-----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, NEDOhU9LjoczHQ1Jka9q0UIXJIT+jG3jO6TNolc353LNas0XA7Q31CnSpnvxJQF5 6mIptYsWBCSPgCtb8SqK5A== 0001032210-98-000520.txt : 19980518 0001032210-98-000520.hdr.sgml : 19980518 ACCESSION NUMBER: 0001032210-98-000520 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-14482 FILM NUMBER: 98625072 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 10QSB 1 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1998 . ________________________ [ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______. COMMISSION FILE NUMBER 0-14482 _______ CARVER CORPORATION ------------------ (Exact name of small business issuer as specified in its charter) WASHINGTON 91-1043157 ---------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 15300 WOODINVILLE REDMOND ROAD N.E., WOODINVILLE, WA 98072 ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) (425) 482-3400 -------------- (Issuer's telephone number) _____________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ___ No ___ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. AT MAY 11, 1998, 7,358,476 SHARES OF $.01 PAR VALUE COMMON STOCK OF THE ISSUER WERE OUTSTANDING. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes No X ___ ___ Page 1 of 15 pages. Exhibit Index appears at Page 14. PART 1 -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARVER CORPORATION CONSOLIDATED BALANCE SHEET ASSETS
March 31, December 31, 1998 1997 ----------- ------------ (Unaudited) Current Assets Cash and cash equivalents........................... $ 95,000 $ 228,000 Marketable securities............................... 5,000 Accounts receivable, trade, net..................... 1,114,000 1,876,000 Inventories......................................... 4,258,000 4,758,000 Prepaid expenses.................................... 276,000 221,000 ----------- ------------ Total current assets.............................. 5,743,000 7,088,000 Property and equipment, less accumulated depreciation...................... 755,000 805,000 Other assets........................................ 103,000 106,000 ----------- ------------ Total Assets.......................................... $6,601,000 $7,999,000 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Note payable........................................ $ 1,144,000 $ 2,094,000 Accounts payable.................................... 1,687,000 1,134,000 Accrued liabilities Commissions and advertising....................... 24,000 77,000 Payroll and related taxes......................... 164,000 350,000 Warranty.......................................... 125,000 135,000 Other............................................. 290,000 158,000 ----------- ------------ Total current liabilities......................... 3,434,000 3,948,000 ----------- ------------ Shareholders' equity Preferred shares, par value $.01 per share 2,000,000 shares authorized, 1,411,764 shares issued and outstanding............................. 14,000 14,000 Common shares, par value $.01 per share 20,000,000 shares authorized, 4,288,476 shares issued and outstanding............................. 44,000 40,000 Additional paid-in capital......................... 19,460,000 19,371,000 Accumulated deficit................................. (16,351,000) (15,374,000) ----------- ------------ Total shareholder's equity........................ 3,167,000 4,051,000 ----------- ------------ Total liabilities and shareholders' equity............ $6,601,000 $ 7,999,000 =========== ============
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS) CARVER CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited)
THREE MONTHS ENDED MARCH 31, 1998 1997 ---------- ----------- Net sales...................................... $1,937,000 $ 2,101,000 Cost of sales.................................. 1,665,000 1,920,000 ---------- ----------- Gross profit................................. 272,000 181,000 Operating expense Selling...................................... 368,000 604,000 General & administrative..................... 548,000 487,000 Engineering, research & development.......... 245,000 235,000 ---------- ----------- 1,161,000 1,326,000 ---------- ----------- Loss from operations........................... (889,000) (1,145,000) Other income (expense) Interest expense............................. (36,000) (40,000) Interest income.............................. -- 2,000 Other........................................ 8,000 102,000 ---------- ----------- Net loss....................................... $ (917,000) $(1,081,000) ========== =========== Loss per common share.......................... $(0.22) $(0.29) ========== ===========
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS) CARVER CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1998 1997 --------- ----------- OPERATING ACTIVITIES: Net loss........................................................... $(917,000) $(1,081,000) Adjustments to reconcile net loss to cash flows from (used by) operating activities: Depreciation and amortization.................................... 91,000 180,000 Common shares issued for services................................ 34,000 Changes in: Accounts receivable............................................ 762,000 276,000 Inventories.................................................... 500,000 116,000 Prepaid expenses............................................... (76,000) (140,000) Accounts payable and accrued liabilities....................... 436,000 (128,000) Other assets................................................... 2,000 --------- ----------- Net cash provided from (used by) operating activities.............. 