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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________to_____________________________
Commission file number 0-14482
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CARVER CORPORATION
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(Exact Name of Registrant as specified in its charter)
WASHINGTON 91-1043157
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
20121 - 48th Avenue West, Lynnwood, WA 98036
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(Address of principal executive offices)
(Zip Code)
(206) 775-1202
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price for the registrant's Common Stock,
as reported by the National Association of Securities Dealers' Automated
Quotation National Market System on March 26, 1996 was $6,845,586.
Number of shares of Common Stock of the Registrant outstanding as of March
25, 1996: 3,687,080 shares.
Items 10, 11, 12 and 13 of Part II are incorporated by reference to the
Company's definitive proxy statement for its 1996 Annual Meeting of shareholders
which involves the election of directors and which will be filed with the
Commission within 120 days after the close of the fiscal year.
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TABLE OF CONTENTS
PART I PAGE
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Item 1. Business..................................................
Item 2. Properties................................................
Item 3. Legal Proceedings.........................................
Item 4. Submission of Matters to a Vote of
Security Holders..........................................
PART II
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Item 5. Market for the Company's Common Stock and
Related Security Holder Matters...........................
Item 6. Selected Financial Data...................................
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............
Item 8. Financial Statements and Supplementary Data...............
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................
PART III
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Item 10. Directors and Executive Officers of the Company............
Item 11. Executive Compensation.....................................
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................
Item 13. Certain Relationships and Related Transactions.............
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K................................................
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PART I
ITEM 1. BUSINESS
INTRODUCTION
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 generations of additional working capital, constitute forward-looking
statements which are subject to a number of risks and uncertainties which might
cause actual results to differ materially from stated expectations. These
include the risks and uncertainties described under the caption "Risk Factors"
in Part I of this report and those identified by the Company from time to time
in other filings with the Commission, press releases and other communications.
Description of Business
Carver Corporation ("Carver" or "the Company") designs, develops, manufactures
and markets high-fidelity audio components targeted to the mid-to high-end audio
entertainment systems market.
Carver products are positioned in the middle and upper price range of most audio
components. The Company offers technically innovative audio products for the
home hi-fi market that deliver affordable "audiophile" quality. It targets its
distribution channels toward knowledgeable consumers who insist on high quality
products which offer superior features and performance.
During 1995, the Company continued to pursue its strategy designed to broaden
its market presence and return its operations to profitability. It continued to
streamline its product lines to focus the Company's resources on its core
strength, the design and marketing of amplifiers and preamplifiers. The Company
continued to cut overhead expenses. It broadened and strengthened Carver's
distribution network. It concluded the sale of the Company's professional
product line to Phoenix Gold International, Inc. and discontinued its mobile
product line of products.
The Company was incorporated in the State of Washington in 1978, and its initial
public offering occurred in May 1985. Its stock is traded on the Nasdaq
National Market under the symbol CAVR. The Company is located at 20121 - 48th
Avenue West, Lynnwood, Washington 98046. Its telephone number is (206) 775-
1202.
INDUSTRY OVERVIEW
Carver estimates, based on market industry surveys, the U.S. consumer high-
fidelity audio market (electronics of all types including portable and mobile
audio) to be currently in excess of $11 billion per year at the factory selling
price.
Home audio systems vary widely in design, quality and price from inexpensive
systems having relatively low-quality sound reproduction to expensive systems
designed for the high-fidelity sound enthusiasts who demand that their systems
duplicate, as closely as possible, the sound of a live performance. System
prices range from under $100 to well over $100,000. Carver considers itself
positioned between the middle segment and the extreme high-end companies. It
estimates the total size of the market for separate audio components to be
around $2.6 billion annually. A Carver system, including loudspeakers, ranges
in price from approximately $2,800 to approximately $7,800.
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RECENT DEVELOPMENTS
Significant New Customer - The Circuit City Affiliation.
In December 1995, the Company announced that the Company's consumer product line
would be carried in the superstores operated by Circuit City Stores, Inc.,
("Circuit City") the nation's largest retailer of brand-name consumer
electronics. Circuit City operates approximately 352 superstores throughout the
United States. Pursuant to the Company's agreement with Circuit City, opening
orders will be shipped in three stages. The initial product roll out was
shipped in late December 1995 and early January 1996; the second roll out was
shipped in February 1996; and the third roll out is expected to ship in May
1996. If shipments of the Company's products to all Circuit City superstores
are as contemplated by Carver and Circuit City, the number of retail outlets
selling the Company's consumer products will be approximately twice the number
of retail outlets that were selling the Company's consumer products on December
1, 1995. (See Item 1-- Certain Risks and Item 7--Management's Discussion and
Analysis Financial Condition and Results of Operations).
Sale of Professional Audio Product Line.
In November 1995, the Company sold all of the tangible and intangible assets
related to its professional audio products line to Phoenix Gold International,
Inc ("Phoenix Gold"). The transaction included a license which allows Phoenix
Gold to use the name "Carver Professional", and an agreement by the Company not
to compete against Phoenix Gold in the professional audio market for a period of
five years from the date of the sale. The transaction provided needed working
capital and enabled the Company to focus on its consumer product business, and
further reduce staff and related overhead. However, there can be no assurance
that such benefits from the sale will accrue to the Company. Cash generated by
the transaction allowed Carver to purchase previously deferred shipments of
offshore-sourced consumer products. (See Item 7 - Management's Discussion and
Analysis Financial Condition and Results of Operations).
Customs Audit
Between 60% to 70% of the Company's revenues in prior years were of products
which are sourced from offshore suppliers primarily from the Far East. Late in
1994, the United States Customs Service completed an audit of the Company's
import operations. The Customs Service found that the Company had made late
duty payments totaling $99,000 on tooling between 1989 to 1993. On March 9,
1995, the Customs Service issued to the Company a prepenalty notice indicating
that it would assess a penalty up to approximately $400,000. The Company has
provided documentation to the Customs Service which the Company believes should
significantly mitigate any penalty. In July 1995, the Company paid the Customs
Service $50,000 as an offer in compromise of the penalty. While the Company
believes its offer will be accepted, there can be no assurances of this. The
Company's current cash flow position would not allow it to pay a $400,000
penalty. (See Item 7 - Management's Discussion and Analysis Financial Condition
and Results of Operations).
Mobile Products
In an effort to further streamline its operations, the Company discontinued its
mobile product line in 1995. The Company had not been able to invest in
research, development and marketing which this intensely competitive market
would require. In December 1995, the Company wrote off its remaining mobile
product raw material inventory.
Personnel
Robert A. Fulton resigned as the President and Chief Executive Officer in
January 1996 and Stephen M. Williams, formerly the Company's Executive Vice
President and Chief Operating Officer, was elected President and Chief Executive
Officer. Mr. Fulton remains with the Company as one of its directors. In
February 1996, Sandra L.
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Jenkins, the Company's Vice President of Finance and Administration and Chief
Financial Officer, resigned. The Company expects to complete the process of
recruiting a successor to Ms. Jenkins during the second quarter of 1996.
Thomas C. Graham was elected Chairman of Carver's Board of Directors and John F.
Vynne was elected Vice-Chairman in November 1995. Walter C. Howe, Jr. resigned
as a director of the Company in November 1995. Robert W. Carver was elected to
the Board of Directors in December 1995.
PRODUCTS
In 1996, Carver's AV-806x was named the "THX Amplifier of the Year" by Britian's
Home Cinema, a British trade magazine. The Company's Lightstar Reference
Amplifier won the Special Technology Award in the influential Hi Fi Grand Prix
award given by Audio Video International, an important trade publication.
Products are nominated by retailers and then a panel of audio engineers and
magazine writers review the benefits, features and overall value of the product.
These are compiled to produce three or four winners in each category. Carver's
products have historically been well represented in this competition.
Other awards received in 1995 were the Electronics Industries Association's
Design and Engineering award, called Innovations. Manufacturers are invited to
submit entries. A panel of judges consisting of industry engineers, audio press
editors and other experts review each entry and evaluate such items like
aesthetic appeal, improvement of quality of life and technological advances.
Votes are then cast and the winning products are displayed in a special exhibit
at the Consumer Electronics Show in Las Vegas in January. Three Carver products
won this award in 1995: The Carver Research Lightstar Direct remote
controlled preamplifier; the Carver AV-806x power amplifier; and the Z-5 power
expander.
Home Audio Products
The Company markets a home audio video component line of 17 products which
include 4 power amplifiers, 2 multi-channel amplifiers, 2 preamplifier/ tuners,
1 integrated amplifier, 1 receiver, 2 preamplifiers and one model each of a
tuner, CD changer, CD player, cassette deck and loudspeakers. Manufacturers
Suggested Retail Price on consumer home products ranged from $399-$4000.
An audio entertainment system typically includes a signal source such as a CD
player, cassette deck or radio tuner which outputs to a preamplifier that
controls the volume level, tone, and source switching. Specialized
amplification circuits in the preamplifier convert input signal to a compatible
format and feed it to the amplifier which increases the signal strength to a
level strong enough to drive loudspeakers. An audio/video receiver accomplishes
most of these functions in one box, but the consumer is typically compromising
performance to achieve compactness. Although Carver offers receivers, it
believes its strength lies in its separate components which allow the consumer
the flexibility to customize power and features to suit their home acoustics and
listening preferences. Separates also provide superior audio performance,
improved reliability and more upgrade options. The Company believes consumers
select separates primarily by power, accuracy or sonic superiority, features and
price.
In recent years, Carver has concentrated its efforts on the major area for
growth in audio products, audio for video or home theater separates. The
Company has discontinued most of its signal source products, its lower priced
preamplifiers and receivers, and its home theater loudspeakers.
Professional Products.
Until November 1995, Carver offered multiple lines of professional power
amplifiers that covered a wide range of professional applications. Sale of all
of the products were discontinued by the Company upon completion of the sale of
the professional product line to Phoenix Gold.
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Carver Technologies
The Company's business strategy has involved the identification of certain
fundamental limitations of the stereophonic sound reproduction process and the
development of innovative electronic circuits or other technologies which
address these limitations. The Company holds thirteen patents with respect to
certain of the technologies described below and licenses an additional
technology. See "Patents and Trademarks". The Company's technologies include:
Lightstar Power Amplifier Technology. The Company believes Lightstar Reference
represents the most advanced power amplifier technology on the market today.
This technology offers performance advantages over current amplifier designs in
terms of current capability, the capability to easily drive any loudspeaker
load, independence from voltage fluctuations from the AC power line and
effortless sound quality. The Company has filed three patent applications on
its Lightstar technology, one of which has been granted.
Magnetic Field Power Amplifier Technology enables the Company's amplifiers to
deliver more current, more power and more voltage than competitively-priced
designs while dealing with demanding, variable speaker impedances. Carver
Magnetic Field amplifiers are capable of delivering both high voltage and high
current simultaneously into modern speaker designs which can swing as low as two
ohms in certain frequency ranges. The patents relating to Magnetic Field Power
Amplifier technology are licensed by the Company from Robert W. and
Diana R. Carver. The patents expire from 1997 to 2003.
Transfer Function Modification Technology. The t-modification process allows
the Company to duplicate many of the sonic characteristics of its very costly
amplifier in solid state designs at a fraction of the cost.
Sonic Holography(R). Using principles analogous to those employed in producing
visual holograms with intersecting laser beams, the Company's patented Sonic
Holography technology produces the illusion that the musical program is being
performed by instruments arrayed on a three-dimensional stage. The Company's
U.S. patent relating to Sonic Holography will expire in 1997.
Asymmetrical Charge-Coupled FM Detection Technology. Carver's patented
Asymmetrical Charge-Coupled FM Detector (ACCD) circuit substantially reduces
interference caused by multipath distortion and noise present in weak stereo
radio broadcast signals. Thus, high quality stereo reproduction can be achieved
from FM signals which would produce unacceptably poor sound quality on other
equipment. The patent for the Asymmetrical Charge-Coupled FM Detection
Technology will expire in 2001.
Flat Panel Speaker Technology. The Company's Flat Panel Speaker technology was
developed to address many of the problems encountered in conventional speaker
designs and ribbon array speakers. This dipole ribbon technology employs
innovative materials, panel geometry and driver positioning to achieve a sharply
focused, yet large three-dimensional sound effect. The Company's patent expires
in 2007.
Patents and Trademarks
The Company holds thirteen domestic patents issued between 1980 and 1994 on
several of its technologies which are incorporated into a number of its
products. See "Carver Technologies" above. Patents with respect to Sonic
Holography (R) and ACCD have been issued by various countries.
Robert W. and Diana R. Carver personally own domestic and foreign patents on the
Magnetic Field Power Amplifier technology which expire beginning in 1997. The
Company has a non-exclusive license to the technology and pays Robert W. and
Diana R. Carver royalties on sales of products incorporating such technology.
While the Company believes that the patent rights owned by the Company and under
which the Company is licensed are important and cover and protect adequately the
Company's proprietary rights in the patented technologies, there can be no
assurance that any current or future patents will prove valid. Moreover, the
Company believes that its growth, competitive position and future success are
more dependent upon technical expertise and marketing skills
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than on the ownership of patent rights.
"Carver", "Cinema Holography", "Sonic Holography", "Lightstar", "Great American
Sound", and "Ampzilla" are registered trademarks of the Company. The Company
claims common law rights to the following trademarks: "Digital Time Lens",
"Magnetic Field Amplifier", "Soft EQ", and "KLW Audio".
SALES AND MARKETING
Home Audio Systems.
The Company markets its home audio products in the United States primarily
through retail outlets, ranging from audio-video specialty stores to national
retailers of brand-name consumer electronics, serviced by 18 independent
manufacturers' representatives and the Company's sales and marketing staff. The
Company's dealers typically stock a broad variety of audio equipment and may
also carry automobile audio systems, televisions, video cassette recorders and
other consumer-oriented electronic products. The Company seeks dealers who
emphasize high quality audio systems and who are knowledgeable about the
characteristics of audio/video products. The Company's sales and marketing
department emphasizes dealer education programs and product literature to enable
individual sales people to understand and explain to consumers the superior
price/performance features offered by the Company's products. In order to
maintain a high quality distribution system that is competitive with those of
other brands, the Company sells products only to dealers who have signed dealer
agreements reflecting the Company's distribution policies.
Purchasers of high quality audio equipment tend to rely on audio specialty
publications, the recommendations of their friends and acquaintances who are
audio enthusiasts, and recommendations of and demonstrations by knowledgeable
sales people. Accordingly, the Company believes that the favorable reviews of
the Company's products that have been featured in such publications as Stereo
Review, Audio, Stereophile, High Performance Review, Audio/Video Interiors,
Video, Home Theater magazines, Sensible $ounds and Guide to Home Theater and
the Company's general reputation for producing superior products are important
elements of its sales and marketing program. Domestic sales of consumer audio
products accounted for approximately 57%, 57%, and 46% of the Company's sales in
1993, 1994 and 1995, respectively. Total Company sales of consumer audio
products were 72%, 71%, and 60%, respectively, for the same years.
Professional Sound Equipment
The Company's professional audio products were marketed principally through
musical instrument and professional audio retailers, sound contractors and to
major touring sound companies. The Company had a domestic network of 18
manufacturer's representatives for its professional audio products. Worldwide
sales of professional audio products accounted for approximately 25 percent of
the Company's sales in each of 1993, 1994 and 1995, respectively. Figures for
1995 are based on sales of professional audio products through mid-November 1995
when the Company sold its professional audio products line.
OEM Product
Prior to 1994, Carver built product in its Lynnwood facility for other audio
manufacturers to be resold under their brand name on a very limited basis. In
1994, the Company expanded this aspect of its business to include contracts to
supply product as an Original Equipment Manufacturer (OEM). OEM production
accounted for approximately 1% and 8% of sales in 1994 and 1995, respectively.
Most of the products which the Company sold as an OEM were professional audio
products, and the underlying contracts for the OEM products were included in the
sale of Carver's professional product line. Since then, the Company's OEM sales
have returned to their pre-1994 levels.
International Sales
The Company has a network of 56 distributors who provide retail sales coverage
in over 56 countries. International sales are also made to U.S. military
exchanges. Foreign sales accounted for approximately 25, 27, and 28 percent of
the Company's sales in 1993, 1994 and 1995, respectively. Management had
intended to allocate more resources in
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global marketing in 1995 in an effort to increase its international revenues.
The Company's cash restraints in 1995 prevented it from allocating additional
resources in developing products for its international markets and from
marketing its existing products.
