [FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _________ Shares of Common Stock and herewith tenders in payment for such securities, cash, certified or official bank check payable in New York Clearing House Funds to the order of Carver Corporation, any combination of cash or certified or official bank check in New York Clearing House funds, or by wire transfer of immediately available funds in the amount of $ _________ , all in accordance with the terms hereof. The undersigned requests that a certificate for such securities be registered in the name of ____________________ , whose address is __________________, and that such Certificate be delivered to, ______________, whose address is _____________. Dated: Signature: ________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ________________________________ ________________________________ (Insert Social Security or Other Identifying Number of Holder) Page 48 of 74 Pages [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________, Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature:______________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) _______________________________ _______________________________ (Insert Social Security or Other Identifying Number of Assignee) Page 49 of 74 Pages EX-4.2 4 REGISTRATION RIGHTS AGREEMENT, DATED JUNE 12, 1996 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT ----------------------------- AGREEMENT, dated as of the 12th day of June, 1996, between each of the Investors listed on Schedule A hereto (a "Holder" or the "Holders") and Carver Corporation, a Washington corporation, having its principal place of business at 20121 48th Avenue West, Lynnwood, Washington 98036 (the "Company"). WHEREAS, simultaneously with the execution and delivery of this Agreement, the Holders are purchasing from the Company an aggregate of up to 1,411,764 shares of Series A Cumulative Convertible Preferred Stock of the Company, $.01 par value ( the "Preferred Stock") or receiving warrants (the "Warrants") to purchase up to 300,000 shares (the "Warrant Shares") of common stock, $.01 par value, of the Company ("Common Stock") upon the terms set forth in the Series A Preferred Stock Purchase Agreement by and between the Company and the Holders dated June 12, 1996 (the "Purchase Contract"); and WHEREAS, the Company desires to grant to the Holders the registration rights set forth herein with respect to the shares of Common Stock to be issued to the Holders upon the (i) conversion of the Preferred Stock and (ii) issuance of the shares of Common Stock underlying the Warrants; NOW, THEREFORE, the parties hereto mutually agree as follows: 1. Registration Rights. ------------------- (a) Registration Under the Securities Act of 1933. None of the --------------------------------------------- Warrants, the Warrant Shares, the Preferred Stock or the Common Stock to be issued upon conversion of the shares of Preferred Stock (the "Conversion Shares") have been registered for purposes of public distribution under the Securities Act of 1933, as amended (the "Act"). (b) Registrable Securities. As used herein, the term ---------------------- "Registrable Security" means the Warrant Shares, the Conversion Shares and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Registrable Securities; provided, however, that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the date of determination, (i) it has been effectively registered under the Act and disposed of pursuant thereto, (ii) registration under the Act is no longer required for subsequent public distribution of such security, (iii) it has ceased to be outstanding or (iv) it is no longer beneficially owned by a Holder or a permitted transferee of the rights of a Holder pursuant to Section 9 of this Agreement. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security." In the event of any merger, reorganization, consolidation, recapitalization or Page 50 of 74 Pages other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Section 1. (c) Piggyback Registration. (i) If, at any time during the ten ---------------------- years following the date of this Agreement, the Company proposes to prepare and file one or more registration statements under the Act to register any shares of Common Stock on a registration form that may be used for registration of Registrable Shares (in any such case, other than in connection with a merger, acquisition or pursuant to Form S-8 or successor form) (for purposes of this Section 1, collectively, the "Registration Statement"), it will give written notice of its intention to do so by registered mail ("Notice"), at least twenty (20) days prior to the filing of each such Registration Statement, to each Holder. Upon the written request of any Holder (a "Requesting Holder"), made within twenty (20) days after receipt of the Notice, that the Company include any of the Requesting Holder's Registrable Securities in the proposed Registration Statement, the Company shall use its reasonable best efforts to effect the registration under the Act of the Registrable Securities which it has been so requested to register ("Piggyback Registration"), at the Company's sole cost and expense and at no cost or expense to the Requesting Holder provided, however, that if, in the written opinion of the Company's managing underwriter, if any, for such offering, the inclusion of all or a portion of the Registrable Securities requested to be registered, when added to the securities being registered by the Company or the selling shareholder(s), will exceed the maximum amount of the Company's securities which can be marketed (i) at a price reasonably related to their then current market value, or (ii) without otherwise materially adversely affecting the entire offering, then the Company may exclude from such offering all or a portion of the Registrable Securities which it has been requested to register. (ii) If securities are proposed to be offered for sale pursuant to such Registration Statement by other security holders of the Company and the total number of securities to be offered by the Requesting Holder and such other selling security holders is required to be reduced pursuant to a request from the managing underwriter (which request shall be made only for the reasons and in the manner set forth above) the aggregate number of Registrable Securities to be offered by the Requesting Holder pursuant to such Registration Statement shall equal the number which bears the same ratio to the maximum number of securities that the underwriter believes may be included for all the selling security holders (including the Requesting Holder) as the original