832,000 (777,000) --------- ----------- INVESTING ACTIVITIES: Acquisition of property, plant and equipment, net.................. (15,000) (123,000) Proceeds from note receivable...................................... 104,000 --------- ----------- Net cash used by investing activities.............................. (15,000) (19,000) --------- ----------- FINANCING ACTIVITIES: Increase (Decrease) in notes payable............................... (950,000) 767,000 Issuance of common shares.......................................... 1,000 ----------- Net cash provided by financing activities.......................... (950,000) 768,000 --------- ----------- Increase (decrease) of cash and cash equivalents................... (133,000) (28,000) CASH AND CASH EQUIVALENTS: Beginning of period................................................ 228,000 65,000 --------- ----------- End of period...................................................... $ 95,000 $ 37,000 ========= =========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid...................................................... $ 35,000 $ 37,000 NON CASH FINANCING: Dividend on preferred shares....................................... $ 60,000 $ 60,000
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS) CARVER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited) NOTE 1 - SUMMARY OF FINANCIAL STATEMENT PREPARATION The financial statements as of March 31, 1997 and March 31, 1998 are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the changes in financial condition and results of operations for the interim periods reported. The results of operations for any interim period are not necessarily indicative of the results that may be expected for the entire year. These financial statements should be read with reference to "Management's Discussion and Analysis or Plan of Operation" contained herein, and in conjunction with both the annual audited financial statements and the accompanying notes in the Company's form 10-KSB for the year ended December 31, 1997 and the Auditor's Report, which discloses substantial doubt about the Company's ability to continue as a going concern. NOTE 2 - INCOME TAXES For tax reporting purposes, the Company has approximately $20,800,000 of net operating losses which may be utilized to offset future taxable income. These loss carryforwards expire between the years 2004 and 2012. Under FAS109 the Company is required to recognize the future benefit of its net operating loss carryforwards. The Company has recorded a valuation allowance of 100% of the computed deferred tax assets. NOTE 3 - COMMITMENTS As of May 8, 1998, the Company has open purchase orders for finished goods of approximately $1,948,000 of inventory expected to be received in 1998 from various vendors, a portion of which may be cancelable. NOTE 4 - PRIVATE PLACEMENT OF SECURITIES On May 5, 1998, the Company closed a transaction with Renwick Special Situations Fund L.P. ("RSSF"), by which the Company sold 3 million shares of its unregistered Common Stock to RSSF for $375,000, or $0.125 per share. The 3 million shares represent 39% of the outstanding shares of the Company's Common Stock. Messrs. Raj A. Bhatia and James R. McCullough, both directors of the Company, are the Co-Presidents, sole directors and only shareholders of Renwick Capital Management, Inc. ("Renwick") and the sole general partners of Renwick Alpha Fund, L.P. ("RAF") and RSSF. Prior to this sale, RAF beneficially owned directly 185,211 shares of Common Stock and 470,588 shares of Preferred Stock and RSSF beneficially owned directly 2,497 shares of Common Stock and 941,176 shares of Preferred Stock. The shares of Preferred Stock are convertible into shares of Common Stock at any time at the option of the holder on a one for one basis, subject to potential antidilution adjustment. In addition, Renwick holds currently exercisable warrants to purchase 250,000 shares of Common Stock. As a result of this transaction, RSSF owns directly 3,002,497 shares, or 41%, of the Common Stock. The subscription agreement entered into by the Company and RSSF provides for demand registration rights with regard to these shares. During the period of time ending one year from the date of closing, the costs of registering the stock will be the sole expense of RSSF. Thereafter, such costs will be the sole expense of the Company. As a condition to closing, RSSF and RAF each waived its rights to cause the Company to adjust, or to benefit from an adjustment to the Conversion Ratio adjustment rights which were granted them by the Company in June 1997, and Renwick waived its exercise price adjustment rights with respect to its warrants. NOTE 5 - NONCOMPLIANCE WITH CERTAIN NASDAQ REQUIREMENTS The Company currently does not meet Nasdaq's minimum public float and bid price continued listing requirements, of $5,000,000 and $1.00 per share, respectively. The Company has until May 28, 1998 to satisfy these requirements. The inability of the Company to comply with these listing requirements likely will result in the delisting of the Company's common stock from Nasdaq. Delisting of the Company's common stock would likely have an adverse effect on the liquidity, trading price and ability to obtain quotations on a timely basis for the common stock. If the Company's common stock should cease to be listed on Nasdaq, it may continue to be quoted on the OTC Bulletin Board. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION FORWARD-LOOKING STATEMENTS Statements in this report covering future performance, developments, expectations or events, including the discussion of the Company's strategy, product development and introduction plans and various statements concerning the Company's expectations for its growth and for the consumer electronics industry and generation of additional working capital, constitute forward-looking statements which are subject to a number of known or unknown risks, uncertainties and other factors that might cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include the ability of the Company to obtain additional working capital sufficient to meet its working capital requirements, production difficulties or delays due to supply constraints, technical problems, payment delays or other factors; technological changes; the effect of global, national and regional economic conditions; reliability of offshore OEM suppliers; changes in the Company's channels of distribution; changes in consumer preferences; the impact of competitive products and pricing; changes in demand; increases in component prices or other costs; inventory risks due to shifts in market demand, product obsolescence or other factors and a number of other risks including those risks and uncertainties described under the caption "Risk Factors" in this report and those identified by the Company from time to time in other filings with the Commission, press releases and other communications. All forward- looking statements contained in this report reflect the Company's expectations at the time of this report, and the Company disclaims any responsibility to revise or update any such forward-looking statement except as may be required by law. RECENT DEVELOPMENTS TERMINATION OF DISTRIBUTION AGREEMENT WITH CIRCUIT CITY In early May, the Company and Circuit City agreed to terminate their distribution agreement for mutual business reasons. Circuit City plans to sell through its existing inventory of Carver products by September 1998. Prior to this termination, sales to Circuit City (except those attributable to new Cinema Loudspeaker system stocking orders) were declining. In 1997, Circuit City accounted for 40% of the Company's revenue, and in the first quarter of 1998, that percentage declined to 28%. Furthermore, due to Circuit City's buying power, the Company realized a smaller margin on sales to Circuit City than that realized by the Company on sales to most other customers. While the Company believes that the termination of its relationship with Circuit City may negatively effect sales of Carver products by other Carver dealers and may result in decreased sales of existing products to those dealers in the short term, the Company also believes that its introduction of new products later this summer, its implementation of a direct sales plan and increased dealer support, will generate sales that may offset the loss of revenue associated with the termination of the distribution agreement with Circuit City. There can be no assurance that such sales will increase in the amount necessary to offset such loss of revenue or that the margins associated with such sales will increase. APPOINTMENT OF INDEPENDENT DIRECTORS In March 1998, Benjamin Ben-Attar was appointed to the Company's Board of Directors. Mr. Ben-Attar has worked for several years in corporate finance as an associate with BNY Capital Markets, Inc., a subsidiary of The Bank of New York. In that position, he focuses on middle market mergers and acquisitions, private placements and leveraged finance, and has experience in the structuring of senior credit facilities In April 1998, Clifford J. Schorer, Jr. was appointed to the Company's Board of Directors. For the past twenty five years, Mr. Schorer has been engaged in creating and developing various entrepreneurial businesses. He is a Professor in the Columbia University Executive Education Department and an Adjunct Professor at the Columbia University Graduate School of Business. As a consultant, Mr. Schorer works with a diverse group of clients including Lucent Technologies, Con Edison, AT&T, Brooklyn Union Gas, Glaxo Welcome Pharmaceutical, Spectrum Management, Isolyzer and others. PRIVATE PLACEMENT OF SECURITIES On May 5, 1998, the Company closed a transaction with Renwick Special Situations Fund L.P. ("RSSF"), by which the Company sold 3 million shares of its unregistered Common Stock to RSSF for $375,000, or $0.125 per share. The 3 million shares represent 39% of the outstanding shares of the Company's Common Stock. Messrs. Raj A. Bhatia and James R. McCullough, both directors of the Company, are the Co-Presidents, sole directors and only shareholders of Renwick Capital Management, Inc. ("Renwick") and the sole general partners of Renwick Alpha Fund, L.P. ("RAF") and RSSF. Prior to this sale, RAF beneficially owned directly 185,211 shares of Common Stock and 470,588 shares of Preferred Stock and RSSF beneficially owned directly 2,497 shares of Common Stock and 941,176 shares of Preferred Stock. The shares of Preferred Stock are convertible into shares of Common Stock at any time at the option of the holder on a one for one basis, subject to potential antidilution adjustment. In addition, Renwick holds currently exercisable warrants to purchase 250,000 shares of Common Stock. As a result of this transaction, RSSF owns directly 3,002,497 shares, or 41%, of the Common Stock. The subscription agreement entered into by the Company and RSSF provides for demand registration rights with regard to these shares. During the period of time ending one year from the date of closing, the costs of registering the stock will be the sole expense of RSSF. Thereafter, such costs will be the sole expense of the Company. As a condition to closing, RSSF and RAF each waived its rights to cause the Company to adjust, or to benefit from an adjustment to the Conversion