Competition
The consumer electronics industry is intensely competitive. Many large and small
manufacturers offer audio systems which vary widely in price and quality and
which are distributed through a variety of distribution channels, including
audio specialty stores, discount stores, department stores and mail order firms.
The Company has chosen to concentrate its efforts on the segments of the market
served principally by audio specialty stores and a major national consumer
electronics retailer, Circuit City. In recognition of current market trends
which show that consumers are purchasing more electronics via direct mail,
Carver products can now be purchased through upscale direct marketing companies
such as Cambridge SoundWorks and Crutchfield.
In the home audio market, the Company competes mainly with Adcom,Parasound,
Marantz and NAD. Most of the Company's competitors have substantially greater
financial and technical resources than the Company. The Company believes that
its competitive position in the consumer audio components market is enhanced by
unique Carver technologies and features which have given the Company strong
price/ performance advantages. The Company also believes that consumers of high
fidelity audio products have a greater awareness of the Carver brand name than
that of the Company's competitors.
Product Returns
From time to time the Company has accepted returns of unsold products from its
dealers. Historically, return of unsold products has been insignificant.
Backlog
The Company's current policy is to attempt to maintain sufficient finished goods
inventory to fill orders within three business days after they are received.
However, during most of 1995, the Company operated under very tight cash
constraints and it's backlog rose somewhat higher than normal due to the
Company's deferral of the purchase of sourced product. Also, the Company's
backlog of orders may rise significantly following major product introductions
as dealers place orders for the new products in excess of the numbers produced
in initial production runs or if an offshore supplier fails to make on-time
deliveries of product. Because of the Company's policy of filling an order
promptly after receipt, the Company does not view the level of backlog to be an
important index of future performance. The Company's backlog of orders at
January 31, 1996 was approximately $2,575,000, compared to approximately
$1,035,000 on January 31, 1995.
Engineering, Research and Development
The Company recognizes that its future is dependent on its ability to introduce
products which incorporate technological innovation and advanced features. The
engineering group has developed a modular amplifier design which will be used
in a new line of amplifiers scheduled for introduction beginning in April 1996.
The new amplifiers will also incorporate the Company's "Power Steering"
technology which allows up to 40% more power on demand for selected amplifier
channels. Carver expects to release approximately 10 new and replacement
products during 1996.
The engineering group has designed a five-channel amplifier, the AV-505, which
will be manufactured by the Company and replace an existing five channel
amplifier currently sourced offshore, representing a continuation of the
Company's strategy to return production to the United States.
There can be no assurances that product development or introduction plans will
be accomplished on schedule or that the new products will be well received by
the market.
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The Company employs 6 full-time technical personnel in its research,
development, engineering and product development organization. The Company's
expenditures for engineering, research and development in 1993, 1994, and 1995
were $1,310,000, $1,160,000, and $808,000, respectively.
Manufacturing
During 1995, approximately 47% of the Company's sales were of products
manufactured by third parties to the Company's specifications. The Company
presently sources these products from five different suppliers primarily located
in the Far East. The Company determines whether a product will be manufactured
by the Company or a third party principally on the basis of two factors: 1) the
location of the sources of parts and subassemblies, and 2) the cost relative to
expected volume of products to be manufactured. The Company believes it has
excellent working relationships with its various suppliers. During 1995, the
Company was forced, due to cash restraints, to defer purchases of sourced
product and delay payment of certain of its vendors. These actions resulted in
interruptions in the availability of products manufactured by the suppliers.
Availability of these products is also dependent on the suppliers' continued
cooperation and responsiveness to the Company's needs. Should the Company be
required to supplement or replace a supplier, the Company believes that there
are a number of alternate sources, although the transition to a new supplier
would probably involve added costs and delays. The Company has recently entered
into a relationship with another supplier from whom the Company expects to
source at least two of its new products scheduled for introduction in mid-1996.
Four of 17 current Carver consumer products and two accessories are built in its
Lynnwood, Washington facility. Carver's goal is to manufacture as many of its
products in the United States as practical. The Company is currently in
discussions with other potential OEM customers. However, there can be no
assurances that these discussions will be completed favorably or that any OEM
business will result from these discussions.
Carver is vigorously pursuing "Total Quality Management" (TQM), and "Continuous
Quality Improvement" (CQI) techniques in an effort to increase quality, lower
costs, and add profitability. Carver will concentrate on value-added operations
where in-house manufacturing skills and process control are most important.
Consistent with its commitment to quality, the Company maintains strict testing
procedures. All products, whether manufactured in the United States or by OEM
suppliers, are tested at their respective manufacturing facilities prior to
shipment. The Company retests products manufactured by OEM suppliers on a
statistical sample basis at its Lynnwood facility to monitor quality control. A
program to establish strategic partnerships with certain vendors has been
implemented to ensure timely delivery of quality raw materials, cost effective
pricing, and creative value engineering between Carver and vendor engineering
departments.
The Company offers a three-year limited warranty on consumer amplifiers, pre-
amplifiers and loudspeakers; a two-year limited warranty on integrated
amplifiers, pre-amp tuners, receivers and tuners; and a one-year limited
warranty on compact disc players and tape decks.
Human Resources
On March 18, 1996, the Company had 83 full-time employees, of whom 55 were
engaged in production and customer service, 6 in research, development,
engineering and product development, 11 in general and administrative functions,
and 11 in sales and marketing. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes its relations with its
employees are satisfactory.
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Executive Officers of the Registrant
The executive officers of the Corporation who are not directors are listed in
the following table. A description of their occupations for the past five years
also appears below.
<TABLE>
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Name Age Position
<S> <C> <C>
James Croft 43 Vice President of Research and Development
John P. World 49 Executive Vice President and General Manager
</TABLE>
Mr. Croft joined the Company in October 1992 as its Director of Product Research
and Marketing Development. He became Vice President of Marketing and Product
Development in March 1993, and Vice President Research and Development in
February 1995. From 1990 through October 1992, Mr. Croft was employed by
Dahlquist, Inc., a loudspeaker manufacturer, most recently as its Vice President
of Research and Development. Mr. Croft is a Vice President of Definitive Audio,
Inc., a Seattle audio specialty retailer which he co-founded in 1975 and managed
until 1985.
Mr. World was employed by the Company in February 1987 as General Counsel. Mr.
World is currently responsible for the internal operations of the Company.
Mr. World also provides management support for the Company's international sales
activities. Since joining the Company in 1987, Mr. World has at various times
been responsible for the administration, credit, human resource, legal, order
entry, day care and facilities departments. Mr. World received his Juris Doctor
in 1975 from the University of Puget Sound and his Bachelor of Arts degree in
Political Science in 1972 from the University of Washington.
Risks Factors
Late in 1995, the Company entered into a distribution arrangement with a new
customer ("Key Customer"). Sales to the Key Customer are projected to be as much
as 50%, or more, of the Company's revenue in 1996. However, the Company has no
prior sales experience with the Key Customer on which to base its projection and
has no history of re-orders from the Key Customer. Although the Company has
shipped two of the three opening orders to the Key Customer, the Company does
not have purchase orders for the third shipment. The Key Customer may not be
able to successfully market and sell the Company's products. Factors which could
affect the volume of sales by the Key Customer include factors which generally
influence retail sales of electronic products. The agreement between the Company
and the Key Customer may be terminated by either party for any reason upon 30
days advance, written notice without penalty. In the event of an unexpected
termination of this agreement, the Company may not be able to change its
operations quickly enough to respond to a significantly lower level of sales.
The Company expects sales of products sourced offshore to account for over 50%
of its revenue in 1996. Due to the size of the orders for sourced products
which the Company expects to receive from the Key Customer, the Company plans
to submit larger than normal orders for sourced products. Larger lot sizes
increase the risk that the Company's inventory of finished goods could increase
sharply if the Key Customer or a significant number of other customers of the
Company order smaller quantities than those forecasted by the Company.
Although, the Company believes that its forecast is conservative, the Company
has no prior sales history with the Key Customer and there can be no assurance
that the forecast will be met or that it will generate cash flow sufficient to
provide operating capital for the Company that it requires.
If revenues are significantly less than forecasted in 1996 or if the Company is
not successful in obtaining additional capital to fund operations during the
second and third quarters of 1996 (See, Liquidity and Capital Reserves, below),
it may not be able to purchase adequate quantities of sourced product.
There can be no assurance that the Company's actual cash requirements will not
exceed its anticipated cash requirement projections or that additional cash
requirements will not arise. Lack of product whether due to delays in
or cancellation of deliveries of sourced product would result in revenues
significantly below those forecasted by the Company. Product delivery delays
greater than 90 days may result in the termination of the Company's
relationships with certain of its dealers,
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including the Key Customer.
During the last four completed fiscal years, the Company has incurred aggregate
net losses of approximately $12,766,000 or $3.47 per share. There can be no
assurance that it will generate profits in future periods. The Company's future
operating results will be dependent upon a number of factors, particularly those
associated with the streamlining of its product lines, increased sales and
margins, the reduction of overhead costs, the ability of the Company to
successfully identify and respond to emerging trends in the consumer electronics
industry, the level of competition and general economic conditions. See
"Business - Sales and Marketing" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
The success of the Company's operations depends to a significant extent upon a
number of factors relating to discretionary consumer spending. These factors
include economic conditions such as employment, business conditions, interest
rates and taxation. The Company's business is also sensitive to consumer
spending patterns and consumer preferences. There can be no assurances that
consumer spending and consumer preferences will not be adversely affected by
general social trends and economic conditions, thereby impacting the Company's
revenues, sales and product types. If the demand for consumer electronics, in
particular middle to high-end audio entertainment systems, were to decline, the
Company's business, financial condition and operating results could be adversely
affected.
The consumer electronics industry is highly competitive. The Company's products
compete directly against other middle to high-end audio entertainment systems
and other functionally similar products which vary widely in price and quality
and which are distributed through a variety of distribution channels, including
audio specialty stores, discount stores, department stores and mail order firms.
The Company competes against a number of companies, many of which have
substantially greater resources than the Company. Such competition could have a
material adverse effect on the Company's business, financial condition and
operating results. The Company believes that success in the consumer
electronics industry depends, in part, on providing consumers with unique
technologies and features, and on brand name recognition. Given the Company's
current financial situation, there can be no assurance that the Company will be
able to continue to develop such products, or that, if and when introduced, such
products will be accepted by its customers. See "Business - Competition" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Liquidity and Capital Resources."
Concentration of Accounts
Two of the Company's customers, including the Key Customer, accounted for 60% of
its receivables as of March 25, 1996. Due to the anticipated pattern of
purchases by the Key Customer, the Company anticipates that the Key Customer's
accounts receivable will be 35% of the Company's total accounts receivables.
The purchases by the other customer of the Company are for raw materials
associated with the transfer of the professional products line to Phoenix Gold.
Although there are inconsistencies between the amount the Company and Phoenix
Gold each believe is payable for the raw materials, the Company believes that
these receivables will be paid by the end of April.
ITEM 2. PROPERTIES
The Company owns its 74,000 square foot headquarters and manufacturing
facilities located in Lynnwood, Washington, a suburb of Seattle. In December
1995, after the sale of its professional audio products line, the Company listed
this facility for sale. The Company believes that its facilities are adequate
for its operations.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter of
the Company's fiscal year.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
Dividend Policy
It has been Company policy to retain all earnings to fund operations.
Stock Market Activity
The common stock of Carver Corporation has traded over the counter on the Nasdaq
National Market under the symbol CAVR since its initial public offering
on May 9, 1985. The following table sets forth high and low sales prices by
quarter as reported by the Nasdaq National Market in 1995 and 1994:
<TABLE>
<CAPTION>
Fiscal Year 1995 Fiscal Year 1994
---------------- ----------------
<S> <C> <C> <C> <C>
Quarter High Low High Low
- --------- -------- ------ -------- ------
First $3 3/8 2 1/4 $3 1/8 $2
Second 2 7/8 1 3 1/4 2 1/4
Third 2 1/2 1 5/8 3 3/8 2 1/8
Fourth 2 1/8 1 3 1/2 2 3/4
</TABLE>
The approximate number of shareholders of record as of March 22, 1996 was 509.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
FISCAL YEARS
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
- ---------------------
Net sales $18,428 $22,171 $26,274 $25,596 $27,776
Gross profit 3,390 4,676 4,469 6,924 8,087
Income (loss)
from operations (2,857) (2,536) (2,994) (1,153) 561
Income (loss) before
income tax and
discontinued
operations (3,157) (2,873) (3,564) (1,328) 306
Net income (loss) $(3,157) $(2,873) $(5,408) $(1,328) $ 306
------- ------- ------- ------- -------
Earnings (loss)
per share* $( .86) $ (.78) $ (1.47) $( .36) $ .08
------- ------- ------- ------- -------
Balance Sheet Data
Working capital $ 4,931 $ 7,589 $ 9,943 $14,012 $16,035
Total assets 10,674 16,628 18,897 22,914 22,305
Long-term debt -- 899 716 735 751
Shareholders'
equity $ 7,389 $10,537 $13,408 $18,808 $20,124
------- ------- ------- ------- -------
</TABLE>
* Earnings per share are calculated on the basis of 3,659,000 shares in 1991,
3,671,000 shares in 1992, 3,676,000 shares in 1993, 3,678,000 shares in
1994 and 3,680,000 in 1995.
13
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
constitute forward-looking statements which are subject to a number of risks and
uncertainties which might cause actual results to differ materially from stated
expectations. These include the risks and uncertainties described under the
caption "Risk Factors" in Part I of this report and those identified by the
Company from time to time in other filings with the Commission, press releases
and other communications.
The markets for high-fidelity audio equipment are somewhat seasonal with
moderately higher sales generally occurring in the last six months of the year.
The Company's sales in the first six months of 1995 were $10,161,000 compared to
$8,267,000 in the last six months of the year. The decline in sales in the
second half of 1995 is attributable primarily to inventory shortage due to
working capital constraints and the November 1995 sale of the Company's
professional products line. The introduction of new products may affect this
seasonality and year-to-year comparisons. Demand for audio products also
exhibits some cyclicality, reflecting the general state of the economy and
consumer expectations.
The portion of the Company's business involving products which the Company
elects to have manufactured by its suppliers may be influenced by factors
affecting imports, such as changes in the dollar exchange rate as well as United
States and the vendor countries' policies relating to tariffs, trade
restrictions and taxation. See "Effects of Inflation and Changes in Foreign
Currency Exchange Rates".
RESULTS OF OPERATIONS
1995 Compared with 1994
Net revenues in 1995 were $18,428,000 which were down 16.9% from 1994 sales of
$22,171,000. The sales decline represents a $2,927,000 decrease in domestic
consumer sales and a $823,000 decrease in domestic sales of professional
products. Sales of mobile products were $489,000 less in 1995 compared to 1994
and sales to military exchange systems were down $626,000. OEM sales increased
in 1995 by $1,275,000 over 1994 sales, however, contracts which represented 95%
of 1995 OEM sales were included in the assets sold to Phoenix Gold
International, Inc. in the professional audio products transaction. Sales of
professional products in 1995 were down when compared to 1994 due, in large
part, to the closing of the sale of the professional products in mid-November
1995. Fourth quarter 1995 sales of professional products were $428,000 compared
to sales of $1,320,000 in the fourth quarter of 1994. Sales of professional
products were down in 1995 from 1994 levels also due to the Company's decision
to reduce its sales and marketing presence in the market at the same time that
Carver's competitors in the professional market were engaged in aggressive price
cutting. Military exchange sales were down primarily due to a decision, in the
first half of 1995, by the exchange system to discontinue the product category
in the Army Air Force Exchange System.
The decline in consumer domestic sales was due in part to the Company's
strategy of reducing its product line, especially those at the low end of the
price range and with low margins. However, the single largest factor in the
decline of 1995 sales over 1994 was the severe cash restraints under which the
Company was forced to operate for most of 1995. Due to its cash constraints the
Company was unable to purchase enough of the products which it sources offshore
to fill orders throughout the second half of 1995. Sales of tuner/preamplifiers
and preamplifiers decreased 13%, CD players decreased 46% and receivers
decreased 58% in year-to-year comparisons. Sales of amplifiers grew by 5% in
1995.
Export sales were flat from 1994 to 1995. Early in 1995, the Company had
increased its international marketing
14
<PAGE>
efforts. However, when the Company's cash tightened and as part of its efforts
to reduce expenses, it sharply reduced expenditures for the Company's
international sales and marketing. 1995 export sales were also negatively
effected by the lack of availability of product.