number of Registrable Securities proposed to be sold by the Requesting Holder bears to the total original number of securities proposed to be offered by the Requesting Holder and the other selling security holders. (iv) Notwithstanding the provisions of this Section 1(c), the Company shall have the right at any time after it shall have given written notice pursuant to this Section 1(c) (irrespective of whether any written request for inclusion of such securities shall have already been made) to elect not to file any such proposed Registration Statement, or to withdraw the same after the filing but prior to the effective date thereof. Page 51 of 74 Pages (d) Demand Registration. At any time during a period of five ------------------- years from the date of this Agreement, Holders owning more than 50% of the aggregate Registrable Securities then outstanding shall have the right (which right is in addition to the piggyback registration rights provided for under Section 1(c) hereof), exercisable by written notice to the Company (the "Demand Registration Request"), to have the Company prepare and file with the Securities and Exchange Commission (the "Commission") no more than on two occasions, according to the expense - sharing arrangements described at Section 2(b) below, a Registration Statement and such other documents, including a prospectus, as may be necessary (in the opinion of both counsel for the Company and counsel for such Holders), in order to comply with the provisions of the Act, so as to permit a public offering and sale of the Registrable Securities by the Holder provided, however, -------- ------- that the Company shall not be required to effect a Registration pursuant to this Section 1(d) unless at least 500,000 shares of the Registrable Securities are proposed to be sold in such registration (as adjusted for any stock split, stock dividend or similar change in the Common Stock). The Company shall not be required to maintain the effectiveness of any such registration for greater than six months. The form on which such registration shall be filed shall be determined by the Company from among the forms then available to it under the Act for such registration. (e) In addition to the rights set forth in Section 1(c) above, at any time prior to the tenth anniversary of the date of this Agreement, one or more Holders holding at least 50% of the Registrable Securities then outstanding ("Initiating Holders") may make written demand for registration of Registrable Shares under the Securities Act on Form S-3 (an "S-3 Demand Notice") on an unlimited number of occasions, provided that the Registrable Shares requested to be registered in any such Form S-3 registration statement have an aggregate fair market value at the date of delivery to the Company of the S-3 Demand Notice of at least $250,000 and provided, further, that the Company is then eligible to use Form S-3 for registration and public sale of the Registrable Securities. (f) Notwithstanding the foregoing, the Company may delay filing a registration statement and may withhold efforts to cause the registration statement to become or remain effective, if the Company determines in good faith that such registration might (i) interfere with or affect the negotiation or completion of any transaction that is being contemplated by the Company at the time the right to delay is exercised, or (ii) involve initial or continuing disclosure obligations that might not be in the best interest of the Company's shareholders. Notwithstanding the foregoing, the Company shall not be entitled to exercise its right to defer filing or effectiveness of or to update a registration pursuant to a Demand Registration Request for more than one hundred eighty (180) consecutive days. 2. Covenants of the Company With Respect to Registration. The ----------------------------------------------------- Company covenants and agrees as follows: (a) In connection with any registration under Section 1(d) hereof, the Company shall use its best efforts to file the Registration Statement as expeditiously as possible, but in any event no later than forty-five (45) days following receipt of any demand therefor, shall use its best efforts to have any such Registration Statement Page 52 of 74 Pages declared effective at the earliest possible time, and shall furnish each holder of Registrable Securities such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs, fees and expenses in connection with all Registration Statements filed pursuant to Sections 1(c), 1(d) and 1(e) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, and blue sky fees and expenses; provided, however, that the expenses paid by the Company in connection with the exercise of rights to registration pursuant to Section 1(e) above shall be limited to those usual and customary expenses associated with a non-underwritten offering. However, each Holder shall be solely responsible for the fees of any counsel retained by him or her in connection with such registration and any transfer taxes or underwriting discounts or commissions applicable to the Registrable Securities sold by him or her pursuant to Section 1(c) hereof. (c) The Company shall indemnify and hold harmless each Holder and each underwriter, within the meaning of the Act, who may purchase from or sell for the Holder, any Registrable Securities, from and against any and all losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in the Registration Statement, any other registration statement filed by the Company under the Act, any post- effective amendment to such registration statements, or any prospectus included therein required to be filed or furnished by reason of this Agreement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished or required to be furnished in writing to the Company by a Holder or underwriter expressly for use therein; which indemnification shall include each person, if any, who controls any such underwriter within the meaning of the Act and each officer, director, employee and agent of such underwriter. The Holder and any such underwriter and other person, shall be obligated to indemnify the Company, its directors, each officer signing the Registration Statement and each person, if any, who controls the Company within the meaning of the Act, from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any registration statement or any prospectus required to be filed or furnished by reason of this Agreement or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, insofar as such losses, claims, damages or liabilities are caused by any untrue statement or alleged untrue statement or omission based upon information