Ratio adjustment rights which were granted them by the Company in June 1997, and Renwick waived its exercise price adjustment rights with respect to its warrants. RESULTS OF OPERATIONS Net sales for the quarter ended March 31, 1998 were $1,937,000, a decrease of 8% from net sales of $2,101,000 for the same period of 1997. This decrease is due in part to softening market conditions for audio equipment in the industry. Also, recent limitations on product availability may have adversely affected relationships with distributors and dealers which may also adversely affect future sales. Of the domestic sales, approximately $539,000 or 28% were sales made by the Company to Circuit City, an increase from sales of $458,000 to Circuit City in the first quarter of 1997. This increase was due to sales of Cinema series loudspeakers of $229,000, which were introduced in the fourth quarter of 1997. Other domestic sales decreased 24% in the first quarter. Sales outside of the United States decreased approximately 14% from $207,000 to $178,000 in the first quarter of 1998 due to softening conditions in Asian markets. Approximately 48% of the Company's sales in the first three months of 1998 were attributable to products which the Company sources compared to 41% for the first quarter of 1997. Gross profit increased as a percent of net sales to 14% in the first quarter of 1998 from 9% in the first quarter of 1997. Since 1995, the Company has been operating at significantly less than its production capacity, resulting in an increase in cost of goods sold. Management believes that gross profit may improve as direct sales over the Internet and by telephone grow. However, there can be no assurance that such sales will increase or that cost increases or other factors will not negatively impact the Company's gross profit. (See "Liquidity and Capital Resources".) Operating expenses decreased 12% compared to the first quarter of 1997. These decreases were due to cost reduction efforts associated with the new business strategy discussed below. Net losses for the quarter ended March 31, 1998, were $917,000 (47% of net sales) or $0.22 per share. This compares to net losses of $1,081,000 (51% of net sales) or $0.29 per share for the first quarter of 1997. DEVELOPMENT OF NEW BUSINESS STRATEGY As the Company's sales have declined and the Company has experienced a severe shortage in working capital, the Company has determined the need to develop a new business strategy which will enable it to increase revenues and operate with lower overhead. This new business model, which is still under development but which the Company began to implement in the first quarter of 1998, includes the use of a new direct marketing strategy, a reduction in the number of products offered by the Company and the elimination of the Company's manufacturing operations. Under this model, the Company will transition to purchasing all of its products from OEM suppliers. Under the direct marketing strategy and since May 1, 1998, the Company has offered its products directly to consumers in addition to sales through dealers and distributors. The Company's products are offered for sale to consumers via the Internet at a Company Web site (www.carver.com) and through a toll-free number (1-877-2-Carver). Based upon the Company's new business plan and the condensed product line that the Company plans to offer, Carver has determined that it is advantageous to source its entire product line from selected and qualified strategic vendor partners. These sourced products will be built to the Company's specifications and, consistent with its commitment to quality, the Company will continue to maintain strict testing procedures. The Company retests products manufactured by its suppliers on a statistical sample basis at its Woodinville facility to monitor quality control. To help insure availability of its products, the Company has formed relationships with vendors from whom the Company has obtained high quality products delivered on a timely basis. As the Company continues to restructure its operations to implement its direct sales and sourced product plans, it anticipates that most of its production employees, and several other employees, will be laid off. SEASONALITY. The markets for consumer audio equipment are moderately seasonal, with somewhat higher sales expected to occur in the last six months of the year. The introduction of new products may affect this seasonality and period-to- period comparisons. Demand for audio products also exhibits some cyclicality, reflecting the general state of the economy and consumer expectations. LIQUIDITY AND CAPITAL RESOURCES At May 11, 1998, the Company's immediate capital resources consisted of approximately $95,000 in cash and $15,000 available under the current credit facility. The Company has an agreement with a financial institution that provides for working capital advances of up to $6,000,000, subject to borrowing base limitations tied to 70% of eligible accounts receivable and 50% of eligible inventory. A maximum of $1,000,000 of this line may be used to secure letters of credit (the "Credit Facility"). Advances are collateralized by substantially all of the assets of the Company and bear interest at the prime lending rate plus 2%. The outstanding balance on the line of credit as of May 11, 1998 was $719,000. The Credit Facility expires on July 31, 1998. The lender has notified the Company that it will not renew the Credit Facility. There can be no assurance that the Company can obtain a replacement line of credit when needed on terms that the Company finds acceptable. However, the Company believes that a new line of