The Company's gross margin declined from 21% in 1994 to 18% in 1995. The 1995
gross margin was adversely impacted by a year end inventory and tooling write-
off of $311,000. Other major factors which adversely affected the gross margin
in 1995 were inventory write downs on mobile products raw material and finished
goods inventory and severance payable to employees who were laid off in a work
force reduction in June 1995. In addition, increased material costs on product
sourced from Japan due to the weakness of the U.S. dollar versus the Japanese
Yen in the first half of 1995 further decreased the margin. Margins are
expected to improve as the Company introduces its new Lynnwood produced
amplifiers in 1996 and purchases other new products to be introduced in 1996
from offshore vendors located outside of Japan. Although there can be no
assurance that foreign exchange rates, cost increases or other factors will not
negatively impact margins. In an effort to improve its overall gross margin,
the Company increased prices by approximately 5% in January 1995. In 1995, 47%
of sales were of product that was sourced from offshore suppliers compared to
60% in 1994.
Selling expense increased slightly as a percent of sales in year-to-year
comparisons. Selling expense is expected to increase in 1996 as part of
management's plan to increase the Company's distribution. The Company has
employed three persons as technical/product trainers and increased the travel
schedule and related expenses of its sales managers, trainers and support staff
to provide additional field support and training to the Company's dealers.
General and administrative expense decreased more than $330,000 from 1994 to
1995 but remained flat as a percent of sales. Decreases in salary and legal
expenses were offset by an increase in bad debt expense and expenses associated
with investigation of strategic alternatives. Early in 1995, the Company
retained the services of the investment banking firm of Cruttenden Roth to seek
a strategic partner, capital infusion or buyer for part or all of the Company.
After conducting discussions with various interested parties, the Company
concluded a sale of its professional audio products line. The Company
subsequently terminated its agreement with Cruttenden Roth.
Engineering, research and development expense decreased from 5% of sales in 1994
to 4% in 1995 primarily due to decreased expenditures for salaries, new project
material and agency and safety approvals. Management does not expect further
decreases in research and development expense as it believes that the current
level of expenditures is necessary to complete the introduction of nine new
products scheduled for release in the second and third quarters of 1996. After
release of the new products and/or when the Company obtains additional capital,
management intends to commence development of a new line of loudspeakers for
home theater application and pursue the safety and electrical approvals
necessary to sell the Company's products in the European Common Market
countries. The Company recognizes that the need to invest in the development of
new technologies is vital to assure its future success. While cash constraints
have reduced the Company's efforts to research and develop new technologies, it
has in 1995 developed its "Power Steering" technology and made further
improvements in its patented Lightstar and Sonic Holography technologies.
In mid-November 1995, Carver sold its professional product line to Phoenix Gold
International, Inc. ("Phoenix Gold"). The transaction included all of the
tangible and intangible assets used by the Company in the manufacture and sale
of its professional products including one patent. In addition, the transaction
included the right of Phoenix Gold to use the name "Carver Professional" for
five years and the agreement of the Company not to compete with Phoenix Gold
during the five year period. Sales of professional products and equipment
contributed approximately 33% and 30% of the Company's revenues in 1995 and
1994, respectively. The Company believes that sale of the professional product
line will benefit it by allowing Carver to focus on its consumer business,
reduce staff and overhead, and improve its liquidity and balance sheet. The
total amount of the transaction was approximately $2,100,000. Of this amount,
payment of $350,000 is deferred until mid-November 1996 and $209,000 was paid
directly to Robert W. and Diana R. Carver as payment of the remaining
installment payments due pursuant to the settlement of litigation between the
Company and Mr. and Mrs. Carver in December 1994. The gain on the sale of the
professional products line was $1,208,000. Cash from this transaction was used
by the Company to purchase shipments of offshore sourced product which the
Company had previously deferred due to its cash shortage. As part of the
transaction, the Company signed a one-year supply and manufacturing agreement
with Phoenix Gold to
15
<PAGE>
continue to manufacture certain products for and to sell certain raw materials
used in the professional products to Phoenix Gold. The Company's obligation to
source and sell raw material to Phoenix Gold ends in June 1996. The Company
anticipates that it will manufacture few products for Phoenix Gold after April
1996.
The Company recorded a restructuring charge of $1,319,000 in December 1995 which
included a $287,000 tooling write down, a $740,000 inventory write down and
$223,000 in severance costs. As of December 31, 1995, $143,000 of the
severance costs was accrued relating to personnel reductions that have been
substantially completed in 1996. The restructuring charge is a result of the
change in the Company's operations due to the sale of the professional products
line, the discontinuation of the current mobile product line, the early
discontinuation of certain consumer product models, a decision to change
product vendors by mid-1996 and a decision to sell its Lynnwood facility and
move to a facility that is one-third the size.
Losses from operations for the year ended December 31, 1995 were $2,857,000
compared to losses of $2,536,000 from operations for the year ended December 31,
1994. In addition to the gain on the sale of the professional products line
and the restructuring charges, net losses for 1995 include $311,000 in write
offs of tooling and inventory and a $150,000 increase at year end in the reserve
for doubtful accounts. The operating results for the year ended December 31,
1994 include an aggregate of $391,000 payable relating to settlement of and
attorneys' fees incurred in litigation between the Company and Robert W. and
Diana R. Carver and $50,000 paid to the U.S. Customs Service in an offer and
compromise of a penalty imposed by U.S. Customs (See Notes 13 and 14 to
Consolidated Financial Statements.)
The Company has approximately $13,581,000 of net operating losses which may be
utilized to reduce taxable income in future years. These loss carryforwards
will expire between the years 2004 and 2010.
Management is of the opinion that it is not appropriate to record a benefit for
net operating loss carryforwards of approximately $13,581,000 at this time. As
future operating results improve, management will re-assess its position in this
matter.
The Company's 1995 net loss was $3,157,000 compared with a net loss of
$2,873,000 in 1994.
1994 Compared with 1993
Net revenues in 1994 were $22,171,000 which were off 15.6% from sales of
$26,274,000 for the fiscal year of 1993. The sales shortfall was primarily
comprised of a $2,500,000 drop in sales to military exchange systems and a
$1,200,000 decrease in domestic sales of professional product. The military
exchange sales of $3,500,000 in 1993 were an anomaly due to a one time military
promotion that featured certain Carver products and extended credit to the
military exchange customers. The drop in professional sales was due to delays
in the first shipments of new products and the traditional lag in the acceptance
of new professional amplifiers. Inventory supplies of the old product were
depleted before the new product was available. At the same time, Carver's
competitors in the professional market were engaged in aggressive price cutting.
Management had anticipated a significant decline in consumer domestic sales in
1994 due to the discontinuance of nearly one-third of the product offerings,
especially those at the low end of the price range. A 49% decrease in cassette
decks and a 43% decrease in CD players was largely offset by an actual unit
increase of 15% in tuner/preamplifiers while unit sales of consumer amplifiers
remained relatively stable in year-to-year comparisons. Total consumer domestic
sales decreased less than 5%.
Export sales decreased 8.2% from 1993 to 1994 primarily in sales to Europe, but
increased slightly as a percentage of total sales. Management believed export
sales declined for much the same reasons as consumer sales.
In 1994, 60% of sales were of product that was sourced from offshore suppliers.
Due to price increases, the gross margin on sourced product improved by 3% in
1994, even though the yen-to-dollar rate deteriorated by 11% thereby greatly
inflating costs.
16
<PAGE>
Selling expense decreased slightly as a percent of sales in year-to-year
comparisons. The decrease in variable selling expense associated with a decline
in revenues was somewhat offset by a $100,000 increase in advertising and
promotional expense.
General and administrative expense increased approximately $320,000 from 1993 to
1994. A $300,000 decrease in salary expense largely associated with the
elimination of the Company's onsite childcare center was somewhat offset by
increased legal expenses and increased bank fees. Costs associated with the
settlement of the lawsuit between the Company and Robert and Diana Carver and a
reserve of $50,000 associated with a proposed settlement with U.S. customers,
(see Note 13 of Notes to consolidated Financial Statements), also contributed to
increased General and Administrative expense.
Engineering, research and development expense decreased 11.2% from 1993
primarily due to decreased expenditures for salaries, new project material and
agency and safety approvals.
The Company sustained losses of $2,536,000 from operations for the year ended
December 31, 1994 which compared to losses of $2,994,000 for the year ended
December 31, 1993 which had included a write down of discontinued inventory and
tooling in excess of $1,000,000. By reducing expenses the Company was able to
improve its operating performance in the face of a significant decrease in net
revenues.
Interest expense was $365,000 in fiscal 1994 compared with $330,000 in 1993 due
to an increase in the effective interest rate. Other expense in 1993 included a
disposition charge of $1,055,000 associated with the discontinuation and sale of
the Company's 80%-owned subsidiary, US Sound (See Note 15 of Notes to
Consolidated Financial Statements) and $790,000 associated with the operations
of US Sound. 1993 also included $194,000 of losses recorded on the sale of the
office building adjacent to the Company's headquarters.
The Company's net loss was $2,873,000 in 1994 compared with a net loss of
$5,408,000 in 1993.
Liquidity and Capital Resources
The Company's working capital on December 31, 1995 was $4,931,000 which included
cash and short-term investments aggregating approximately $266,000. This
compares with working capital of $7,589,000 and cash and short-term investments
of $254,000 at December 31, 1994. At March 25, 1996, the Company's immediate
capital resources consisted of approximately $49,000 in cash (and cash
equivalents) and the credit facility described below.
The Company has a $6,000,000 revolving line of credit, $1,000,000 of which can
be used to open commercial letters of credit. Borrowings under this agreement
are restricted to 70% of eligible accounts receivable and 50% of eligible
inventory. As a condition to its approval of the sale of the professional
products line, the Company's lender required that borrowings under the line of
credit be reduced by an "Availability Block" of $250,000 plus twenty percent of
the gross proceeds from the sale of raw material and work-in-process inventories
used for professional products and sold as part of the sale to Phoenix Gold. At
March 25, 1996, the Company had borrowed $2,258,000 of the $2,440,000 then
available under this facility. The line is collateralized by substantially all
assets of the Company and bears interest at the prime lending rate plus 2%. On
January 15, 1996, the lender agreed to make temporary overadvances to the
Company in amounts of up to $1,000,000 in addition to amounts otherwise
available under the formulas described above. The Company granted its lender a
Deed of Trust on Carver's Lynnwood, Washington facility as security for the
temporary accommodation. The overadvance must be repaid in the following amounts
on the following dates: $575,000 on February 29, 1996; $75,000 on March 31,
1996; $100,000 on April 30, 1996; and $250,000 on May 31, 1995. This line
expires May 31, 1996. In February 1996, management met with representatives from
its lender to discuss the renewal of its line of credit. Based on this
discussion, the Company believes that its lender will renew the line of credit
for a two year term and the temporary accommodation for an additional 120 days
on substantially the same terms. However, there can be no assurance that the
Company will be able to renew its line of credit or that it will be able to do
so on a timely basis or on favorable terms. The Company's lender has also
indicated that it will extend the expiration date of the line of credit to June
30, 1996 to allow sufficient time to complete the renewal process.
17
<PAGE>
The Company's inventory decreased $4,123,000 from December 31, 1994 to December
31, 1995 due to the streamlining of the product line, better inventory
management procedures, sale of the professional product line and inventory write
off. Improved inventory turns is one of the major benefits the Company expects
to realize by returning more of its production to its Lynnwood facility and from
purchasing products sourced offshore from vendors who will allow the Company to
purchase smaller lot sizes. Accounts receivable decreased $1,526,000 from the
end of 1994 due to lower revenues and a tightening of credit policies and terms.
As the Company's borrowing base is dependent on its inventory and receivables,
the borrowing availability has contracted to a level at which the Company is
likely to experience a cash shortfall and could be forced to delay the payment
of its accounts payables which could impair its relationship with its vendors
and/or delay receipt of major sourced product purchases. Another alternative
would be to sharply lower prices to generate cash which would impair margins.
During most of the second half of 1995, the Company was forced to defer payments
to its vendors and canceled delayed receipt of purchase orders totaling more
than $1,000,000. As a result, the Company's revenues in 1995 declined due to
lack of product availability.
The Company believes that cash flow from operations and borrowings available
under its credit line, including the $1,000,000 temporary accommodation, will be
sufficient to provide for its immediate working capital needs if it carefully
manages it cash and controls its expenses. The Company's current operating plan
indicates that the Company will experience a cash shortfall during the second
quarter of 1996. If the Company is unable to obtain an extension of the
$1,000,000 special accommodation from its lender, the Company believes that it
can obtain a short-term mortgage from another lender or delay payments to
vendors to meet the cash shortfall. During the third quarter, the Company's
expects its cash needs to exceed the cash available to it from operations and
borrowings available under its credit line. The Company is seeking a buyer for
its headquarters in Lynnwood, Washington. Although, the Company believes that
proceeds from the sale of its headquarters would enable it to meet its third
quarter cash needs, there can be no assurance of this. Nor can there be any
assurance that the facility will sell by the time the Company requires the
additional cash for its operations. If the Company is unable to obtain
sufficient cash to meet its needs in the second and third quarters, it will be
forced to cancel purchase orders or defer the placement of purchase orders for
product sourced offshore. Such cancellations or deferrals will have a
significant negative impact on product availability and may result in severely
reduced revenues. In addition, if revenues fail to meet the Company's
expectations for the remainder of the year, the Company may not have sufficient
cash from its operations and borrowings available under its line of credit to
meet its operating needs.
It is unlikely that the Company will be able to benefit from certain
opportunities it has available without additional working capital. There can be
no assurance that the Company would be able to generate additional sources of
working capital on terms favorable to the Company, if at all. If the Company
does not attract additional financing and if it continues to record losses, the
Company likely would have to delay payment of suppliers and be forced to seek
other relief from its creditors.
In January 1990, the Company purchased a 16,000 square foot office building
adjacent to its facility in Lynnwood, Washington. The purchase price for this
building was $1,260,000 including the assumption of a $793,000 note which is
payable at a rate of $7,790 per month with final payment due April 10, 2010. In
September 1993, the Company sold this office building at a loss, after closing
costs, of $194,000. Terms of the sale agreement included a down payment of
$112,750 in cash at closing and a promissory note and deed of trust in favor of
the Company in the amount of $1,013,000 at a fixed interest rate of 8-1/2% per
annum payable in equal monthly payments of $8,000 per month for 36 months at
which time a balloon payment for the remaining interest and principal will be
entirely due. The Company believes that it will receive the balloon payment as
scheduled in September 1996. Upon its receipt of the payment, the Company will
payoff the underlying mortgage and net approximately $300,000 in cash.
In 1996, the Company expects to purchase approximately $75,000 of capital
equipment, primarily manufacturing and office equipment, and has made a firm
commitment for $35,000 of these expenditures.
18
<PAGE>
EFFECTS OF INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
Due to the competitive conditions in the market for consumer electronics,
historically the Company has been limited in its ability to increase prices for
its products in amounts sufficient to offset increased production and operating
costs. The Company increased its domestic consumer and worldwide professional
prices on an average of 5% on January 15, 1995 to partially offset the increase
in material and labor costs it had been experiencing as well as the continued
erosion in the strength of the U.S. dollar. Consumer export prices were
increased a like amount in July 1995. While some revenue fall off is anticipated
due to these price increases, the Company believes that it is appropriate to
trade some decline in sales for an improvement in margins. The Company intends
to continue to monitor costs and its market and adjust prices as necessary. All
sales of the Company's products are in U.S. dollars.
Approximately 47% of the Company's net sales in 1995 and 60% in 1994 were of
products designed by and/or manufactured to the Company's specifications by
overseas suppliers. The Company purchased a substantial portion of these
products at an agreed per unit price payable in Japanese Yen. Accordingly, a
weakening in the value of the dollar versus the Yen in the first quarter of 1995
had an adverse effect on the Company's gross margin. Although the dollar
recovered somewhat against the Yen later in the year, the Company received
minimum benefits from the recovery because it was unable to purchase sourced
product for much of the year due to its severe cash restraints. The adverse
impact of the weak dollar was somewhat mitigated by the Company's decreased
reliance on offshore sourcing of its products. The Company's 1996 plan presently
is for 58% of its revenues to be sourced offshore.
Historically, the Company has had a policy of generally hedging its foreign
currency exposure between the date orders are placed with overseas suppliers and
the date at which payment is made. Due to credit restrictions under its line of
credit, the Company is not hedging at this time and therefore does have exposure
to currency fluctuations which might adversely effect its gross profits in 1996.