furnished in writing to the Company by the Holder or underwriter or other person expressly for use therein. (d) If for any reason the indemnification provided for in the preceding subparagraph is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate Page 53 of 74 Pages to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. (e) Nothing contained in this Agreement shall be construed as requiring the Holder to exercise the Warrants or convert the Preferred Stock prior to the initial filing of any registration statement or the effectiveness thereof. (f) If the Company shall fail to comply with the provisions of this Agreement, the Company shall, in addition to any other equitable or other relief available to the holders of Registrable Securities, be liable for any or all incidental, special and consequential damages sustained by the holders of Registrable Securities, requesting registration of their Registrable Securities. (g) Except as set forth in Section 2(j), the Company shall not permit the inclusion of any securities other than the Registrable Securities to be included in any Registration Statement filed pursuant to Section 1(d) hereof, or permit any other registration statement to be or remain effective during the effectiveness of a Registration Statement filed pursuant to Section 1(d) hereof, without the prior written consent of the Holders of a majority of the Registrable Securities held by Holders who initiated the Demand Registration Request, which consent shall not be unreasonably withheld. (h) The Company shall deliver promptly to the Holder of Registrable Securities participating in the offering in which the Holder's shares are being registered pursuant to Section 1(c) or 1(d) hereof and requesting the correspondence and memoranda described in this Section 2(i) and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the Registration Statement and permit the Holder and underwriters to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the Registration Statement as it deems reasonably necessary to comply with applicable securities laws or rules of the National Association of Securities Dealers, Inc. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as the Holder of Registrable Securities or underwriter shall reasonably request. (i) Upon the written request therefor by the Holder, the Company shall include in the Registration Statement covering any of the Registrable Securities any other shares of Common Stock held by the Holder as of the date of filing of such Registration Statement, provided that such Holder pays the incremental costs associated with registration of such additional shares. 3. Additional Terms. The following provisions shall be applicable ---------------- to any Registration Statement filed pursuant to Section 1 of this Agreement: Page 54 of 74 Pages (a) The Company will use its reasonable best efforts to cause the Registration Statement to become effective as promptly as possible and, if any stop order shall be issued by the Commission in connection therewith, to use its reasonable efforts to obtain the removal of such order. Following the effective date of the Registration Statement, the Company shall, upon the request of the Holder, forthwith supply such reasonable number of copies of the Registration Statement, preliminary prospectus and prospectus meeting the requirements of the Act, and other documents necessary or incidental to a public offering, as shall be reasonably requested by the Holder to permit the Holder to make a public distribution of his or her Registrable Securities. The Company will use its reasonable efforts to qualify the Registrable Securities for sale in such states as the Holder of Registrable Securities shall reasonably request, provided that no such qualification will be required in any jurisdiction where, solely as a result thereof, the Company would be subject to service of general process or to taxation or qualification as a foreign corporation doing business in such jurisdiction. The obligations of the Company hereunder with respect to the Holder's Registrable Securities are expressly conditioned on the Holder's furnishing to the Company such appropriate information concerning the Holder, the Holder's Registrable Securities and the terms of the Holder's offering of such Registrable Securities as the Company may reasonably request. (b) Neither the filing of a Registration Statement by the Company pursuant to this Agreement nor the making of any request for prospectuses by the Holder shall impose upon the Holder any obligation to sell his or her Registrable Securities. (c) The Holder, upon receipt of notice from the Company that an event has occurred which requires a post-effective amendment to the Registration Statement or a supplement to the prospectus included therein, shall promptly discontinue the sale of his or her Registrable Securities until the Holder receives a copy of a supplemented or amended prospectus from the Company, which the Company shall provide as soon as practicable after such notice. (d) If the Company fails to keep the Registration Statement continuously effective, for the time period required by Section 1(d) hereof, then the Company shall, promptly upon the request of the Holders of more than 50% of the then-unsold Registrable Securities, update the Registration Statement or file a new registration statement covering the Registrable Securities remaining unsold, subject to the terms and provisions hereof. 4. Amendment or Waiver. The provisions of this Agreement may be ------------------- amended at any time and from time to time, and particular provisions of this Agreement may be waived, with an agreement or consent in writing, executed in one or more counterparts, signed by the Company and by Holders holding not less than a majority of the Registrable Securities outstanding and held by Holders as of the date of such amendment or waiver. Any amendment or waiver effected in accordance with this paragraph shall be binding on the Company and all Holders. 5. Entire Agreement. This Agreement constitutes the entire ---------------- agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior Page 55 of 74 Pages agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. 6. Execution in Counterparts. This Agreement may be executed in one ------------------------- or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. 