credit may be secured, if it can obtain agreements from its creditors to payment plans and if financing is secured in the near future. Accounts payable and accrued liabilities have increased $436,000 during the quarter ending March 31, 1998. The Company has been unable to make payments to suppliers in accordance with agreed upon terms and is currently negotiating a payment schedule. On May 11, 1998, approximately $1,400,000 would be needed to satisfy the Company's past-due payment obligations. The Company's inventory decreased $500,000 from December 31, 1997 to March 31, 1998, due to decreased production of amplifiers manufactured in the U.S. and decreased procurement of loudspeakers and other electronics. Accounts receivable decreased $762,000 from the end of 1997 due to lower sales in the first quarter of 1998. On May 5, 1998, the Company closed a transaction with Renwick Special Situations Fund L.P. ("RSSF"), by which the Company sold 3 million shares of its unregistered Common Stock to RSSF for $375,000, or $0.125 per share. The 3 million shares represent 39% of the outstanding shares of the Company's Common Stock. Messrs. Raj A. Bhatia and James R. McCullough, both directors of the Company, are the Co-Presidents, sole directors and only shareholders of Renwick Capital Management, Inc. ("Renwick") and the sole general partners of Renwick Alpha Fund, L.P. ("RAF") and RSSF. Prior to this sale, RAF beneficially owned directly 185,211 shares of Common Stock and 470,588 shares of Preferred Stock and RSSF beneficially owned directly 2,497 shares of Common Stock and 941,176 shares of Preferred Stock. The shares of Preferred Stock are convertible into shares of Common Stock at any time at the option of the holder on a one for one basis, subject to potential antidilution adjustment. In addition, Renwick holds currently exercisable warrants to purchase 250,000 shares of Common Stock. As a result of this transaction, RSSF owns directly 3,002,497 shares, or 41%, of the Common Stock. The subscription agreement entered into by the Company and RSSF provides for demand registration rights with regard to these shares. During the period of time ending one year from the date of closing, the costs of registering the stock will be the sole expense of RSSF. Thereafter, such costs will be the sole expense of the Company. As a condition to closing, RSSF and RAF each waived its rights to cause the Company to adjust, or to benefit from an adjustment to the Conversion Ratio adjustment rights which were granted them by the Company in June 1997, and Renwick waived its exercise price adjustment rights with respect to its warrants. The Company currently does not meet Nasdaq's minimum public float and bid price continued listing requirements of $5,000,000 and $1.00 per share, respectively. The Company has until May 28, 1998 to satisfy these requirements. The inability of the Company to comply with these listing requirements likely will result in the delisting of the Company's common stock from Nasdaq. Delisting of the Company's common stock would likely have an adverse effect on the liquidity, trading price and ability to obtain quotations on a timely basis for the common stock. If the Company's common stock should cease to be listed on Nasdaq, it may continue to be quoted on the OTC Bulletin Board. In the first quarter of 1998, the Company purchased $15,000 of capital equipment, of which $14,000 represented leasehold improvements which were incurred in conjunction with the move to a new leased facility. The Company expects minimal purchases of capital equipment in the near future. The Company believes that its current sources of operating capital are not adequate to fund the Company's operations through the end of 1998, however the Company has identified potential financing sources. Even if the Company is successful in raising additional financing, unforeseen costs and expenses or lower than anticipated revenues could accelerate or increase the financing requirements. There can be no assurance that the Company will be able to secure a line of credit to replace the Credit Facility currently in place, or that the Company's efforts to secure financing will be successful. Failure to obtain sufficient additional capital to satisfy the Company's working capital requirements would force the Company to further curtail or restructure operations, sell assets, continue to seek extended payment terms from its creditors or seek protection under the federal bankruptcy laws. EFFECTS OF INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES All sales of the Company's products are in U.S. dollars. Since 1996, the Company has purchased the majority of its materials at an agreed per unit price payable in U.S. Dollars. Accordingly, fluctuations in foreign currency rates had no material impact on the Company's gross margin in the first three months of 1998. PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On May 5, 1998, the Company closed a transaction with Renwick Special Situations Fund L.P. ("RSSF"), by which the Company sold 3 million shares of its unregistered Common Stock to RSSF for $375,000, or $0.125 per share. The 3 million shares represent 39% of the outstanding shares of the Company's Common Stock. Messrs. Raj A. Bhatia and James R. McCullough, both directors of the Company, are the Co-Presidents, sole directors and only shareholders of Renwick Capital Management, Inc. ("Renwick") and the sole general partners of Renwick Alpha Fund, L.P. ("RAF") and RSSF. Prior to this sale, RAF beneficially owned directly 185,211 shares of Common Stock and 470,588 shares of Preferred Stock and RSSF beneficially owned directly 2,497 