As of December 31, 1995, the Company has committed to the purchase of
approximately $2,371,000 of inventory which it expects to receive in 1996. Of
this amount, approximately $1,883,000 is denominated for payment in Japanese
Yen. A 15% appreciation in the Yen against the U.S. Dollar would increase the
amount which the Company has committed to purchase approximately $282,000 to a
total of $2,165,450. As of December 31, 1995, the Company has committed to the
purchase of approximately $2,371,000 of inventory which it expects to receive in
1996. Of this amount, approximately $1,883,000 is denominated for payment in
Japanese Yen. A 15% appreciation in the Yen against the U.S. Dollar would
increase the amount which the Company has committed to purchase approximately
$282,000 to a total of $2,165,450.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Certified Accountants 21
Consolidated Balance Sheet as of
December 31, 1995 and 1994 22
Consolidated Statement of Operations, Years
Ended December 31, 1995, 1994 and 1993 23
Consolidated Statement of Shareholder's Equity,
Years Ended December 31, 1995, 1994 and 1993 24
Consolidated Statement of Cash Flows, Years
Ended December 31, 1995, 1994 and 1993 25
Notes to Consolidated Financial Statement 26
20
<PAGE>
[LETTERHEAD OF MOSS-ADAMS LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Carver Corporation
We have audited the accompanying consolidated balance sheet of Carver
Corporation and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Carver Corporation
and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and cash flows for each of the years in the three year period ended
December 31, 1995 in conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
Seattle, Washington
February 15, 1996
21
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 261,000 $ 249,000
Marketable securities 5,000 5,000
Accounts receivable, trade, net 2,304,000 3,830,000
Inventories 3,927,000 8,050,000
Current portion of note receivable 1,342,000 13,000
Prepaid expenses 377,000 634,000
----------- -----------
Total current assets 8,216,000 12,781,000
----------- -----------
Property and equipment
Land 440,000 440,000
Buildings and improvements 2,452,000 2,444,000
Equipment 2,018,000 2,026,000
----------- -----------
4,911,000 4,910,000
Less accumulated depreciation (2,620,000) (2,382,000)
----------- -----------
2,291,000 2,528,000
------------ -----------
Other assets and deferred charges
Note receivable, net of current portion - 989,000
Other 167,000 330,000
----------- -----------
167,000 1,319,000
----------- -----------
Total assets $10,674,000 $16,628,000
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Note payable $ 1,216,000 $ 3,067,000
Accounts payable 842,000 1,383,000
Accrued liabilities
Commissions and advertising 104,000 221,000
Payroll and related taxes 198,000 243,000
Warranty 73,000 103,000
Other 156,000 155,000
Current portion of long-term debt 696,000 20,000
----------- -----------
Total current liabilities 3,285,000 5,192,000
----------- -----------
Long-term settlement payable, net of current portion - 203,000
Long-term debt, net of current portion - 696,000
----------- -----------
Total long-term liabilities - 899,000
----------- -----------
Commitment and contingencies (Notes 7 and 13)
Shareholders' equity
Preferred stock, par value $.01 per share,
2,000,000 shares authorized, no shares issued
Common stock, par value $.01 per share,
20,000,000 shares authorized 37,000 37,000
Additional paid-in capital 15,940,000 15,931,000
Accumulated deficit (8,588,000) (5,431,000)
----------- -----------
Total shareholders' equity 7,389,000 10,537,000
----------- -----------
Total liabilities and shareholders' equity $10,674,000 $16,628,000
=========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements.
22
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $18,428,000 $22,171,000 $26,274,000
Cost of sales 15,038,000 17,495,000 21,805,000
----------- ----------- -----------
Gross profit 3,390,000 4,676,000 4,469,000
----------- ----------- -----------
Operating expenses
Selling 3,441,000 3,827,000 4,254,000
General and administrative 1,887,000 2,221,000 1,899,000
Engineering, research and development 808,000 1,164,000 1,310,000
Restructuring Charges 1,319,000 - -
Gain on sale of professional products line (1,208,000) - -
----------- ----------- -----------
6,247,000 7,212,000 7,463,000
----------- ----------- -----------
Loss from operations (2,857,000) (2,536,000) (2,994,000)
----------- ----------- -----------
Other (income) expense
Interest expense 335,000 365,000 330,000
Interest income (86,000) (87,000) (24,000)
Loss on disposal of property and equipment 3,000 2,000 194,000
Miscellaneous 48,000 57,000 70,000
----------- ----------- -----------
300,000 337,000 570,000
----------- ----------- -----------
Loss before discontinued operations (3,157,000) (2,873,000) (3,564,000)
----------- ----------- -----------
Discontinued operations
Loss from operations of discontinued
subsidiary - - (790,000)
Loss on sale of subsidiary - - (1,054,000)
----------- ----------- -----------
- - (1,844,000)
----------- ----------- -----------
Net loss $(3,157,000) $(2,873,000) $(5,408,000)
=========== =========== ===========
Loss per share
Loss before discontinued operations $(.86) (.78) $ (.97)
Discontinued operations - - (.50)
----- ----- ------
Net loss $(.86) $(.78) $(1.47)
===== ===== ======
</TABLE>
See accompanying notes to consolidated
financial statements
-23-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS'EQUITY
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value Additional Retained
--------------------- Paid-In Earnings
Shares Amount Capital (Deficit) Total
--------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 3,673,511 $ 37,000 $15,921,000 $ 2,850,000 $18,808,000
Issuance of stock 4,045 - 8,000 - 8,000
Net loss - - - (5,408,000) (5,408,000)
--------- -------- ----------- ----------- -----------
Balance, December 31, 1993 3,677,556 37,000 15,929,000 (2,558,000) 13,408,000
Issuance of stock 1,118 - 2,000 - 2,000
Net loss - - - (2,873,000) (2,873,000)
--------- -------- ----------- ----------- -----------
Balance, December 31, 1994 3,678,674 37,000 15,931,000 (5,431,000) 10,537,000
Issuance of stock 7,656 - 9,000 - 9,000
Net loss - - - (3,157,000) (3,157,000)
--------- -------- ----------- ----------- -----------
Balance, December 31, 1995 3,686,330 $37,000 $15,940,000 $(8,588,000) $ 7,389,000
========= ======= ========== =========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements.
-24-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,157,000) $(2,873,000) $(5,408,000)
Adjustments to reconcile net loss
to cash flows from operating activities
Depreciation and amortization 300,000 371,000 536,000
Gain on sale of professional products line (1,208,000) - -
Restructuring Costs 1,319,000 - -
Loss on disposal of property and equipment 3,000 2,000 200,000
Loss on discontinued operations - - 1,844,000
Changes in assets and liabilities
Accounts receivable, trade, net 1,526,000 1,261,000 1,943,000
Inventories 2,555,000 1,053,000 97,000
Prepaid expenses (31,000) (300,000) 155,000
Other assets and deferred charges 126,000 87,000 (170,000)
Accounts payable and accrued liabilities (1,159,000) 846,000 (54,000)
------------ ----------- -----------
Cash flows from operating activities 274,000 447,000 (857,000)
Cash flows from discontinued activities - - (1,159,000)
------------ ----------- -----------
274,000 447,000 (2,016,000)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from repayment of note receivable 10,000 10,000 -
Proceeds from sale of professional products line 1,632,000 - -
Proceeds from sale of investment - - 102,000
Proceeds from sale of discontinued subsidiary - - 374,000
Acquisition of property, plant and equipment (44,000) (139,000) (210,000)
Proceeds from disposal of property and equipment 2,000 2,000 13,000
------------ ----------- -----------
Cash flows from investing activities 1,600,000 (127,000) 279,000
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 9,000 2,000 8,000
Increase (decrease) in note payable, net (1,851,000) (226,000) 1,454,000
Repayment of long-term debt (20,000) (18,000) (17,000)
------------ ----------- -----------
Cash flows from financing activities (1,862,000) (242,000) 1,445,000
------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,000 78,000 (292,000)
CASH AND CASH EQUIVALENTS
Beginning of year 249,000 171,000 463,000
------------ ----------- -----------
End of year $ 261,000 $ 249,000 $ 171,000
============ =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income tax paid $ - $ 1,000 $ 2,600
============ =========== ===========
Interest paid $ 335,000 $ 365,000 $ 329,000
============ =========== ===========
Non-cash investing and financing activity
Proceeds from sale of building and land in
exchange for long-term note receivable $ - $ - $ 1,013,000
============ =========== ===========
Proceeds from sale of professional products line
in exchange for short-term note receivable $ 350,000 $ - $ -
============ =========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements
-25-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Carver Corporation; its wholly-owned subsidiary, Carver
International, Ltd., a Foreign Sales Corporation (FSC); and its 80%-owned
subsidiary, USS Corporation through the date of disposition (Note 15).
Significant intercompany transactions are eliminated in consolidation.
OPERATIONS - The Company is engaged primarily in the development,
manufacture and distribution of audio entertainment systems. Sales are conducted
throughout the United States and various foreign nations. Net export sales by
geographic areas are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Western Europe $ 1,608,000 $ 1,974,000 $ 2,590,000
Canada 577,000 683,000 759,000
Asia 1,771,000 1,706,000 1,000,000
Other 1,236,000 1,547,000 2,090,000
----------- ----------- -----------
$ 5,192,000 $ 5,910,000 $ 6,439,000
=========== =========== ===========
</TABLE>
REVENUE RECOGNITION - Revenue is recognized when products are shipped.
The Company warrants its products for a period of one to five years following
the date of sale. Estimated warranty costs are recorded in the period of the
sale.
INVENTORIES - Inventories consist of electronic components and audio
equipment, and are stated at the lower of cost (determined on a first-in, first-
out basis) or market. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- -----------
<S> <C> <C>
Raw materials $ 893,000 $ 1,444,000
Work-in-process 1,284,000 1,712,000
Finished products 1,750,000 4,894,000
---------- -----------
$3,927,000 $ 8,050,000
========== ===========
</TABLE>
-26-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation for financial reporting purposes is provided using straight-line
and accelerated methods. Estimated useful lives range from three to thirty
years.
INTANGIBLES - Patents are amortized over the useful lives which range
from seven to seventeen years.
RESEARCH AND DEVELOPMENT - Costs associated with product research and
development are charged to operations when incurred and are included in
operating expenses.
ADVERTISING - The Company expenses the costs of advertising the first
time the advertising takes place. Advertising expense in 1995, 1994 and 1993 was
$777,000, $868,000 and $754,000, respectively.
CASH EQUIVALENTS - The Company considers all short-term investments
with a maturity at the date of purchase of three months or less to be cash
equivalents.
EARNINGS PER SHARE - Earnings per share are based on earnings for the
period, divided by the weighted average number of shares and common share
equivalents outstanding during each year. The earnings per share calculations
exclude common share equivalents because the effect would be anti-dilutive. The
weighted average number of common shares for purposes of computing earnings per
share amounted to 3,680,000, 3,678,000 and 3,676,000 shares for the years ended
December 31, 1995, 1994 and 1993, respectively.
PRESENTATION - Certain balances have been reclassified in the 1994
presentation to conform with the 1995 presentation.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
-27-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
----------- ------------
<S> <C> <C>
Trade receivables $ 2,570,000 $ 4,074,000
Allowance for doubtful accounts (233,000) (183,000)
Allowance for discounts (33,000) (61,000)
----------- -----------
$ 2,304,000 $ 3,830,000
=========== ===========
</TABLE>
NOTE 3 - NOTE RECEIVABLE
In September 1993, the Company received a note for $1,015,000 secured
by deed of trust in connection with the sale of a building and land. The note is
payable in monthly installments of $8,000 including interest of 8.5% with the
unpaid balance due in September 1996. The building and land are being held as
collateral on the original mortgage (Note 4) and will be transferred to the
buyer upon full satisfaction of the mortgage and this obligation.
NOTE 4 - FINANCING
SHORT-TERM BORROWINGS - The Company has an agreement with a financial
institution which provides for working capital advances up to $6,000,000. A
maximum of $1,000,000 of this line may be used to secure letters of credit.
Funds available under this agreement are restricted, however, to a portion of
eligible accounts receivable and inventories. Advances are collateralized by
substantially all assets and bear interest at the prime lending rate plus 2%.
The outstanding balance on the line of credit was $1,216,000 and $3,067,000 at
December 31, 1995 and 1994, respectively. The agreement expires with extensions
on May 31, 1996. Maximum and average amounts outstanding during the year ended
December 31, 1995 were $3,067,000 and $2,195,000, respectively. The weighted
average interest rate at December 31, 1995 was 10.75% and the weighted average
interest rate during the year, computed monthly, was 10.64%.
-28-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 4 - FINANCING (CONTINUED)
LONG-TERM DEBT - The Company assumed a $790,000 note secured by a deed
of trust in connection with the purchase of a building and land in 1990. The
note is payable in monthly installments of $7,790 and bears interest at 10.375%.
The building and land were sold during 1993 for a note receivable (Note 3). The
Company continues to be the primary debtor of the note payable. The $696,000
balance outstanding at December 31, 1995 is expected to be paid in full in 1996
upon collection of the note receivable. Accordingly, the debt has been
reclassified to current in the accompanying financial statements.
NOTE 5 - FINANCIAL INSTRUMENTS AND CREDIT RISK
FINANCIAL INSTRUMENTS AND CREDIT RISK - Financial instruments which
potentially subject the Company to significant concentrations of credit risk
consist principally of cash and cash equivalents and trade accounts receivable.
The Company maintains cash accounts with creditworthy financial institutions and
credit risk is deemed to be minimal. At December 31, 1995, accounts receivable
with one customer were $1,004,000.
The Company enters into purchase commitments with foreign companies
(Note 7).
FAIR VALUES - The carrying amounts of cash and cash equivalents, note
receivable, notes payable and the current portion of long term debt approximated
fair value as of December 31, 1995.
-29-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 6 - INCOME TAX
A reconciliation of the income tax benefit to the amounts computed by
applying the federal statutory income tax rate to income before income tax is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ---------------------- -----------------------
% of % of % of
Pre-Tax Pre-Tax Pre-Tax
Amount Income Amount Income Amount Income
----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income tax provision (benefit) at
federal statutory rate (1,073,000) (34.0)% $(977,000) (34.0)% $(1,212,000) (34.0)%
FSC income - - (6,000) (.2) (16,000) (.1)
Benefit from discontinued operations - - - - (627,000) (1.9)
Loss for which no tax benefit is
currently available 1,073,000 34.0 983,000 34.2 1,855,000 36.0
---------- -------- --------- -------- ----------- ------
$ - - % $ - - % $ - - %
========== ======== ========= ======== =========== ======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 and
1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax assets
Net operating loss $ 4,618,000 $ 3,423,000
Other 178,000 230,000
Deferred tax liabilities
Accelerated depreciation (398,000) (413,000)
Other (5,000) (19,000)
----------- -----------
Total gross deferred taxes 4,393,000 3,221,000
Less valuation allowance (4,393,000) (3,221,000)
----------- -----------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
-30-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 6 - INCOME TAX (CONTINUED)
For tax reporting purposes, the Company has approximately $13,581,000 of
net operating losses which may be utilized to offset future taxable income.
These loss carryforwards expire between the years 2004 and 2010. Under FAS 109,
the Company is required to recognize the future benefit of its net operating
loss carryforwards. The Company has a benefit from its net operating loss
carryforwards of approximately $4,618,000 and has recorded a valuation allowance
of 100% of the deferred tax asset.
NOTE 7 - COMMITMENT
INVENTORY PURCHASE - As of December 31, 1995, the Company has committed to
the purchase of approximately $2,371,000 of inventory expected to be received in
1996 from various vendors. Of th is amount, approximately $1,883,000 is
denominated in Japanese Yen.
NOTE 8 - EMPLOYEE BENEFITS
KEY EMPLOYEES' BONUS - The Company has an incentive bonus program which
provides for payment of cash bonuses to its executive officers and department
managers. During each fiscal year, the Board of Directors determines a bonus
amount to be paid to participants. Expense for this program was $30,000 in 1995.
No amounts were paid during 1994 and 1993.
EMPLOYEE BONUS PLANS - The Company has a bonus plan in which all employees
are eligible to participate other than those who are eligible for the Key
Employees' Bonus program. Pursuant to this plan, a portion of operating income
(to a maximum of $100,000 quarterly) is allocated among eligible employees based
upon department performance, base salaries and individual performance. No
allocations were made in 1995, 1994 or 1993.