7. Notices. All notices, requests, demands or other communications ------- required by or otherwise given with respect to this Agreement shall be in writing and shall be deemed to have been duly given to any party when delivered personally (by courier service or otherwise), four days after being mailed by United States first-class mail, postage prepaid and return receipt requested, or when delivered by facsimile (if a confirming copy is sent by mail as aforesaid), in each case to the applicable addresses set forth below: If to the Holder, to his or her address set forth on the signature page of this Agreement. If to the Company, to the address set forth on the first page of this Agreement. 8. Binding Effect; Benefits. A Holder may assign his or her rights ------------------------ hereunder to a transferee or assignee of at least 50,000 Registrable Securities, as adjusted by any stock split, stock dividend or similar change in the Common Stock, provided in any event that the Company is given written notice at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and provided, further, that the transferee or assignee agrees in writing to abide by and assume each and every duty and obligation of a Holder pursuant to this Agreement. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. Nothing herein contained, express or implied, is intended to confer upon any person other than the parties hereto and their respective heirs, legal representatives, successors and such permitted assigns, any rights or remedies under or by reason of this Agreement. 9. Headings. The headings contained herein are for the sole purpose -------- of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. 10. Severability. Any provision of this Agreement which is held by a ------------ court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 11. Governing Law. This Agreement shall be deemed to be a contract ------------- made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State. Page 56 of 74 Pages IN WITNESS WHEREOF, this Registration Rights Agreement has been executed and delivered by the parties hereto as of the date first above written. CARVER CORPORATION By: /s/ Stephen M. Williams ------------------------------- Name: Stephen M. Williams Title: President INVESTORS: RENWICK SPECIAL SITUATIONS, L.P. By: /s/ Raj K. Bhalia ------------------------------- Name: Raj K. Bhalia Title: General Partner RENWICK ALPHA FUND, L.P. By: /s/ Raj K. Bhalia ------------------------------- Name: Raj K. Bhalia Title: General Partner RENWICK CAPITAL MANAGEMENT, INC. By: /s/ Raj K. Bhalia ------------------------------- Name: Raj K. Bhalia Title: Co-President Page 57 of 74 Pages SCHEDULE A Renwick Special Situations, L.P. 900 Third Avenue - 27th Floor New York, New York 10022 Renwick Alpha Fund, L.P. 900 Third Avenue - 27th Floor New York, New York 10022 Renwick Capital Management, Inc. 900 Third Avenue - 27th Floor New York, New York 10022 Page 58 of 74 Pages EX-4.3 5 CERTIFICATE OF DESIGNATION EXHIBIT 4.3 CARVER CORPORATION _________________________ CERTIFICATE OF DESIGNATION OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH SERIES OF PREFERRED STOCK The undersigned, the President of Carver Corporation, a Washington corporation (the "Corporation"), in accordance with the provisions of RCW 23B.06.020(4), does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Restated Articles of Incorporation of the Corporation, the following resolution creating a series of Series A Cumulative Convertible Preferred Stock was duly adopted by the Board of Directors on June 5, 1996; RESOLVED, that pursuant to the authority conferred upon the Board of Directors of the Corporation by the Restated Articles of Incorporation and the provisions of RCW 23B.06.020(4), the Board of Directors does hereby provide for the designation of a series of preferred stock, Series A (the "Series A Preferred Stock"), initially consisting of One Million Four Hundred Eleven Thousand Seven Hundred Sixty-Four (1,411,764) shares, and to the extent that the designation, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions of the Series A Preferred Stock are not stated and expressed in the Restated Articles of Incorporation, the Board of Directors does hereby fix and herein state and express such designation, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions as follows: Section 1. Designation and Number. (a) The shares of such series ---------------------- shall be designated "Series A Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock"). The number of shares initially constituting the Series A Preferred Stock shall be 1,411,764, which number may be decreased (but not increased) by the Board of Directors without a vote of shareholders; provided, however, that such number may not be decreased --------- ------- below the number of then outstanding shares of Series A Preferred Stock. (b) The Series A Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution or winding up, rank prior to the Common Stock, par value $0.01 per share, of the Corporation (the "Common Stock") and any other issue of Preferred Stock. Page 59 of 74 Pages Section. 2. Dividends and Distributions. --------------------------- (a) The holders of the outstanding shares of Series A Preferred Stock shall be entitled to receive, out of any funds legally available therefor, cumulative dividends at the annual rate of $0.17 per share of Series A Preferred Stock held by such holder payable in such number of shares of Common Stock of the Corporation as shall equal the amount of dividend payable divided by a number equal to the greater of (a) the average of the closing bid price for the Common Stock of the Corporation for a period of 30 days prior to the dividend date, or (b) $2.125, to be payable on or before the last day of August and November, 1996 and February and May, 1997. (b) After May 31, 1997, the holders of the outstanding shares of Series A Preferred Stock shall be entitled to receive, out of any funds legally available therefor, cumulative dividends at the annual rate of $0.17 per share of Series A Preferred Stock payable in cash, in shares of Common Stock, in accordance with the formula set forth above, or a combination thereof, at the option of the Corporation on or before the last day of August, November, February and May. (c) In the event the Corporation does not pay a dividend when due as provided in subparagraphs (a) and (b) herein, such dividend shall be required to be paid prior to the Corporation paying the next scheduled dividend. (d) The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends or other distributions except as provided herein. (e) All numbers relating to calculation of cumulative dividends shall be subject to equitable adjustment in the event of any stock dividend, stock split, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the capital structure of the Series A Preferred Stock. Section 3. Voting Rights. ------------- (a) In