shares of Common Stock and 941,176 shares of Preferred Stock. The shares of Preferred Stock are convertible into shares of Common Stock at any time at the option of the holder on a one for one basis, subject to potential antidilution adjustment. In addition, Renwick holds currently exercisable warrants to purchase 250,000 shares of Common Stock. As a result of this transaction, RSSF owns directly 3,002,497 shares, or 41%, of the Common Stock. The subscription agreement entered into by the Company and RSSF provides for demand registration rights with regard to these shares. During the period of time ending one year from the date of closing, the costs of registering the stock will be the sole expense of RSSF. Thereafter, such costs will be the sole expense of the Company. As a condition to closing, RSSF and RAF each waived its rights to cause the Company to adjust, or to benefit from an adjustment to the Conversion Ratio adjustment rights which were granted them by the Company in June 1997, and Renwick waived its exercise price adjustment rights with respect to its warrants. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit 2.4 Subscription Agreement, dated as of May 5, 1998, by and between the Company and Renwick Special Situations Fund, L.P. Exhibit 4.2 First Amended and Restated Registration Rights Agreement, dated as of May 5, 1998, by and among the Company, Renwick Special Situations Fund, L.P., Renwick Alpha Fund, L.P., and Renwick Capital Management, Inc. Exhibit 4.6 Waiver of Conversion Ratio Adjustment Right, dated as of May 5, 1998, by and among the Company, Renwick Special Situations Fund, L.P., Renwick Alpha Fund, L.P. and Renwick Capital Management, Inc. Management, Inc. Exhibit 11 Computation of Earnings per Share (b) REPORTS ON FORM 8-K None. SIGNATURES In accordance the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARVER CORPORATION Dated: May 15, 1998 /s/ Debra L. Griffith _________________________________________ Debra L. Griffith Vice President Finance and Administration (Principal Financial Officer and Principal Accounting Officer) EXHIBIT INDEX
EXHIBIT TITLE PAGE - --------- --------------------------------------------------------------------- ---- 2.4 Subscription Agreement, dated as of May 5, 1998, by and between the Company and Renwick Special Situations Fund, L.P. 16 4.2 First Amended and Restated Registration Rights Agreement, dated as of May 5, 1998, by and among the Company, Renwick Special Situations Fund, L.P., Renwick Alpha Fund, L.P., and Renwick Capital Management, Inc. 19 4.6 Waiver of Conversion Ratio Adjustment Right, dated as of May 5, 1998, by and among the Company, Renwick Special Situations Fund, L.P., Renwick Alpha Fund, L.P. and Renwick Capital Management, Inc. 28 11 Computation of Earnings Per Share 29
EX-2.4 2 SUBSCRIPTION AGREEMENT EXHIBIT 2.4 SUBSCRIPTION AGREEMENT The undersigned, the Renwick Special Situations Fund, L.P. ("Renwick"), hereby tenders this Subscription Agreement for the purchase of three million (3,000,000) shares of common stock, par value $0.01, issued by Carver Corporation, a Washington corporation (the "Company") at a price of $0.125 per share (the "Shares") upon the terms and conditions set forth below. Payment in the amount of $365,250 is delivered herewith to the Company, representing the purchase price of $375,000 less a 5% commission payable to Renwick. The undersigned is aware that the Shares have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws, in reliance on exemptions from such registration. The undersigned understands that reliance by the Company on such exemptions is predicated in part upon the truth and accuracy of the statements made by the undersigned in this Subscription Agreement. Renwick further acknowledges, agrees and represents as follows: (a) Authorization. Renwick has full power and authority to execute, deliver and perform this Agreement and to acquire the Shares. This Agreement constitutes the legal, valid and binding obligation of Renwick, enforceable against Renwick in accordance with its terms. (b) Purchase Entirely for Own Account. The Shares to be acquired by Renwick will be acquired for investment for Renwick's own account, not as a nominee or agent and not with a view to the distribution of any part thereof. Renwick has no present intention of selling, granting any participation in, or otherwise distributing the Shares acquired by Renwick, except in accordance with Section (c) below. Renwick 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 Shares to be acquired by Renwick. (c) Restricted Securities. Renwick understands that the Shares to be acquired by Renwick 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 Shares to be acquired by Renwick, such Shares must be held indefinitely. In the absence of an effective registration statement covering the Shares to be acquired by Renwick, Renwick will sell, transfer, or otherwise dispose of the Shares to be acquired by Renwick only in a manner consistent with its representations and agreements set forth herein. (d) Formation. Renwick represents that it was not organized for the purpose of making an investment in the Company. (e) Financial Condition. Renwick's financial condition is such that it is able to bear the risk of holding the Shares to be acquired for an indefinite period of time and can bear the loss of its entire investment in the Shares to be acquired. Renwick 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 is an "accredited investor" as that term is defined in Rule 501 promulgated under the 1933 Act. (f) Receipt of Information. Renwick has been furnished access to the business records of the Company and its Subsidiaries