In addition, certain incentive programs exist which provide for cash
bonuses upon achievement of sales goals and meeting of product introduction
dates. Total expense amounted to $15,000 in 1995. No payments were made under
this plan during 1994 or 1993.
-31-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 8 - EMPLOYEE BENEFITS (CONTINUED)
STOCK BONUS PLAN - In 1995, the Company adopted a stock bonus plan for
employees, directors, and consultants. The plan allows the Board of Directors to
grant shares of authorized, unissued common stock. In 1995, 1,500 shares were
granted to three directors of the Company.
STOCK PURCHASE PLAN - The Company has a stock purchase plan for the benefit
of its employees. Employees who choose to participate enroll annually and may
make voluntary contributions to a fund. On June 30 and December 31 of each year,
the participant may apply contributed funds toward the purchase of Company stock
at 85% of the prevailing market price or 85% of the market price on the date of
enrollment in the plan. The Company has reserved 100,000 shares for issuance
under this plan. The shares issued under this plan and the proceeds received are
as follows:
<TABLE>
<CAPTION>
Shares Proceeds
-------- ----------
<S> <C> <C>
1995 2,663 $ 3,500
1994 1,118 2,000
1993 4,045 8,000
</TABLE>
PROFIT SHARING PLAN - The Company has a 401(k) profit sharing plan for the
benefit of all full-time employees. Participants may make voluntary
contributions while the Company, at its discretion, may make a matching
contribution at a rate of $.50 for every $1 of participant contribution up to
$1,000 per participant. The Company made no contributions to the Plan in 1995,
1994 or 1993.
STOCK OPTIONS - The Company has a 1985 Incentive Stock Option (ISO) Plan
for employees and a 1985 Non-Qualified Stock Option (NSO) Plan for directors.
The Company also has a 1995 stock option plan which provides for grants to key
employees, directors, and consultants. Under all plans, the Board of Directors
determines the option price at the date of grant (not to be less than the fair
market value for ISOs and equal to the fair market value for NSOs). Options
granted under all plans generally vest between three and four and one half years
and expire between five and ten years from the date of grant. At December 31,
1995, 148,239 shares were vested and 192,500 were available for future grants
under the plans.
-32-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 8 - EMPLOYEE BENEFITS (CONTINUED)
The Company granted options of 50,000 shares on August 6, 1993 and 50,000
shares on August 26, 1994 to key employees as a condition of employment. The
option price is the fair market value of the underlying common stock on the date
of grant. These options were fully vested on the date of grant and have terms
of ten years subject to earlier lapse three years from the date of termination
of employment or one year from the date of death or disability whichever comes
first.
Option prices at December 31, 1995 range from $1.81 to $3.25 per share. The
following summary sets forth the activity under the plans in 1995 and 1994.
<TABLE>
<CAPTION>
Number of Shares
-------------------
ISO NSO's
--------- --------
<S> <C> <C>
Balance, December 31, 1993 200,639 131,250
Granted 200,000 50,000
Lapsed (60,275) -
-------- -------
Balance, December 31, 1994 340,364 181,250
Granted 182,000 27,500
Lapsed (226,000) (16,250)
-------- -------
Balance, December 31, 1995 296,364 192,500
======== =======
</TABLE>
NOTE 9 - RELATED PARTY TRANSACTIONS
PATENTS AND ROYALTIES - Robert W. and Diana R. Carver, shareholders of
Carver Corporation, hold three patents on the Magnetic Field Amplifier
technology which is used in several Carver products. Pursuant to terms of the
license agreement, Carver Corporation pays royalties to Robert W. and Diana R.
Carver for each amplifier sold which incorporates the licensed technology. Such
royalties amounted to $45,000 in 1995, $57,000 in 1994 and $102,000 in 1993.
-33-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(All amounts in thousands
except per share amounts)
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Revenues $ 5,230 4,931 4,494 3,773
Operating loss (542) (1,140) (81) (1,094)
Loss before income taxes (632) (1,303) (151) (1,071)
Net loss (632) (1,303) (151) (1,071)
Net loss per share (.17) (.35) (.04) (.30)
Year ended December 31, 1994
Revenues $ 5,516 $ 4,800 $ 5,675 $ 6,180
Operating loss (462) (866) (379) (829)
Loss before income taxes (544) (948) (887) (494)
Net loss (544) (948) (887) (494)
Net loss per share (.15) (.26) (.24) (.13)
</TABLE>
NOTE 11 - RESTRUCTURING CHARGES
In the fourth quarter of 1995, the Company recorded a restructuring
charge of $1,319,000 for costs associated with downsizing of operations,
consolidating facilities, and the disposal either through sale or abandonment,
of certain product lines. The charges include severance costs and write-off of
intangible assets and inventories. As of December 31, 1995, $143,000 was
accrued relating to personnel reduction that is expected to be substantially
complete during March 1996.
-34-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 12 - SALE OF PROFESSIONAL PRODUCTS LINE
On November 20, 1995, the Company sold assets relating to its professional
products line for a gain of $1,208,000. The purchase price, net of certain
selling expenses, was $1,982,000, of which $350,000 will be paid to the Company
one year from the closing date and $209,000 was paid directly to Robert W. and
Diana R. Carver in settlement of a royalty dispute.
NOTE 13 - CONTINGENCIES
The Company has recently undergone a United States Customs Service audit.
The results of the audit have been referred to the Office of Investigations of
the Customs Service for possible civil penalty action on late payments of duty
relating to imported equipment and materials for periods prior to 1994.
Negotiations commenced with the government as to a possible disposition of the
case, however, it could be several months before any final resolution is
accomplished. The Customs Service issued to the Company a pre-penalty notice
indicating that it will assess a penalty of up to approximately $400,000. The
Company, by regulation, was afforded the opportunity to respond. At December 31,
1994, the Company recorded a liability of $50,000. In 1995, the Company
submitted an offer in compromise to the Customs Service and included a payment
of $50,000. The Customs Service has not yet responded to the offer in
compromise.
In 1996, a suit was filed against the Company by a former employee alleging
that the Company engaged in discriminatory employment practices. The suit does
not specify damages. Management has indicated its plans to vigorously contest
this suit and believes that the loss, if any, resulting from the suit will not
have a material impact on the Company's financial position, results of
operations, or cash flows in future years.
NOTE 14 - LITIGATION SETTLEMENT
On December 8, 1994, the Company executed an agreement which settled a
lawsuit with Robert and Diana Carver for royalties payable. The agreement
provided, in part, that the Company pay the Carvers $300,000 in forty-eight
monthly installments. The entire balance was paid in full in 1995 in connection
with the sale of the professional products line (Note 12). Operating losses in
1994 include a charge of $391,000 relating to settlement of the litigation
including legal fees.
-35-
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
NOTE 15 - DISCONTINUED OPERATIONS
On November 19, 1993, the Company sold its subsidiary USS Corporation,
including all patents, contract rights, licenses, files and records, equipment
and inventory. Proceeds from the sale of USS Corporation amounted to $374,000
as well as royalty payments of 7.5% of net revenues for the next five years and
4% thereafter. The sale resulted in a loss of $1,054,000 which includes amounts
paid to terminate employment obligations. Revenues and operating loss for this
subsidiary for the years ended December 31, 1994 and 1993 were $182,000 and
$790,000, respectively.
-36-
<PAGE>
[LETTERHEAD OF MOSS-ADAMS LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Shareholders
Carver Corporation
Under date of February 15, 1996, we reported on the consolidated balance sheet
of Carver Corporation and subsidiary as of December 31, 1995 and 1994 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three year period ended December 31, 1995, as
listed in item 8 of the Annual Report on Form 10-K for the year 1995. In
connection with our audit of the aforementioned consolidated financial
statements, we also audited the related supplemental financial statement
schedule.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Seattle, Washington
February 15, 1996
37
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Additions
Balance At Charged To Balance
Beginning Costs And At End
Descriptions of Year Expenses Deductions(1) Of Year
- ------------------------------------------ ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts - deducted
from accounts receivable in the
balance sheet
1995 $ 183,000 $ 447,000 $ 397,000 $ 233,000
1994 190,000 195,000 202,000 183,000
1993 72,000 231,000 113,000 190,000
Allowance for discounts - deducted from
accounts receivable in the balance sheet
1995 $ 61,000 $ 450,000 $ 478,000 $ 33,000
1994 90,000 580,000 609,000 61,000
1993 113,000 655,000 678,000 90,000
</TABLE>
(1) Represents uncollectible accounts written off and discounts taken by
customers.
-38-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated by reference to the Proposal 1 - Election of Directors, "Nominees,"
section of the Company's Proxy Statement with respect to its 1996 Annual Meeting
of Shareholders to be filed by April 12, 1996.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Directors' Compensation and Executive
--------------------------------------
Compensation sections of the Company's Proxy Statement with respect to its 1996
- ------------ ---------------
Annual Meeting of Shareholders to be filed by April 12, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Securities and Principal Holders, Proposal 1 -
----------------------------------------------
Elections of Directors, "Nominees," and Executive Compensation, sections of the
- --------------------------------------------------------------
Company's Proxy Statement with respect to its 1996 Annual Meeting of
---------------
Shareholders to be filed by April 12, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Certain Transactions section of the Company's
--------------------
Proxy Statement with respect to its 1996 Annual Meeting of Shareholders to be
filed by April 12, 1996.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Index to Financial Statements and Financial Statement Schedules
1. FINANCIAL STATEMENTS
--------------------
PAGE IN
THIS
Financial Statements Index REPORT
- --------------------------- ------
Report of Independent Accountants 21
Consolidated Balance Sheet at
December 31, 1995 and 1994 22
Consolidated Statement of Operations, Years
Ended December 31, 1995, 1994 and 1993 23
Consolidated Statement of Shareholders'
Equity, Years Ended December 31, 1995,
1994 and 1993 24
Consolidated Statement of Cash Flows, Years
Ended December 31, 1995, 1994 and 1993 25
Notes to Consolidated Financial Statements 26
PAGE IN
THIS
2. FINANCIAL STATEMENT SCHEDULES REPORT
------------------------------- ------
Report of Independent Accountants on
Supplemental Schedule 37
II - Valuation and Qualifying Accounts and Reserves 38
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K. One report on Form 8-K was filed on December 5, 1995
describing the transaction in which the Company sold its professional product
line to Phoenix Gold International, Inc.
(c) Exhibits.
Executive Compensation Plans and Arrangements
- ---------------------------------------------
The following list is a subset of the list of exhibits described below and
contains all compensatory plans, contracts or arrangements in which any director
or executive officer of the Company is a participant, unless the method of
allocation of benefits thereunder is the same for management and non-management
participants:
40
<PAGE>
(1) License Agreement dated as of June 1, 1980 between the Company and Carver
Technology Development, Inc. See Exhibit 10.1.
(2) The Company's Amended 1985 Incentive Stock Option Plan. See Exhibit 10.3.
(3) The Company's Amended 1985 Non-Qualified Stock Option Plan. See Exhibit
10.4.
(4) Form of Amended Stock Option Agreement used in connection with options
granted under the Company's Amended 1985 Incentive Stock Option Plan. See
Exhibit 10.5.
(5) Stock Option Agreement dated August 6, 1993 between Robert A. Fulton and
the Company. See Exhibit 10.10.
(6) Stock Option Agreement dated March 10, 1994 between Robert A. Fulton and
the Company. See Exhibit 10.21.
(7) Employment Agreement dated August 26, 1994 between Stephen M. Williams and
the Company. See Exhibit 10.22.
(8) Stock Option Agreement dated August 26, 1994 between Stephen M. Williams
and the Company. See Exhibit 10.23.
(9) Stock Option Agreement dated August 26, 1994 between Stephen M. Williams
and the Company. See Exhibit 10.24.
(10) Employment Agreement dated January 2, 1996 between Stephen M. Williams
and the Company. See Exhibit 10.34.
(11) The Stephen M. Williams 1996 Bonus Plan dated January 3, 1996 between
Stephen M Williams and the Company. See Exhibit 10.35.
(12) Stock Option Agreement dated March 11, 1995 between Stephen M. Williams
and the Company. See Exhibit 10.36.
(13) Stock Option Agreement dated March 24, 1995 between Stephen M. Williams
and the Company. See Exhibit 10.37.
(14) Stock Option Agreement dated January 15, 1996 between Stephen M. Williams
and the Company. See Exhibit 10.38.
EXHIBIT INDEX
- -------------
Exhibit
- -------
Number See Attachment "Exhibits"
- ------
2.1 Asset Purchase and Sale Agreement dated as of December 23, 1992 among
Carver Corporation, U.S. Sound, Inc., John Lemon and USS Corporation.
(Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K
dated December 23, 1992).
2.2 Asset Purchase Agreement dated November 19, 1993 between Carver Corporation
and Bose Corporation. (Incorporated by reference to Exhibit 2.2 to the
Registrant's Form 10-K for the year ended December 31, 1993.).
3.1 The Company's Restated Articles of Incorporation filed July 29, 1985.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Form 10-K for
the year ended December 31, 1989).
41
<PAGE>
3.2* The Company's Seventh Amended and Restated Bylaws.
10.1 License Agreement dated as of June 1, 1980 between the Company and Carver
Technology Development, Inc. (Incorporated by reference to Exhibit 10.6
to the Registrant's Registration Statement on Form S-1, No. 2-96896).
10.2 Employment Agreement dated as of April 4, 1985 between Robert W. Carver
and the Company. (Incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1, No. 2-96896).
10.3 The Company's Amended 1985 Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10.3 to the Registrant's Form 10-K for the year
ended December 31, 1992).
10.4 The Company's Amended 1985 Non-Qualified Stock Option Plan. (Incorporated
by reference to Exhibit 10.2 to the Registrant's Registration Statement
on Form S-8, No.33-31344).
10.5 Form of the Amended Stock Option Agreement used in connection with the
Company's Amended 1985 Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-K for the year
ended December 31, 1992).
10.6 The Company's Amended 1988 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 10.6 to the Registrant's Form 10-K for the year
ended December 31, 1992).
10.7 Stock Purchase Agreement dated April 2, 1985 among Marubeni Corporation,
Robert W. and Diana R. Carver and the Company. (Incorporated by reference
to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1,
No. 2-96896).
10.8 Employment Agreement dated February 28, 1992, between Thomas C. Graham
and the Company. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.9 Severance Agreement dated as of September 22, 1993 between Thomas C.
Graham and the Company. (Incorporated by reference to Exhibit 10.9 to the
Registrant's Form 10-K for the year ended December 31, 1989).
10.10 Stock Option Agreement dated August 6, 1993 between Robert A. Fulton and
the Company. (Incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December 31, 1993).
10.11 Form of Authorized Dealer Agreement. (Incorporated by reference to
Exhibit 10.10 to the Registrant's Form 10-K for the year ended December
31, 1989).
10.12 Amended Carver Corporation Stock Appreciation Rights Plan. (Incorporated
by reference to Exhibit 10.11 to the Registrant's Form 10-K for the year
ended December 31, 1992).
10.13 License Agreement dated July 20, 1988 between the Company and Toshiba
Corporation. (Incorporated by reference to Exhibit Number 10.20 to the
Company's Form 10-K for the year ended December 31, 1988).
10.14 Letter Agreement for Accounts Receivable Financing between the Company
and Congress Financial Corporation (Western) dated October 24, 1990, and
related Security Agreements dated December 20, 1990. (Incorporated by
reference to Exhibit 10.23 to the Company's Form 10-K for the year ended
December 31, 1990).
42
<PAGE>
10.15 Ninth Amendment to the Accounts Financing Agreement between Carver
Corporation and Congress Financial Corporation (Western) dated March 31,
1994. (Incorporated by reference to Exhibit 10.15 to the Registrant's
Form 10-K for the year ended December 31, 1994.)
10.16 Employment Agreement dated as of December 23, 1992, among John Lemon, USS
Corporation and Carver Corporation. (Incorporated by reference to Exhibit
10.1 to the Registrant's Form 8-K dated December 23, 1992.)
10.17 Employment Agreement dated as of December 23, 1992, among Clifford
Henricksen, USS Corporation and Carver Corporation. (Incorporated by
reference to Exhibit 10.2 to the Registrant's Form 8-K dated December 23,
1992.)
10.18 Noncompetition Agreement dated as of December 23, 1992, among Carver
Corporation, U.S. Sound, Inc., John Lemon and Clifford Henricksen.
(Incorporated by reference to Exhibit 10.3 to the Registrant's Form 8-K
dated December 23, 1992.)