addition to any other rights provided for herein or by law, the holders of Series A Preferred Stock shall be entitled to vote, together with the holders of Common Stock, as a class, on all matters as to which holders of Common Stock are entitled to vote, in the same manner and with the same effect as such holders of Common Stock. In any vote, the holders of Series A Preferred Stock shall be entitled to one vote per share of Series A Preferred Stock. Except as otherwise expressly provided in this Section 3 or as otherwise required by law, the holders of shares of Series A Preferred Stock and Common Stock shall vote together (or render written consents in lieu of a vote) as a single class on all matters submitted to the shareholders of the Corporation. (b) Notwithstanding subparagraph (a), a vote at a duly convened meeting or by written consent of the holders of at least two-thirds of the then outstanding shares of Series A Preferred Stock as a separate class is required to approve: (i) any voluntary plan of liquidation; (ii) any merger or consolidation of the Corporation with or into another corporation unless the Corporation shall be the surviving corporation, or the sale Page 60 of 74 Pages of all or substantially all of the Corporation's capital stock or assets to any other Person, or any other form of business combination or reorganization in which Control of the Corporation is transferred (a "Reorganization"); (iii) the payment by the Corporation of any dividend or the distribution of any assets of the Corporation with respect to any class of stock ranking junior to or on a parity with the Series A Preferred Stock other than any dividend consisting solely of shares of any class of capital stock paid to the holders of shares of such class of capital stock; or (iv) the redemption or repurchase of capital stock by the Corporation. "Control" shall be deemed to have been transferred in a transaction or series of transactions in which any person, or group of related persons (other than one or more holders of shares of Series A Preferred Stock), shall have acquired beneficial ownership of more than 50% of the Common Stock of the Corporation (assuming all outstanding and then exercisable or convertible rights, options, warrants or convertible or exchangeable securities entitling the holders thereof to subscribe for or purchase or otherwise acquire shares of Common Stock ("Common Stock Equivalents") have been fully exercised or converted). (c) Notwithstanding subparagraph (a), a vote at a duly convened meeting or by written consent of the holders of a majority of the then outstanding shares of Series A Preferred Stock as a separate class is required in order to: (i) amend the Articles of Incorporation of the Corporation; (ii) change the number of directors on the Board of Directors of the Corporation to a number greater than seven; (iii) approve the Corporation's or any of its subsidiaries' involvement or participation in a line of business other than the high fidelity audio business; (iv) authorize the issuance of any additional equity securities by the Corporation or any of its subsidiaries other than Permitted Issuances; (v) approve the incurrence by the Corporation or any of its subsidiaries of indebtedness for borrowed money in excess of the amount of indebtedness for borrowed money outstanding or available for borrowing by the Corporation or its subsidiaries on the Issue Date pursuant to existing credit agreements that are in effect on the Issue Date and which may be renewed under substantially the same terms. (d) The holders of the Series A Preferred Stock, voting as a separate class, shall be entitled to elect two directors (the "Series A Directors"). At any annual or special meeting of the Corporation (or in a written consent in lieu thereof) held for the purpose of electing directors, the presence in person or by proxy of the holders of at least a majority (or, in the case of written consent, all) of the then outstanding shares of Series A Preferred Stock (voting as a separate class) shall constitute a quorum for the election of the Series A Directors. The holders of at least a majority of the shares of the then outstanding Series A Preferred Stock (voting as a separate class) present in person or by proxy at any meeting relating to the election of directors (calculated after the determination of a quorum) shall then be entitled to elect the Series A Directors. A Series A Director may be removed during his or her term of office without cause, by and only by, the affirmative vote or written consent of the holders of at least a majority (or, in the case of written consent, all) of the then outstanding shares of the Series A Preferred Stock (voting as a separate class). A vacancy in a seat held by a Series A Director shall be filled by vote of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock (voting as a separate class) present in Page 61 of 74 Pages person or represented by proxy at any meeting (calculated after the determination of a quorum) or by written consent of all of the holders of the then outstanding shares of Series A Preferred Stock (voting as a separate class). Section 4. Reacquired Shares. Any shares of Series A Preferred Stock ----------------- converted, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares of Series A Preferred Stock shall upon their cancellation, and upon the filing of an appropriate certificate with the Secretary of State of the State of Washington, if required, become authorized but unissued shares of Preferred Stock, par value $.01 per share, of the Corporation and may be reissued as part of another series of Preferred Stock, par value $.01 per share, of the Corporation, subject to the conditions or restrictions on issuance set forth herein. Section 5. Liquidation, Dissolution or Winding Up. (a) If the -------------------------------------- Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable federal or state bankruptcy, insolvency or similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 150 consecutive days and on account of any such event the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up, no distribution shall be made (i) to the holders of shares of Junior Stock unless, prior thereto, the holders of shares of Series A Preferred Stock, subject to Section 8, shall have received the Face Value with respect to each share (as adjusted for any stock dividends, combinations or splits with respect to such shares) plus all declared or accumulated but unpaid dividends on such shares. (b) The consolidation, merger or other business combination of the Corporation with or into any other Person or Persons