and such additional information and documents as it 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 Shares, the business, operations, market potential, capitalization, financial condition and prospects of the Company and its Subsidiaries, and all other matters deemed relevant. Renwick confirms that it has been furnished (i) the Company's Annual Report on Form 10-KSB with respect to the Company's fiscal year ending December 31, 1997, (ii) the Company's Quarterly Reports on Form 10-QSB with respect to the Company's fiscal quarters ending March 31, 1997; June 30, 1997; and September 30, 1997, (iii) a Current Report of the Company on Form 8-K dated February 6, 1998, and (iv) a description of the Shares and the use of proceeds from the sale thereof. None of the foregoing documents contains an untrue statement of material fact or omits to state a material fact necessary to make the statements contained in such documents, in light of the circumstances in which they are made, not misleading. (g) 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 Renwick, and Renwick agrees to indemnify and hold the Company and its Subsidiaries harmless against any damages incurred as a results of any such claims. (h) Further Limitations on Disposition. Renwick further agrees not to make any disposition of all or any portion of the Shares 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) Renwick 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) Renwick 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 Renwick (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 Renwick to a partner of Renwick as a distribution to partners and not a sale, if, in the case of clauses (i) and (ii) 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. (i) Legends. It is understood that the certificates evidencing the Shares may bear substantially the following legend: 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. This Subscription Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York (excluding, however, all choice of law provisions in New York law) and all parties hereto consent and agree to exclusive venue in Seattle, Washington. This Subscription Agreement and the rights, powers and duties set forth herein shall be binding upon the undersigned, the undersigned's heirs, estate, legal representatives, successors and assigns and shall inure to the benefit of the Company, its successors and assigns. REPRESENTATIVES OF RENWICK HAVE CAREFULLY READ THE FOREGOING AND UNDERSTAND THAT IT RELATES TO RESTRICTIONS UPON RENWICK'S ABILITY TO SELL AND/OR TRANSFER THE SHARES AND THAT THE SIGNIFICANCE TO THE COMPANY OF THE FOREGOING REPRESENTATIONS IS THAT THEY WILL BE RELIED UPON BY THE COMPANY. Date: May 5, 1998. RENWICK SPECIAL SITUATIONS FUND, L.P. 900 Third Avenue, 27th Floor New York, New York 10022 by: /s/ Raj A. Bhatia --------------------------------- General Partner EX-4.2 3 RESTATED REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.2 FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT AGREEMENT, dated as of the 5th day of May, 1998, among 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 15300 Woodinville-Redmond Road N.E., Woodinville, Washington 98036 (the "Company"). WHEREAS, the Holders have purchased 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") and received 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 among the Company and the Holders dated June 12, 1996 (the "Purchase Contract"); WHEREAS, simultaneous with the execution and delivery of this Amended Agreement, one such Holder, Renwick Special Situations Fund, L.P. ("Renwick"), is purchasing from the Company an aggregate of up to 3,000,000 shares of Common Stock (the "Subscription Shares") upon the terms set forth in the Subscription Agreement by and between the Company and Renwick dated May 5, 1998 (the "Subscription Agreement"); WHEREAS, the Company desires to grant to the Holders the registration rights set forth herein with respect to (i) the shares of Common Stock to be issued to the Holders upon the conversion of the Preferred Stock or exercise of the Warrants; and the Subscription Shares; and WHEREAS, the Company and the Holders desire to amend and restate the Registration Rights Agreement by and among them dated June 12, 1996 as set forth herein. 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, the Common Stock to be issued upon conversion of the shares of Preferred Stock (the "Conversion Shares") or the Subscription 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, the Subscription Shares and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Warrant, Conversion and Subscription Shares; 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 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. (iii) 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. (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") on no more than 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 during the one year period ending on the first anniversary of the date hereof the Company shall not be required to register pursuant to this Section 1(d) the Subscription Shares and any shares of Common Stock issued upon any stock split or stock dividend in respect thereof unless Holders owning at least two-thirds of such shares have given written notice to the Company of demand pursuant to this Section 1(d) in which case, notwithstanding the expense-sharing arrangements described in Section 2(b), such electing Holders shall bear their pro rata share of all costs and expenses of such registration, such amount to be determined based on the percentage which the market value as of the date of filing of the registration