10.19 Severance Agreement dated November 19, 1993 by and among U.S. Sound,
Inc., Carver Corporation and John Lemon. (Incorporated by reference to
Exhibit 10.19 to the Registrant's Form 10-K for the year ended December
31, 1993.)
10.20 Severance Agreement dated November 9, 1993 by and among U.S. Sound,
Inc., Carver Corporation and Clifford Henricksen. (Incorporated by
reference to Exhibit 10.20 to the Registrant's Form 10-K for the year
ended December 31, 1993.)
10.21 Stock Option Agreement dated March 10, 1994 between Robert A. Fulton and
the Company. (Incorporated by reference to Exhibit 10.21 to the Company's
Form 10-K for the year ended December 31, 1994.)
10.22 Employment Agreement dated August 26, 1994 between Stephen M. Williams
and the Company. (Incorporated by reference to Exhibit 10.22 to the
Company's Form 10-K for the year ended December 31, 1994.)
10.23 Stock Option Agreement dated August 26, 1994 between Stephen M. Williams
and the Company. (Incorporated by reference to Exhibit 10.23 to the
Company's Form 10-K for the year ended December 31, 1994.)
10.24 Stock Option Agreement dated August 26, 1994 between Stephen M. Williams
and the Company. (Incorporated by reference to Exhibit 10.24 to the
Company's Form 10-K for the year ended December 31, 1994.)
10.25 Settlement Agreement dated December 8, 1994 between Robert W. and Diana
R. Carver and the Company. (Incorporated by reference to Exhibit 10.25 to
the Company's Form 10-K for the year ended December 31, 1994.)
10.26 The Company's 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.26 to the Company's Form 10-Q for the quarter ended June 30,
1995.)
10.27 The Company's 1995 Stock Bonus Plan. (Incorporated by reference to
Exhibit 10.27 to the Company's Form 10-Q for the quarter ended June 30,
1995.)
10.28 Asset Purchase Agreement dated November 20, 1995 between Phoenix Gold
International Inc. and the Company. (Incorporated by reference to Exhibit
2.1 to the Company's Form 8-K dated December 5, 1995.)
43
<PAGE>
10.29 Amendment No. 1 to Asset Purchase Agreement dated November 20, 1995
between Phoenix Gold International, Inc. and the Company. (Incorporated
by reference to Exhibit 2.2 to the Company's Form 8-K dated December 5,
1995).
10.30 License Agreement dated November 20, 1995 between Phoenix Gold
International Inc. and the Company. (Incorporated by reference to Exhibit
2.3 to the Company's Form 8-K dated December 5, 1995.).
10.31* Tenth Amendment to the Accounts Financing Agreement dated November 20,
1995 between Congress Financial Corporation (Western) and the Company.
10.32* Eleventh Amendment to the Accounts Financing Agreement dated January 15,
1996 between Congress Financial Corporation (Western) and the Company.
10.33* Twelfth Amendment to the Accounts Financing Agreement dated February 26,
1996 between Congress Financial Corporation (Western) and the Company.
10.34* Employment Agreement dated January 2, 1996 between Stephen M. Williams
and the Company.
10.35* The Stephen M. Williams 1996 Bonus Plan dated January 3, 1996 between
Stephen M. Williams and the Company.
10.36* Stock Option Agreement dated March 11, 1995 between Stephen M. Williams
and the Company.
10.37* Stock Option Agreement dated March 24, 1995 between Stephen M. Williams
and the Company.
10.38* Stock Option Agreement dated January 15, 1996 between Stephen M. Williams
and the Company.
11* Computation of Earnings Per Share for years ended December 31, 1995, 1994
and 1993.
21* Subsidiaries of the Registrant.
23.1* Consent of Moss Adams.
28.1 Amendment to Registration Statements Re: Indemnification. (Incorporated
by reference to Exhibit 28.1 to the Company's Form 10-Q for the quarter
ended September 30, 1990).
_____________
*Filed herewith
44
<PAGE>
EXHIBIT INDEX
PAGE IN
THIS
ITEM DESCRIPTION REPORT
2.1 Asset Purchase and Sale Agreement dated as of December 23, 1992 among
Carver Corporation, U.S. Sound, Inc., John Lemon and USS Corporation.
(Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K
dated December 23,1992)
2.2 Asset Purchase Agreement dated November 19, 1993 between Carver
Corporation and Bose Corporation. (Incorporated by reference to Exhibit
2.2 to the Registrant's Form 10-K for the year ended December 31, 1993.
3.1 The Company's Restated Articles of Incorporation filed July 29, 1985.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Form 10-K for
the year ended December 31, 1989)
3.2* The Company's Seventh Amended and Restated Bylaws.
10.1 License Agreement dated as of June 1, 1980 between the Company and
Carver Technology Development, Inc. (Incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form S-1, No.
2-96896)
10.2 Employment Agreement dated as of April 4, 1985 between Robert W. Carver
and the Company. (Incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1, No. 2-96896)
10.3 The Company's Amended 1985 Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 10.3 to the Registrant's Form 10-K for the year
ended December 31, 1992
10.4 The Company's Amended 1985 Non-Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-8, No. 33-31344)
10.5 Form of the Amended Stock Option Agreement used in connection with the
Company's Amended 1985 Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-K for the year ended
December 31, 1992)
10.6 The Company's Amended 1988 Employee Stock Purchase Plan.
(Incorporated by reference to Exhibit 10.6 to the Registrant's Form 10-K
for the year ended December 31, 1992)
10.7 Stock Purchase Agreement dated April 2, 1985 among Marubeni Corporation,
Robert W. and Diana R. Carver and the Company. (Incorporated by reference
to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1,
No. 2-96896)
45
<PAGE>
PAGE IN
THIS
REPORT
10.8 Employment Agreement dated February 28, 1992, between Thomas C. Graham
and the Company. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Form 10-K for the year ended December 31, 1992.)
10.9 Severance Agreement dated as of September 22, 1993 between Thomas C.
Graham and the Company. (Incorporated by reference to Exhibit 10.9 to the
Registrant's Form 10-K for the year ended December 31, 1993.)
10.10 Stock Option Agreement dated August 6, 1993 between Robert A. Fulton and
the Company. (Incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December 31, 1993.)
10.11 Form of Authorized Dealer Agreement. (Incorporated by reference to
Exhibit 10.11 to the Company's Form 10-K for the year ended December 31,
1989.)
10.12 Amended Carver Corporation Stock Appreciation Rights Plan. (Incorporated
by reference to Exhibit 10.11 to the Registrant's Form 10-K for the year
ended December 31, 1992.)
10.13 License Agreement dated July 20, 1988 between the Company and Toshiba
Corporation. (Incorporated by reference to Exhibit Number 10.20 to the
Company's Form 10-K for the year ended December 31, 1988.)
10.14 Letter Agreement for Accounts Receivable Financing between the Company
and Congress Financial Corporation (Western) dated October 24, 1990, and
related Security Agreements dated December 20, 1990. (Incorporated by
reference to Exhibit 10.23 to the Company's Form 10-K for the year ended
December 31, 1990.)
10.15 Ninth amendment to the Accounts Financing Agreement between Carver
Corporation and Congress Financial Corporation (Western) dated March 31,
1994. (Incorporated by reference to Exhibit 10.15 to the Company's Form
10-K for the year ended December 31, 1994.)
10.16 Employment Agreement dated as of December 23, 1992, among John Lemon, USS
Corporation and Carver Corporation. (Incorporated by reference to Exhibit
10.1 to the Registrant's Form 8-K dated December 23, 1992.)
10.17 Employment Agreement dated as of December 23, 1992, among Clifford
Henricksen, USS Corporation and Carver Corporation. (Incorporated by
reference to Exhibit 10.2 to the Registrant's Form 8-K dated December 23,
1992.)
10.18 Noncompetition Agreement dated as of December 23, 1992, among Carver
Corporation, U.S. Sound, Inc., John Lemon and Clifford Henricksen.
(Incorporated by reference to Exhibit 10.3 to the Registrant's Form 8-K
dated December 23, 1992.)
46
<PAGE>
10.19 Severance Agreement dated November 19, 1993 by and among U. S. Sound,
Inc., Carver Corporation and John Lemon. (Incorporated by reference to
Exhibit 10.19 to the Registrant's Form 10-K for the year ended December
31, 1993)
10.20 Severance Agreement dated November 9, 1993 by and among U. S. Sound,
Inc., Carver Corporation and Clifford Henricksen. (Incorporated by
reference to Exhibit 10.20 to the Registrant's Form 10-K for the year
ended December 31, 1993.)
10.21 Stock Option Agreement dated March 10, 1994 between Robert A. Fulton
and the Company.
10.22 Employment Agreement dated August 26, 1994 between Stephen M.
Williams and the Company.
10.23 Stock Option Agreement dated August 26, 1994 between Stephen M.
Williams and the Company.
10.24 Stock Option Agreement dated August 26, 1994 between Stephen M.
Williams and the Company.
10.25 Settlement Agreement dated December 8, 1994 between Robert W. and
Diana R. Carver and the Company.
10.26 The Company's 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.26 to the Company's Form 10-Q for the quarter ended June 30,
1995.)
10.27 The Company's 1995 Stock Bonus Plan. (Incorporated by reference to
Exhibit 10.27 to the Company's Form 10-Q for the quarter ended June 30,
1995.)
10.28 Asset Purchase Agreement dated November 20, 1995 between Phoenix Gold
International Inc. and the Company. (Incorporated by reference to Exhibit
2.1 to the Company's Form 8-K dated December 5, 1995.)
10.29 Amendment No. 1 to Asset Purchase Agreement dated November 20, 1995
between Phoenix Gold International Inc. and the Company. (Incorporated by
reference to Exhibit 2.2 to the Company's Form 8-K dated December 5,
1995.)
10.30 License Agreement dated November 20, 1995 between Phoenix Gold
International Inc. and the Company. (Incorporated by reference to Exhibit
2.3 to the Company's Form 8-K dated December 5, 1995.)
10.31* Tenth Amendment to the Accounts Financing Agreement dated November 20,
1995 between Congress Financial Corporation (Western) and the Company.
10.32* Eleventh Amendment to the Accounts Financing Agreement dated January 15,
1996 between Congress Financial Corporation (Western) and the Company.
47
<PAGE>
10.33* Twelfth Amendment to the Accounts Financing Agreement dated February 26,
1996 between Congress Financial Corporation (Western) and the Company
10.34* Employment Agreement dated January 2, 1996 between Stephen M. Williams
and the Company
10.35* The Stephen M. Williams 1996 Bonus Plan dated January 3, 1996 between
Stephen M. Williams and the Company
10.36* Stock Option Agreement dated March 11, 1995 between Stephen M. Williams
and the Company
10.37* Stock Option Agreement dated March 24, 1995 between Stephen M. Williams
and the Company
10.38* Stock Option Agreement dated January 15, 1996 between
Stephen M. Williams and the Company
11* Computation of Earnings Per Share for years ended December 31, 1995,
1994 and 1993
21* Subsidiaries of the Registrant
23.1* Consent of Moss Adams
28.1 Amendment to Registration Statements RE: Indemnification. (Incorporated
by reference to Exhibit 28.1 to the Registrant's Form 10-Q for the
quarter ended September 30, 1990)
____________
*Filed herewith
48
<PAGE>
Pursuant to the requirement of Section 13 of the Securities Exchange Commission
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CARVER CORPORATION
By: /s/STEPHEN M. WILLIAMS By:/s/JOHN P. WORLD
---------------------- ----------------
Stephen M. Williams, John P. World
President and Chief Executive Vice President,
Executive Officer General Manager and
Principal Accounting
Officer
Date: March 28, 1995
- ---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ROBERT W. CARVER Director March 28, 1996
- ------------------- --------------
Robert W. Carver
/s/ROBERT A. FULTON Director March 28, 1996
- ------------------- --------------
Robert A. Fulton
/s/THOMAS C. GRAHAM Director March 28, 1996
- ------------------- --------------
Thomas C. Graham
/s/JOHN F. VYNNE Director March 28, 1996
- ---------------- --------------
John F. Vynne
/s/STEPHEN M. WILLIAMS Director March 28, 1996
- ---------------------- --------------
Stephen M. Williams
</TABLE>
49
<PAGE>
Exhibit 3.2
SEVENTH AMENDED AND RESTATED
BYLAWS
OF
CARVER CORPORATION
ARTICLE I
Offices
(1) Registered Office and Registered Agent: The registered office of the
corporation shall be located in the State of Washington at such place as may be
fixed from time to time by the Board of Directors upon filing of such notices as
may be required by law, and the registered agent shall have a business office
identical with such registered office.
(2) Other Offices: The corporation may have other offices within or
outside the State of Washington at such place or places as the Board of
Directors may from time to time determine.
ARTICLE II
Shareholders' Meetings
(1) Meeting Place: All meetings of the shareholders shall be held at the
principal place of business of the corporation, or at such other place as shall
be determined from time to time by the Board of Directors, and the place at
which any such meeting shall be held shall be stated in the notice of the
meeting.
(2) Annual Meeting Time: The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held in May or June of each year at a
date, time and a place to be determined by the Board of Directors, provided that
notification of such date, time and place shall meet the notice requirements
pursuant to Article II (5) hereunder.
(3) Annual Meeting - Order of Business: At the annual meeting of
shareholders, the order of business shall be as follows:
(a) Calling the meeting to order.
(b) Proof of notice of meeting (or filing waiver).
(c) Reading of minutes of last annual meeting.
(d) Reports of officers.
(e) Reports of committees.
(f) Election of directors.
(g) Miscellaneous business.
(4) Special Meetings: Special meetings of the shareholders
1
<PAGE>
for any purpose may be called at any time the President, Board of Directors, or
the holders of not less than one-tenth of all shares entitled to vote at the
meeting.
(5) Shareholder Proposals at Annual Meeting: Business may be properly
brought before an annual meeting by a shareholder only upon the shareholder's
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not later than ninety (90)
days prior to the date one (1) year from the date of the immediately preceding
annual meeting of shareholders. For purposed of the Section 5, any
adjournment(s) or postponement(s) of the original meeting whereby the meeting
will reconvene within thirty (30) days from the original date shall be deemed
for purposes of notice to be a continuation of the original meeting, and no
business may be brought before any reconvened meeting unless pursuant to a
notice which was timely for the meeting on the date as originally scheduled.
Each such notice shall set forth: (a) the name and address of the shareholder
who intends to make the proposal; (b) a representation that the shareholder is a
holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to vote for the
proposal; (c) any material interest of such shareholder in such proposal; and
(d) such other information regarding such proposal as would be required to be
disclosed in solicitations of proxies pursuant to the Securities Exchange Act of
1934, as amended.
Notwithstanding the foregoing, nothing in this Section 5 shall be
interpreted or construed to require the inclusion of information about any such
proposal in any proxy statement distributed by, at the discretion of, or on
behalf of the Board of Directors. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a proposal was not made
in accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting, and any such business not properly brought
before the meeting shall be disregarded.
(6) Notice:
(a) Notice of the time and place of the annual meeting of
shareholders shall be given by delivering personally or by mailing a
written or printed notice of the same, at least ten (10) days, and not
more than sixty (60) days, prior to the meeting to each shareholder of
record entitled to vote at such meeting.
(b) At least ten (10) days and not more than sixty (60) days prior to
the meeting, written or printed notice of each special meeting of
shareholders, stating the place, day and hour of such meeting, and the
purpose or purposes
2
<PAGE>
for which the meeting is called, shall be delivered personally or
mailed to each shareholder of record entitled to vote at such meeting.
(7) Voting Record: At least ten days before each meeting of
shareholders, a complete record of the shareholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, by voting group, and within each voting group by class or series of
shares, showing the address of and number of shares held by each. The record
must be available for inspection by any shareholder, beginning ten (10) days
prior to the meeting and continuing through the meeting, at the corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. A shareholder, the shareholder's agent, or the
shareholder's attorney is entitled to inspect the list, during regular business
hours and at the shareholder's expense, during the period it is available for
inspection.
(8) Quorum: Except as otherwise required by law:
(a) A quorum at any annual or special meeting of shareholders shall
consist of shareholders present at such meeting representing, either
in person or by proxy, a majority of the outstanding shares of each
voting group of the corporation entitled to vote at such meeting.
(b) The votes of a majority in interest of those present at any
properly called meeting or adjourned meeting of shareholders at which
a quorum as in this paragraph defined is present, shall be sufficient
to transact business.