pursuant to which control of the Corporation is transferred to such Person or Persons, or the sale of all or substantially all the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 5. (c) Whenever the distribution provided for in this Section 5 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation (irrespective of the accounting treatment thereof). If after notice duly provided to the holders of Series A Preferred Stock with respect to any such valuation Page 62 of 74 Pages of property, the holder or holders of a majority in interest of the Series A Preferred Stock disagree with such valuation, then the Company, at its expense, shall retain an independent third party appraiser, acceptable to the holders of a majority in interest of the Series A Preferred Stock, which shall render an opinion as to the value of such distribution, which determination shall be conclusive. Section 6. Conversion. The holders of the Series A Preferred Stock ---------- shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A Preferred Stock ---------------- shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by applying the Conversion Ratio. The number of shares of Common Stock to be issued and delivered upon conversion of a share of Series A Preferred Stock, adjusted as hereinafter provided is referred to herein as the "Conversion Ratio." The Conversion Ratio shall initially be one, subject to adjustment from time to time pursuant to Section 6(g). (b) Mandatory Conversion. Each share of Series A Preferred -------------------- Stock plus accrued and unpaid dividends shall be automatically converted into such number of fully paid and nonassessable shares of Common Stock as is determined by applying the Conversion Ratio upon the earlier to occur of: (i) the closing of an underwritten public offering on a firm commitment basis pursuant to an effective registration statement filed pursuant to the Securities Act of 1933, as amended, covering the offer and sale of shares of Common Stock ("Underwritten Public Offering"), or (ii) on or after the third anniversary of the Issue Date, at the option of the Corporation. Upon the occurrence of either of the foregoing events, the holders of the Series A Preferred Stock shall, upon notice from the Corporation, surrender the certificates representing such shares at the office of the Corporation or of its transfer agent for the Common Stock. Thereupon, there shall be issued and delivered to such holder a certificate or certificates for the number of shares of Common Stock into which the shares of Series A Preferred Stock so surrendered were convertible on the date on which such conversion occurred. (c) Mechanics of Conversion. Before any holder of Series A ----------------------- Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Series A Preferred Stock, and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares Page 63 of 74 Pages of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is pursuant to Section 6 (b)(i) above, the conversion may, at the option of any holder tendering Series A Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to the closing of such sale of securities. The Corporation shall not be obligated to issue certificates representing conversion shares unless certificates evidencing the shares of Series A Preferred Stock being converted are either delivered to the Corporation or its transfer agent, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection therewith. (d) The Conversion Ratio shall be subject to adjustment from time to time in certain instances as hereinafter provided. Upon conversion, the holder of shares of Series A Preferred Stock shall be entitled to receive any accrued and unpaid dividends on the shares of Series A Preferred Stock surrendered for conversion calculated on a pro rata basis through the date of such conversion payable in cash or shares of Common Stock as provided in Section 2 above. (e) In connection with the conversion of any shares of Series A Preferred Stock, no fractions of shares of Common Stock shall be issued, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Current Market Price per share of Common Stock on the trading day on which such shares of Series A Preferred Stock are deemed to have been converted. If more than one share of Series A Preferred Stock shall be surrendered for conversion by the same holder at the same time, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total number of shares of Series A Preferred Stock so surrendered. (f) The Corporation shall use its best efforts to obtain the approval of its shareholders for the authorization of such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Series A Preferred Stock, and shall take all action required to increase the authorized number of shares of Common Stock necessary to permit the conversion of all outstanding shares of Series A Preferred Stock, if required. (g) Adjustment of Conversion Ratio. The Conversion Ratio will ------------------------------ be subject to adjustment from time to time as follows: 1. In case the Corporation shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Conversion Ratio in effect at the time of the record date Page 64 of 74 Pages for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Conversion Ratio by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. 2. In case the Corporation shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (the "Subscription Price") (or having a conversion price per share) less than the lesser of the Current Market Price of the Common Stock (as defined in Subsection (7) below) on the record date mentioned below, or the Face Value on such record date (the lesser of such two being the "Adjustment Trigger Price"), the Conversion Ratio shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Ratio in effect immediately prior to the date of such issuance by a fraction, the denominator of which shall be the sum of the number of shares of Common Stock outstanding on the record date and the number of additional whole shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate issuance and conversion price of the convertible securities so offered) would purchase at the Adjustment Trigger Price and the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such record date and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants; and to the extent that shares of Common Stock are not delivered (or securities convertible into Common Stock are not delivered) after the expiration of such rights or warrants the Conversion Ratio shall be readjusted to the Conversion Ratio which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. 