statement of the Subscription Shares so included bears to the aggregate market value as of the date of filing of the registration statement of all securities covered by such registration statement; provided, further, 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 and subject to the limitation described in Section 1(b) with respect to the Subscription Shares, 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 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) Subject to the proviso in Section 1(d) above, 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 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 l(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: (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 agreements and understandings of the parties, oral and written, with respect to the subject matter hereof, including the Registration Rights Agreement dated June 12, 1996 among the Company and the Holders. 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. 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/ John P. World ________________________________ Name: John P. World Title: Executive Vice President and Gen. Mgr. INVESTORS: RENWICK SPECIAL SITUATIONS FUND, L.P. 900 Third Avenue, 27th Floor New York, New York 10022 By: /s/ Raj A. Bhatia _______________________ Name: Raj A. Bhatia Title: General Partner RENWICK ALPHA FUND, L.P. 900 Third Avenue, 27th Floor New York, New York 10022 By: /s/ Raj A. Bhatia _______________________ Name: Raj A. Bhatia Title: General Partner RENWICK CAPITAL MANAGEMENT, INC. 900 Third Avenue, 27th Floor New York, New York 10022 By: /s/ James R. McCullough __________________________ Name: James R. McCullough Title: Co-President EX-4.6 4 WAIVER OF CONVERSION RATIO ADJUSTMENT RIGHT EXHIBIT 4.6 WAIVER OF CONVERSION RATIO ADJUSTMENT RIGHT THIS WAIVER AGREEMENT, dated as of May 5, 1998, is by and among Carver Corporation, a Washington corporation (the "Company"), Renwick Special Situations Fund, L.P. and Renwick Alpha Fund, L.P. (together, the "Investors") and Renwick Capital Management, Inc. ("Renwick"). Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to such terms in the 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 "Certification of Designation"). WHEREAS, the Company has issued 3,000,000 shares of common stock of the Company, par value $0.01 per share (the "Common Stock") at a price per share of $0.125 to one of the Investors, Renwick Special Situations Fund, L.P., in connection with the Subscription Agreement dated April 10, 1998; NOW, THEREFORE, in consideration of this issuance and notwithstanding the Conversion Ratio adjustment rights with respect to the Series A Preferred Stock set forth in Section 9(g) of the Certificate of Designation, the Investors hereby waive, for themselves and on behalf of any permitted transferees or assignees of the Series A Preferred Stock (and any other holder of the Series A Preferred Stock, as a condition to being a permitted transferee or assignee thereof, upon such transfer or assignment agrees to waive) any right of any such holder to cause the Company to adjust, or to benefit from an adjustment to, the Conversion Ratio as a result of the Company's issuance of 3,000,000 shares of Common Stock for a consideration per share less than the Adjustment Trigger Price. AND, FURTHERMORE, in consideration of this issuance and notwithstanding the exercise price adjustment rights with respect to the Warrant Shares set forth in Section 7 of the Warrant Agreement dated as of June 12, 1996 between the Company and Renwick, Renwick hereby waives, for itself and on behalf of any permitted transferees or assignees of the Warrant Shares (and any other holder of the Warrant Shares, as a condition to being a permitted transferee or assignee thereof, upon such transfer or assignment agrees to waive) any right of any such holder to cause the Company to adjust, or to benefit from an adjustment to, the exercise price as a result of the Company's issuance of 3,000,000 shares of Common Stock for a consideration per share less than the Adjustment Trigger Price. INVESTORS COMPANY RENWICK SPECIAL CARVER CORPORATION SITUATIONS FUND, L.P. /s/Raj A. Bhatia /s/John P. World ______________________________ _________________________________ Raj A. Bhatia, General Partner John P. World, Executive Vice President and General Manager RENWICK ALPHA FUND, L.P. RENWICK CAPITAL MANAGEMENT, INC. /s/Raj A. Bhatia /s/James R. McCullough ______________________________ _________________________________ Raj A. Bhatia, General Partner James R. McCullough, Co-President EX-11 5 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 CARVER CORPORATION AND SUBSIDIARY COMPUTATION OF EARNINGS PER SHARE (Unaudited)
Three Months Ended March 31, 1998 1997 ---------- ----------- PRIMARY EARNINGS PER SHARE NET LOSS $ (917,000) $(1,081,000) ---------- ----------- Weighted average number of shares outstanding 4,130,149 3,754,062 Add shares issuable from the assumed exercise of options or conversion of preferred stock * * Add shares issuable from the assumed conversion of preferred shares * * ---------- ----------- Weighted average number of shares outstanding, as adjusted 4,130,149 3,754,062 ---------- ----------- LOSS PER COMMON SHARE $ (0.22) $ (0.29) ========== ===========
* Effect on loss per share is antidilutive EX-27 6 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 95,000 0 1,114,000 69,000 4,258,000 5,743,000 1,903,000 1,148,000 6,601,000 3,434,000 0 0 14,000 44,000 3,109,000 6,601,000 1,937,000 1,937,000 1,665,000 1,665,000 1,153,000 0 36,000 (917,000) 0 (917,000) 0 0 0 (917,000) (0.22) (0.22)
-----END PRIVACY-ENHANCED MESSAGE-----