(9) Voting of Shares: Except as otherwise provided in these Bylaws or to
the extent that voting rights of the shares of any class or classes are limited
or denies by the Articles of Incorporation, each shareholder, on each matter
submitted to a vote at a meeting of shareholders, shall have one vote for
each share of stock registered in his name in the books of the corporation.
(10) Fixing Record Date: For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, the Board
of Directors may provide that the stock transfer books shall be closed for a
stated period not to exceed seventy (70) days nor less than ten (10) days
preceding such meeting.
(11) Proxies: A shareholder may vote either in person or by proxy
executed in writing by the shareholder or his duly authorized attorney-in-fact.
No proxy shall be valid after eleven months from
3
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the date of its execution unless otherwise provided in the proxy.
(12) Action by Shareholders without a Meeting: Any action required or
which may be taken at a meeting of shareholders of the corporation may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof. Such consent shall have the same force and effect as a
unanimous vote of shareholders.
(13) Waiver of Notice: A shareholder may waive any notice before or after
the day and time of the meeting that is the subject of such notice or, in the
case of a written consent, before or after the action is effective. Such waiver
shall be in writing, signed by the shareholder entitled to notice, and be
delivered to the corporation for inclusion in the minutes or filed with the
corporate records. A shareholder's attendance at a meeting waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting.
(14) Action of Shareholders by Communications Equipment: Shareholders may
participate in a meeting of shareholders by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at a meeting.
ARTICLE III
Stock
(1) Certificates: Certificates of stock shall be issued in numerical
order, and each shareholder shall be entitled to a certificate signed by the
President or a Vice President, and the Secretary or an Assistant Secretary, and
may be sealed with the seal of the corporation or a facsimile thereof. The
signatures of such officers may be facsimiles if the certificate is manually
signed on behalf of a transfer agent, or registered by a registrar, other then
the corporation itself or an employee of the corporation. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be such officer before the certificate is issued, it may be issued by the
corporation with the same effect as if the person were an officer on the date of
issue.
Each certificate of stock shall state:
(a) That the corporation is organized under the laws of this state;
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(b) The name of the person to whom issued;
(c) The number and class of shares and the
designation of the series, if any, which such certificate
represents; and
(2) Transfers:
(a) Transfers of stock shall be made only upon the stock transfer
books of the corporation, kept at the registered office of the
corporation or at its principal place of business, or at the office
of its transfer agent or registrar. The Board of Directors may, by
resolution, open a share register in any state of the United States,
and may employ an agent or agents to keep such register, and to record
transfers of share therein.
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing
on the back of the certificate or an assignment separate from
certificate, or by a written power of attorney to sell, assign and
transfer the same, signed by the holder of said certificate. No share
of stock shall be transferred on the books of the corporation until
the outstanding certificates therefor have been surrendered to the
corporation.
(3) Registered Owner: Registered shareholders shall be treated by the
corporation as the holders-in-fact of the stock standing in their respective
names and the corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the State of Washington. The Board of Directors may
adopt by resolution a procedure whereby a shareholder of the corporation may
certify in writing to the corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified person or persons. The resolution shall set forth:
(a) The classification of shareholder who may certify;
(b) The purpose of purposes for which the certification may be made;
(c) The form of certification and information to be contained
therein;
(d) If the certification is with respect to a record date or closing
of the stock transfer books, the date within which the certification
must be received by the corporation; and
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(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable.
Upon receipt by the corporation of a certification complying with the
procedure, the persons specified in the certification shall be deemed, for the
purpose or purposes set forth in the certification, to be the holders of record
of the number of shares specified in place of the shareholder making the
certification.
(4) Mutilated, Lost or Destroyed Certificates: In case of any mutilation,
loss or destruction of any certificate of stock, another may be issued in its
place on proof of such mutilation, loss or destruction. The Board of Directors
may impose conditions on such issuance and may require the giving of a
satisfactory bond or indemnity to the corporation in such sum as it might
determine or establish such other procedures as it deems necessary.
(5) Fractional Share or Scrip: The corporation may:
(a) issue fractions of a share which shall entitle the holder to
exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the corporation in the event of
liquidation;
(b) arrange for the disposition of fractional interests by those
entitled thereto;
(c) pay in cash the fair value of fractions of a share as of the time
when those entitled to receive such shares are determined; or
(d) issue scrip in registered or bearer form which shall entitle the
holder to receive a certificate for a full share upon the surrender of
such scrip aggregating a full share.
(6) Share of Another Corporation: Shares owned by the corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the corporation.
ARTICLE IV
Board of Directors
(1) Number and Powers: The management of all affairs, property and
interest of the corporation shall be vested in a Board of Directors. The Board
of Directors shall consist of not fewer than three (3) nor more than eleven (11)
persons, which number shall be designated by the Board of Directors, who shall
be elected for a term of one (1) year, and shall hold office until a
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successor is elected and qualified. Directors must be residents of the State of
Washington, but need not be shareholders of the corporation. In addition to the
powers and authorities by these Bylaws and the Articles of Incorporation
expressly conferred upon it, the Board of Directors may exercise all such powers
of the corporation and do all such lawful acts as are not by statute or by the
Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
(2) Notice of Shareholder Nominees: Nominations of persons for election to
the Board of Directors shall be made only at a meeting of shareholders and only
(i) by the Board of Directors or a committee appointed by the Board of
Directors, or (ii) by any shareholder entitled to vote in the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 2. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation (i) with respect to an election to be held at an annual meeting of
shareholders, ninety (90) days prior to the date one (1) year from the date of
the immediately preceding annual meeting of shareholders, and (ii) with respect
to an election to be held at a special meeting of shareholders for the election
of directors, the close of business on the tenth (10th) day following the date
on which notice of such meeting is first given to shareholders. For purposes of
this Section 2, any adjournment(s) or postponements(s) of the original meeting
whereby the meeting will reconvene within thirty (30) days from the original
date shall be deemed for purposes of notice to be a continuation of the original
meeting, and no nominations by a shareholder of persons to be elected directors
of the corporation may be made at any such reconvened meeting unless pursuant to
a notice which was timely for the meeting on the date originally scheduled.
Each such notice shall set forth: (a) the name and address of the shareholder
who intends to make the nomination and of the person or persons to be nominated;
(b) a representation that the shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to the Securities Exchange Act of 1934, as amended; and (e) the consent
of each nominee to serve as a director of the corporation if so elected.
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Notwithstanding the foregoing, nothing in this Section 2 shall be
interpreted or construed to require the inclusion of information about any such
nominee in any proxy statement distributed by, at the direction of, or on behalf
of the Board of Directors. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
(3) Change of Number: The number of directors may at any time be
increased or decreased by the shareholders or Directors at any annual or special
meeting provided that no decrease shall have the effect of shortening the term
of any incumbent director except as provided in paragraphs (4) and (5)
hereunder.
(4) Vacancies: All vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill any vacancy shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified. Any directorship to be filled by reason of an increase in the number
of directors may be filled by the Board of Directors for a term of office
continuing only until the next election of directors by the shareholders.
(5) Removal of Directors: At a meeting of shareholders called expressly
for that purpose, the entire Board of Directors, or any member thereof, may be
removed by a vote of the holders of a majority of shares then entitled to vote
at an election of such directors.
(6) Regular Meetings: Regular meetings of the Board of Directors or any
committee may be held without notice at the principal place of business of the
corporation or at such other place or places, either within or without the State
of Washington, as the Board of Directors or such committee, as the case may be,
may from time to time designate. The annual meeting of the Board of Directors
shall be held without notice immediately after the adjournment of the annual
meeting of shareholders.
(7) Special Meetings:
(a) Special meetings of the Board of Directors may be called at any
time by the President or by any director, to be held at the principal
place of business of the Corporation or at such other place or places
as the Board of Directors or the person or persons calling such
meeting may from time to time designate. Notice of all special
meetings of the Board shall be given to each director by one (1) day's
service of the same by
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telegram, by letter, by telefax, or personally. Such notice need not
specify the business to be transacted at, nor the purpose of, the
meeting.
(b) Special meetings of any committee may be called at any time by
such person or persons and with such notice as shall be specified for
such committee by the Board of Directors, or in the absence of such
specification, in the manner and with the notice required for special
meetings of the Board of Directors.
(8) Quorum: A majority of the whole Board of Directors shall be necessary
at all meetings to constitute a quorum for the transaction of business.
(9) Waiver of Notice: Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice must be in
writing, signed by the director or directors entitled to notice, and delivered
to the corporation for inclusion in the minutes or filing with the corporate
records, whether before or after the time stated for the meeting, shall be
equivalent to the giving of notice.
(10) Registering Dissent: A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent shall be entered in
the minutes of the meeting, or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting, before the
adjournment thereof, or unless he shall forward such dissent by registered mail
to the Secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
(11) Executive and Other Committees: The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an Executive Committee and one or more other standing or
special committees. The Executive Committee shall have and may exercise all the
authority of the Board of Directors, and other standing or special committees
may be invested with such powers, subject to such conditions, as the Board of
Directors shall see fit; provided that notwithstanding the above, no committee
of the Board of Directors shall have the authority to: (a) approve a
distribution except accounting to a general formula or method prescribed by the
Board of Directors; (b) propose to shareholders action that is required by law
to be approved by shareholders; (c) fill vacancies on the Board of Directors or
on any of its committees; (d) amend articles of incorporation; (e) adopt, amend
or repeal bylaws; (f) approve a plan of merger not requiring shareholder
approval; or (g) approve
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the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares, except within the limits specifically prescribed by the Board
of Directors. The designation of any such committee and the delegation of
authority thereto shall not relieve the Board of Directors, or any member
thereof, of any responsibility imposed by law.
(12) Remuneration: No stated salary shall be paid directors, as such, for
their service, but by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of such Board; provided, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of standing or special
committees may be allowed like compensation for attending committee meetings.
(13) Action by Directors Without a Meeting: Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be. Such consent shall have the same
effect as a unanimous vote.
(14) Action of Directors by Communications Equipment: Any action required
or which may be taken at a meeting of directors, or of a committee thereof, may
be taken by means of a conference telephone or similar communications equipment
by means of which all persons participating can hear each other during the
meeting.
ARTICLE V
Officers
(1) Designations: The officers of the corporation shall be a President,
one or more Vice-Presidents (one or more of whom may be Executive Vice-
Presidents), a Secretary and a Treasurer, and such Assistant Secretaries and
Assistant Treasurers as the Board may designate, who shall be elected for one
year by the directors at their its first meeting after the annual meeting of
shareholders, and who shall hold office until their successors are elected and
qualified. Any two or more offices may be held by the same person.
(2) The President: The President shall preside at all meetings of
shareholders and directors, shall have general supervision of the affairs of the
corporation, and shall perform all such other duties as are incident to his
office or are properly required of him by the Board of Directors.
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(3) Vice Presidents: During the absence of disability of the President,
the Executive Vice-Presidents, if any, and the Vice-Presidents in the order
designated by the Board of Directors, shall exercise all the functions of the
President. Each Vice-President shall have such powers and discharge such duties
as may be assigned to him from time to time by the Board of Directors.
(4) Secretary and Assistant Secretaries: The Secretary shall issue
notices for all meetings, except for notices for special meetings of the
shareholders and special meetings of the directors which are called by the
requisite number of shareholders or directors; shall keep minutes of all
meetings, shall have charge of the seal and the corporate books, and shall make
such reports and perform such other duties as are incident to his office, or are
properly required of him by the Board of Directors. The Assistant Secretary, or
Assistant Secretaries in the order designated by the Board of Directors, shall
perform all of the duties of the Secretary during the absence or disability of
the Secretary, and at other times may perform such duties as are directed by the
President or the Board of Directors.
(5) The Treasurer: The Treasurer shall have the custody of all moneys and
securities of the corporation and shall keep regular books of account. He shall
disburse the funds of the corporation in payment of the just demands against the
corporation or as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors from
time to time as may be required of him an account of all his transactions as
Treasurer and of the financial conditions of the corporation. He shall perform
such other duties incident to his office or that are properly required of him by
the Board of Directors. The Assistant Treasurer, or Assistant Treasurers in the
order designated by the Board of Directors, shall perform all of the duties of
the Treasurer in the absence or disability of the Treasurer, and at other times
may perform such other duties as are directed by the President or the Board of
Directors.
(6) Delegation: In the case of absence or inability to act of any officer
of the corporation and of any person herein authorized to act in his place, the
Board of Directors may from time to time delegate the powers or duties of such
officer to any other officer or any director or other person whom it may select.
(7) Vacancies: Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
(8) Other Officers: Directors may appoint such other officers and agents
as it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
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(9) Term - Removal: The officers of the corporation shall hold office
until their successors are appointed and qualified. Any officer or agent elected
or appointed by the Board of Directors may be removed at any time, with or
without cause, by the affirmative vote of a majority of the whole Board of
Directors, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed.
(10) Bonds: The Board of Directors may, be resolution, require any and
all of the officers to give bonds to the corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI
Distributions and Finance
(1) Distributions: The Board of Directors may authorize a distribution of
money or other property to the corporation's shareholders in the form of a
dividend or a purchase, redemption or other acquisition of the corporation's
shares; provided that no distribution may be made if, after giving it effect,
either:
(a) the corporation would not be able to pay its debts as they become
due in the usual course of business; or
(b) the corporation's total assets would be less than the sum of its
total liabilities plus the amount which would be needed to satisfy any
shareholder's preferential rights in liquidation if the corporation is
in the process of liquidation at the time of the authorization of the
distribution.
The stock transfer books may be closed for the making of distributions
during such periods of not exceeding seventy (70) days, as from time to time may
be fixed by the Board of Directors. The Board of Directors, however, without
closing the books of the corporation, may authorize distribution to only the
holders of record at the close of business, on any business day not more than
seventy (70) days prior to the date on which distribution is made.
(2) Measure of Effect of Distribution: For purposes of determining
whether a distribution may be authorized by the Board of Directors and paid by
the corporation under Article VI, paragraph (1) of these bylaws, the effect of
distribution is measured, (a) in the case of a distribution by purchase,
redemption or other acquisition if the corporation's shares, as of the earlier
of (i) the date on which the money or other property is transferred to the
shareholders or the date on which the debt is incurred by
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the corporation; or (ii) the date on which the shareholder ceases to be a
shareholder with respect to the acquired shares; and (b) in any other case, (i)
as of the date on which the distribution is authorized, if payment occurs within
one hundred twenty (120) days thereafter; or (ii) the date of payment if such
date occurs more than one hundred twenty (120) days after the date of
authorization.
(3) Reserves: Before making any distribution, there may be set aside out
of the sum available to the corporation for distribution such sum or sums as
the directors from time to time in their absolute discretion deem expedient as a
reserve fund to meet contingencies, or for equalizing distributions, or for
maintaining any property of the corporation, or for any other purpose. Any sum
in any year which is not distributed in that year shall be deemed to have been
thus set aside until otherwise disposed of by the Board of Directors.
(4) Depositories: The moneys of the corporation shall be deposited in the
name of the corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check in other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE VII
Notices
Except as may otherwise be required by law, any notice to any shareholder
or director may be delivered personally or by mail. If mailed, the notice shall
be deemed to have been delivered when deposited in the United States mail,
addressed to the addressee at his last known address in the records of the
corporation, with postage thereon prepaid.
ARTICLE VIII
Seal
The corporate seal of the corporation shall be in such form and bear such
inscription as may be adopted by resolution of
the Board of Directors, or by usage of the officers on behalf of
the corporation.
ARTICLE IX
Indemnification of Officers, Directors,
Employees and Agents
(1) Definitions: As used in this Article:
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(a) "Action" means any actual or threatened claim, suit or
proceeding, whether civil, criminal, administrative or investigative.
(b) "Another Enterprise" means a corporation (other than the
Corporation), partnership, joint venture, trust, association, committee,
employee benefit plan or other group or entity.
(c) "Corporation" means Carver Corporation and any predecessor to it
and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger.
(d) "Director or Officer" means each person who is serving or who has
served as a director or officer of the Corporation or, at the request of
the Corporation, as a director, officer, employee or agent of Another
enterprise.
(e) "Indemnitee" means each person who was, is or is threatened to be
made a party to or is involved (including without limitation, as a witness)
in an Action because the person is or was a Director or Officer of the
Corporation.
(f) "Loss" means loss, liability, expenses (including attorneys'
fees), judgements, fines, ERISA excise taxes or penalties and amounts to be
paid in settlement, actually and reasonably incurred or suffered by
Indemnitee in connection with an Action.