3. In case the Corporation shall hereafter distribute to the holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions and dividends or distributions referred to in Subsection (1) above) or subscription rights or warrants (excluding those referred to in Subsection (2) above), then in each such case the Conversion Ratio in effect thereafter shall be determined by multiplying the Conversion Ratio in effect immediately prior thereto by a fraction, the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by the Current Market Price per share of Common Stock (as defined in Subsection (7) below), less the fair market value (as determined by the Corporation's Board of Directors) of said assets or evidences of indebtedness so distributed or of such rights or warrants, and the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by such Current Market Price per share of Page 65 of 74 Pages Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution. 4. In case the Corporation shall issue shares of its Common Stock excluding shares issued (i) in any of the transactions described in Subsection (1) above, (ii) any Permitted Issuance, and (iii) to shareholders of any corporation which merges into the Corporation in proportion to their stock holdings of such corporation immediately prior to such merger, upon such merger [but only if no adjustment is required pursuant to any other specific subsection of this Section (g) (without regard to Subsection (8) below) with respect to the transaction giving rise to such rights], for a consideration per share (the "Offering Price") less than the Adjustment Trigger Price, the Conversion Ratio shall be adjusted immediately thereafter so that it shall equal the amount determined by multiplying the Conversion Ratio in effect immediately prior thereto by a fraction, the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares and the number of shares of Common Stock which the aggregate consideration received or to be received [determined as provided in Subsection (6) below] for the issuance of such additional shares would purchase at the Adjustment Trigger Price and the numerator of which shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made. 5. In case the Corporation shall issue any securities convertible into or exchangeable for its Common Stock [excluding securities issued in transactions described in Subsections (1) and (3) above] for a consideration per share of Common Stock (the "Conversion Price") initially deliverable upon conversion or exchange of such securities [determined as provided in Subsection (6) below] less than the Adjustment Trigger Price, the Conversion Ratio shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Conversion Ratio in effect immediately prior thereto by a fraction, the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such securities and the number of shares of Common Stock which the aggregate consideration received or to be received [determined as provided in Subsection (6) below] for such securities would purchase at the Adjustment Trigger Price and the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance and the maximum number of shares of Common Stock of the Corporation deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate. Such adjustment shall be made successively whenever such an issuance is made. 6. For purposes of any computation respecting consideration received pursuant to Subsections (2) and (3) above, the following shall apply: (i) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case Page 66 of 74 Pages shall any deduction be made for any commissions, discounts or other expenses incurred by the Corporation for any underwriting of the issue or otherwise in connection therewith; (ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Corporation (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and (iii) in the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Corporation for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Corporation upon the conversion or exchange thereof [the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this Subsection (6)]. 7. For the purpose of any computation under Subsections (2), (3) (4) and (5) above, the current market price per share of Common Stock at any date (the "Current Market Price") shall be deemed to be the average of the daily closing prices for 30 consecutive business days before such date. The closing price for each day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the average of the highest reported bid and lowest reported asked prices as reported by NASDAQ, or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price as determined by the Board of Directors, whose determination shall be conclusive. 8. No adjustment in the Conversion Ratio shall be required unless such adjustment would require an increase or decrease of at least .10 in such ratio; provided, however, that any adjustments which by reason of this Subsection (8) are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section (g) shall be made to the nearest one-hundredth of a percentage point, as the case may be. Anything in this Section (g) to the contrary notwithstanding, the Corporation shall be entitled, but shall not be required, to make such changes in the Conversion Ratio, in addition to those required by this Section (g), as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Corporation shall not result in any Federal Income tax liability to the holders of Common Stock or securities convertible into Common Stock. 9. Whenever the Conversion Ratio is adjusted, as herein provided, the Corporation shall promptly, but no later than 10 days after any request for Page 67 of 74 Pages such an adjustment by a holder of Series A Preferred Stock, cause a notice setting forth the adjusted Conversion Ratio and, if requested, information describing the transactions giving rise to such adjustments, to be mailed to such holder at such holder's last address appearing in the records of the Corporation, and shall cause a certified copy thereof to be mailed to its transfer agent, if any. The Corporation may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Corporation) to make any computation required by this Section (g), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. 10. In the event that at any time, as a result of an adjustment made pursuant to Subsection (1) above, a holder of Series A Preferred Stock shall become entitled to receive any shares of the Corporation other than Common Stock, thereafter the number of such other shares so receivable shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (1) to (8), inclusive above. Section 7. Waivers. Any of the foregoing rights and benefits of the -------- holders of Series A Preferred Stock may be waived in any instance (without the necessity of convening any meeting of shareholders of the Corporation) upon the written agreement of at least a majority of the then outstanding shares of Series A Preferred Stock (voting as a separate class). Section 8. Certain Covenants. Any registered holder of Series A ----------------- Preferred Stock may proceed to protect and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this Certificate of Designation or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 9. Definitions. For the purposes of this Certificate of ----------- Designation of Series A Cumulative Convertible Preferred Stock, the following terms shall have the meanings indicated: "Closing Bid Price" shall mean the average of the closing bid price as reported by the Nasdaq National Market for the 30 trading days immediately preceding the date on which a determination is to be made. "Permitted Issuance" shall mean (i) shares issued in connection with an Underwritten Public Offering, (ii) shares issued pursuant to the Company's employee benefit plans in existence on the Issue Date or as subsequently adopted with the approval of the shareholders of the Company in the manner required by any applicable law, (iii) shares of Common Stock issued to strategic partners in an amount not greater than ten percent of the Corporation's then outstanding shares of Common Stock, (iv) Common Stock issued as a stock dividend to holders of Common Stock or Series A Preferred Stock or upon any subdivision or combination of such shares, (v) shares issued upon conversion Page 68 of 74 Pages of Series A Preferred Stock or as payment of dividends thereon, (vi) securities issued in connection with the merger or consolidation of the Corporation or any subsidiary with any other operating entity, or the exchange of securities for stock of another operating entity; (vii) the issuance of securities in connection with the purchase of all or substantially all of the assets of another operating business entity; (viii) the offering or issuance of securities in connection with the purchase of any tangible or intangible assets for use in the Corporation's business, including, without limitation, patents, trade secrets and leasehold interests, the lease of equipment by the Corporation, the provision of lease financing to the Corporation or the purchase of capital equipment by the Corporation; or (ix) shares of Common Stock issued pursuant to warrants issued to Renwick Capital Management, Inc. in connection with the issuance of the Series A Preferred Stock. "Issue Date" shall mean the first date on which shares of Series A Preferred Stock are issued. "Face Value" shall mean $2.125. "Junior Stock" shall mean any capital stock of the Corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock. "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. IN WITNESS WHEREOF, Carver Corporation has caused this Certificate to be duly executed on this 12th day of June, 1996. CARVER CORPORATION By: /s/ Stephen M. Williams ------------------------------- Stephen M. Williams Title: President Page 69 of 74 Pages EX-4.4 6 CUMULATIVE CONVERTIBLE PREFERRED STOCK CERTIFICATE EXHIBIT 4.4 Form of Series A Cumulative Convertible Preferred Stock Certificate Page 70 of 74 Pages ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PAI 470,588 INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON CARVER CORPORATION AUTHORIZED TO ISSUE 20,000,000 SHARES OF COMMON STOCK AND 2,000,000 SHARES OF PREFERRED STOCK IN ONE OR MORE SERIES This Certifies that RENWICK ALPHA FUND, L.P. is the ---------------------------------------------------- registered holder of --470,588-- Shares ------------------------------------------------- of Series A Convertible Preferred stock of CARVER CORPORATION transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of the Certificate properly endorsed. PREFERRED In Witness Whereof the said Corporation has caused this Certificate to be signed by its duly authorized officers and to be sealed with the Seal of the Corporation. Dated June 12, 1996 ---------------------------- /s/ Linda S. Rowland /s/ S. M. Williams - -------------------------- --------------------------- Assistant Secretary President ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Page 71 of 74 Pages EX-4.5 7 FORM OF WARRANT CERTIFICATE EXHIBIT 4.5 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH LAW IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, June 11, 2001 No. W1 _______ WARRANT CERTIFICATE This Warrant Certificate certifies that Renwick Capital Management, Inc. or registered assigns, is the registered holder of Warrants to purchase, at any time from June 12, 1996 until 5:00 P.M. New York City time on June 11, 2001 ("Expiration Date"), up to one hundred thousand (100,000) fully-paid and non-assessable shares of common stock, $.01 par value ("Common Stock"), of Carver Corporation, a Washington corporation (the "Company"), at the exercise prices, subject to adjustment in certain events (the "Exercise Price"), as set forth in Section 1 of that certain Warrant Agreement dated June 12, 1996 between the Company and Renwick Capital Management, Inc. (the "Warrant Agreement"), upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the Warrant Agreement. Payment of the Exercise Price may be made in cash, by certified or official bank check in New York Clearing House funds payable Page 72 of 74 Pages to the order of the Company, any combination of cash or check, or by wire transfer of immediately available funds. No Warrant may be exercised after 5:00 P.M., New York City time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to in a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax, or other governmental charge imposed in connection therewith. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. No holder of this Warrant Certificate shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained in the Warrant Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, to give or withhold consent to any corporate action, or to receive dividends or Page 73 of 74 Pages subscription rights or otherwise, until the Warrant evidenced by this Warrant Certificate shall have been exercised and the Common Stock issuable upon the exercise thereof shall have become deliverable as provided in the Warrant Agreement. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated: June 12, 1996 CARVER CORPORATION [SEAL] By: /s/ Stephen M. Williams ------------------------------- Name: Stephen M. Williams Title: President Attest: ------------------------- Page 74 of 74 Pages -----END PRIVACY-ENHANCED MESSAGE-----