(2) Right to Indemnification: The Corporation shall indemnify and hold
each Indemnitee harmless against all Loss except for Losses arising out of: (a)
the Indemnitee's acts or omissions finally adjudged to be intentional misconduct
or a knowing violation of law, (b) the Indemnitee's approval of certain
distributions or loans which are finally adjudged to be in violation of RCW
23B.08.310, or (c) any transaction in which it is finally adjudged that the
Indemnitee personally received a benefit in money, property or services to which
the Indemnitee was not legally entitled. Except as provided in Section (4) of
this Article, the Corporation shall not indemnify an Indemnitee in connection
with an Action (or part thereof) initiated by the Indemnitee unless such Action
(or part thereof) was authorized by majority vote of a quorum consisting of
directors not at the time parties to such Action. If, after the effective date
of this Article, the Washington Business Corporation Act is amended to authorize
further indemnification of directors or officers, then Directors and Officers of
this Corporation shall be indemnified to the fullest extent permitted by the
Washington Business Corporation Act, as so amended.
(3) Burden of Proof and Procedure for Payment:
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(a) The Indemnitee shall be presumed to be entitled to
indemnification under this Article upon submission of a written claim
(including a claim for expenses incurred in defining any Action in
advance of its final disposition, where the undertaking in (b) below
has been tendered to the corporation), and thereafter the Corporation
shall have the burden of proof to overcome the presumption that the
Indemnitee is so entitled.
(b) The right indemnification conferred in this Article shall include
the right to be paid by the corporation all expenses (including
attorneys' fees) incurred in defending any Action in advance of its
final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of an Action shall be
made upon delivery to the Corporation of an undertaking, by or on
behalf of such Director or Officer, to repay all amounts so advanced
if it shall ultimately be determined that such Director or Officer is
not entitled to be indemnified under this Article or otherwise.
(4) Right of Indemnitee to Bring Suit: If a claim under this Article is
not paid in full by the corporation within 60 days after a written claim has
been received by the Corporation, except in the case of a claim for expenses
incurred in defending a proceeding in advance of its final disposition, in which
case the applicable period shall be 20 days, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, to the extent successful in whole or in part, the Indemnitee
shall be entitled to be paid also the expense of prosecuting such claim.
Neither the failure of the Corporation (including its Board of Directors, its
shareholders or independent legal counsel) to have made a determination prior to
the commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances, nor an
actual determination by the Corporation (including its board of directors, its
shareholders or independent legal counsel) that the Indemnitee is not entitled
to indemnification or to the reimbursement or advancement of expenses, shall be
a defense to the action or create a presumption that the Indemnitee is not so
entitled.
(5) Nonexclusivity of Rights: The right to indemnification and the
payment of expenses incurred in defining an Action in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any stature, provision of
the Articles of Incorporation, Bylaws, agreement, vote of shareholders or
disinterested directors or otherwise.
(6) Insurance, Contracts and Funding: The Corporation may maintain
insurance, at its expense, to protect itself and any
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Director, Officer, employee or agent of the Corporation or Another Enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Washington Business Corporation Act. The Corporation may, without
further shareholder action, enter into contracts with any Director or Officer of
the Corporation in furtherance of the provisions of this Article, and may create
a trust fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Article.
(7) Indemnification of Employees and Agents of the Corporation: The
Corporation may, by action of its board of directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of an
Action to employees and agents of the Corporation with the same scope and effect
as the provisions of this Article with respect to the indemnification and
advancement of expenses of Directors and Officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or otherwise.
(8) Contract Right: Rights of indemnification under this Article shall
continue as to an Indemnitee who has ceased to be a director or Officer and
shall insure to the benefit of his or her heirs, executors and administrators.
The right to indemnification conferred in this Article shall be a contract right
upon which each Director or Officer shall be presumed to have relied on in
determining to serve or to continue to serve as such. Any amendment to or repeal
of this Article shall not adversely affect any right or protection of a Director
or Officer of the Corporation for or with respect to any acts or omissions of
such Director or Officer occurring prior to such amendment or repeal.
(9) Severability: If any provision of this Article or any application
thereof shall be invalid, unenforceable or contrary to applicable law, the
remainder of this Article, or the application of such provisions to persons or
circumstances other than those as to which it is held invalid, unenforceable or
contrary to applicable law, shall not be affected thereby and shall continue in
full force and effect.
ARTICLE X
Books and Records
The corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings
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of its shareholders and Board of Directors (and committees thereof); and shall
keep at its registered office or principal place of business, or at the office
of its transfer agent or registrar, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of the shares
held by each. Any books, records, and minutes may be in written form within a
reasonable time.
ARTICLE XI
Amendments
(1) By Shareholders: These Bylaws may be altered, amended or repealed by
the affirmative vote of a majority of the voting stock issued and outstanding at
any regular or special meeting of the shareholders.
(2) By Directors: The Board of Directors shall have power to make, alter,
amend and repeal by the Bylaws of this corporation. However any such Bylaws, or
any alteration, amendment or repeal of the Bylaws, may be changed or repealed by
the holders of a majority of the stock entitled to vote at any shareholders'
meeting.
(3) Emergency Bylaws: The Board of Directors may adopt emergency Bylaws,
subject to repeal or change by action of the shareholders, which shall be
operative during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or any nuclear or atomic disaster.
Amended and restated as of February 16, 1996.
/s/ John P. World
------------------------
g:\pmj\21232\bylaws.7
17
<PAGE>
Exhibit 10.31
November 20, 1995
Congress Financial Corporation (Northwest)
101 S.W. Main Street, Suite 725
Portland, OR 97204
Re: Tenth Amendment to Accounts Financing Agreement
and Third Amendment to Letter re: Inventory Loans
-------------------------------------------------
Ladies and Gentlemen:
This Tenth Amendment to Accounts Financing Agreement and Third
Amendment to Letter re: Inventory Loans (this "Amendment"), dated as of the 20th
day of November, 1995, is for the purpose of amending the Accounts Financing
Agreement [Security Agreement] which we entered into on or about December 20,
1990, as it has been previously amended (the "Accounts Financing Agreement") and
the Letter Re: Inventory Loans dated contemporaneously with the Accounts
Financing Agreement, as it has been amended (the "Inventory Loans Supplement").
For valuable consideration, receipt and sufficiency of which are
acknowledged, we agree as follows:
A. MODIFICATIONS TO THE ACCOUNTS FINANCING AGREEMENT
-------------------------------------------------
1. Section 2. 1 of the Accounts Financing Agreement is amended
in its entirety to provide as follows:
"1.2 You shall, in your discretion, make loans to us from time to
time, at our request, of up to seventy percent (70%) of the Net
Amount of Eligible Accounts (or such greater or lesser percentage
thereof as you shall in your sole discretion determine from time
to time), less the Availability Block described in Section 2.6
below."
2. A new Section 2.6 is hereby added to the Accounts Financing
Agreement as follows:
"2.6 The amount of loans which you shall, in your discretion, make
to us from time to time under Section 2.1 above or under any
supplement to this Agreement shall be subject at all times to
<PAGE>
Congress Financial Corporation (Northwest)
November 20, 1995
Page 2
a reduction in the amount of $250,000 plus twenty percent (20%) of
the gross proceeds from the sale of raw materials and work-in-
process inventories of our Professional Division to Phoenix Gold
International, Inc. pursuant to the Asset Purchase Agreement dated
November 13, 1995. Such reduction shall be referred to as the
"Availability Block."
B. MODIFICATIONS TO INVENTORY LOANS SUPPLEMENT
-------------------------------------------
Paragraph 2 of the Inventory Loans Supplement is amended in its
entirety to provide as follows:
"2. In addition to loans which may be made by you to us pursuant
to Section 2 of the Accounts Agreement, you shall, in your sole
discretion, make loans to us from time to time, at our request, of
up to fifty percent (50%) of the Value of Eligible Inventory
consisting of finished goods (or such greater or lesser
percentages thereof as you shall, in your sole discretion,
determine from time to time) less the Availability Block described
in Section 2.6 of the Accounts Agreement. Finished goods of our
Professional Division shall not be Eligible Inventory."
C. GENERAL PROVISIONS
------------------
1. To induce you to accept this Amendment, we make the following
representations, warranties, and covenants:
(a) Each and every recital, representation, and warranty
contained in this Amendment, the Accounts Financing Agreement, and the Inventory
Loans Supplement is correct as of the date of this Amendment.
(b) No event has occurred or is continuing which constitutes or,
with the giving of notice, the passage of time, or both, would constitute, an
Event of Default under the Accounts Financing Agreement.
2. We shall pay all expenses, including attorney fees, which you
incur in connection with the preparation and implementation of this Amendment
and any related documents.
3. Except as specifically provided above, the Accounts Financing
Agreement and Inventory Loans Supplement remain fully valid, binding, and
enforceable according to their terms.
<PAGE>
Congress Financial Corporation (Northwest)
November 20, 1995
Page 3
4. We waive and discharge any and all defenses, claims,
counterclaims, and offsets which we may have against you and which have arisen
or accrued up to the date of this Amendment. We acknowledge that you and your
employees, agents and attorneys have made no representations or promises to us
except as specifically reflected in this Amendment and in the written agreements
which have been previously executed. In this connection, we specifically waive
the provisions of California Civil Code (S) 1542, which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which, if known by him, must have
materially affected his settlement with the debtor.
Very truly yours,
CARVER CORPORATION
By /s/ John P. World
--------------------------
Its Vice President
--------------------------
The undersigned guarantor acknowledges that Congress Financial
Corporation (Northwest) ("Congress") has no obligation to provide it with notice
of, or to obtain its consent to, the terms of this Amendment. The undersigned
guarantor nevertheless hereby (i) acknowledges and agrees to the terms and
conditions of this Amendment; (ii) acknowledges that its guaranty remains fully
valid, binding and enforceable; and (iii) waives any and all defenses, claims,
counterclaims and offsets against Congress which may have accrued to date. In
connection with these waivers, the undersigned guarantor specifically waives the
provisions of California Civil Code (S) 1542, which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which, if known by him, must have
materially affected his settlement with the debtor.
USS CORPORATION, dba US Sound
By /s/ John P. World
--------------------------
Its Secretary
--------------------------
<PAGE>
Congress Financial Corporation (Northwest)
November 20, 1995
Page 4
ACCEPTED AND AGREED:
CONGRESS FINANCIAL CORPORATION (NORTHWEST)
By /s/ Drew Stawin
----------------------------
Its Vice President
----------------------------
7267\00026\0103781.Wp
<PAGE>
Exhibit 10.32
January 15, 1996
Congress Financial Corporation (Northwest)
101 S.W. Main Street, Suite 725
Portland, OR 97204
Re: Eleventh Amendment to Accounts Financing Agreement
--------------------------------------------------
Ladies and Gentlemen:
This Eleventh Amendment to Accounts Financing Agreement, dated as of
the 15th day of January, 1996 (this "Amendment") is for the purpose of amending
the Accounts Financing Agreement [Security Agreement] which we entered into on
or about December 20, 1990, as it has been previously amended (the "Accounts
Financing Agreement").
For valuable consideration, receipt and sufficiency of which are
acknowledged, we agree as follows:
1. A new Section 2.7 is hereby added to the Accounts Financing Agreement as
follows:
"2.7 In addition to amounts otherwise available under the
formulas described above, and notwithstanding the Maximum Credit
limit, you will temporarily allow us an overadvance of up to the
lesser of (i) fifty percent of the market value of that certain
real property in Lynnwood, Washington, more fully described in
Exhibit C hereto (the "Lynnwood Property") as established by an
MAI appraisal satisfactory to you; or (ii) $1,000,000 (the lesser
of (i) or (ii) being referred to hereinafter as the "Overadvance
Limit"). All overadvance amounts shall bear interest at the rate
prescribed in Section 3 hereof. The Overadvance Limit will be
reduced by the following amounts, and any overadvance amounts in
excess of such reduced Overadvance Limit must be repaid, on the
dates listed below:
<PAGE>
Congress Financial Corporation (Northwest)
January 15, 1996
Page 2
<TABLE>
<CAPTION>
Date Reduction Amount
---- ----------------
<S> <C>
2/29/96 $575,000
3/31/96 $ 75,000
4/30/96 $100,000
5/31/96 $250,000
</TABLE>
provided, however, that notwithstanding the provision for elimination of the
overadvance on May 31, 1996, all Obligations, including the overadvance, will be
due and payable on April 30, 1996 in the event the Accounts Financing Agreement
is not extended beyond that date.
2. A new section 4.3 is hereby added to the Accounts Financing Agreement as
follows:
"4.3 In addition to the security interest granted in Section 4.1
hereof, we shall execute and deliver to you a first Deed of Trust
on the Lynnwood Property (the "Deed of Trust") in form
satisfactory to you to secure the prompt performance, observance
and payment in full of all Obligations. Upon payment in full of
the overadvance provided in Section 2.7 hereof, including all
accrued interest thereon, and provided that there then exists no
Event of Default, you will reconvey the Lynnwood Property to us.
3. A new Section 6.11 is hereby added to the Accounts Financing Agreement as
follows:
"6.11 We own the Lynnwood Property free and clear of any
mortgages, liens, encumbrances, reservations, restrictions,
easements or adverse claims of any kind, except as disclosed in
Schedule 6.11 hereto. Without your prior written consent, we
shall not sell, lease, transfer or convey all or any portion of
the Lynnwood Property, or create, assume, incur or permit to
exist any mortgage, trust deed, lien, security interest or
encumbrance of any nature in or against the Lynnwood Property
other than those specifically set forth in Schedule 6.11 attached
hereto."
<PAGE>
Congress Financial Corporation (Northwest)
January 15, 1996
Page 3
4. Section 8.1 of the Accounts Financing Agreement is hereby amended by
changing the period at the end of the section to a semicolon and by adding the
following:
"or (h) if there shall be any breach of any covenant,
representation or warranty contained in the Deed of Trust, or any
other instrument delivered to you by us in connection with any
loans hereunder."
5. For the accommodation described in this Amendment, we agree to pay you a
fee in the sum of $5,000.
6. To induce you to accept this Amendment, we make the following
representations, warranties, and covenants:
(a) Each and every recital, representation, and warranty contained in
this Amendment, the Accounts Financing Agreement, and the Deed of Trust is
correct as of the date of this Amendment.
(b) No event has occurred or is continuing which constitutes or, with
the giving of notice, the passage of time, or both, would constitute, an Event
of Default under the Accounts Financing Agreement.
7. We shall pay all expenses, including attorney fees, which you incur in
connection with the preparation and implementation of this Amendment and any
related documents.
8. Except as specifically provided above, the Accounts Financing Agreement
remains fully valid, binding, and enforceable according to its terms.
9. We waive and discharge any and all defenses, claims, counterclaims, and
offsets which we may have against you and which have arisen or accrued up to the
date of this Amendment. We acknowledge that you and your employees, agents and
attorneys have made no representations or promises to us except as specifically
reflected in this Amendment and in the written agreements which have been
previously executed. In this connection, we specifically waive the provisions
of California Civil Code (S) 1542, which provides as follows:
<PAGE>
Congress Financial Corporation (Northwest)
January 15, 1996
Page 4
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which, if known by him, must have materially affected his
settlement with the debtor.
Very truly yours,
CARVER CORPORATION
By /s/ Sandra L. Jenkins
------------------------------
Its Vice President Finance
------------------------------
The undersigned guarantor acknowledges that Congress Financial
Corporation (Northwest) ("Congress") has no obligation to provide it with notice
of, or to obtain its consent to, the terms of this Amendment. The undersigned
guarantor nevertheless hereby (i) acknowledges and agrees to the terms and
conditions of this Amendment; (ii) acknowledges that its guaranty remains fully
valid, binding and enforceable; and (iii) waives any and all defenses, claims,
counterclaims and offsets against Congress which may have accrued to date. In
connection with these waivers, the undersigned guarantor specifically waives the
provisions of California Civil Code (S) 1542, which provides as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which, if known by him, must have materially affected his
settlement with the debtor.
USS CORPORATION, dba US Sound
By /s/ John P. World
------------------------------
Its Secretary
------------------------------
ACCEPTED AND AGREED:
CONGRESS FINANCIAL CORPORATION (NORTHWEST)
By /s/ Drew Stawin
--------------------------
Its Vice President
--------------------------
c:\dms\007267\00026\0108341.Wp
<PAGE>
Exhibit 10.33
February 26, 1996
Congress Financial Corporation (Northwest)
101 S.W. Main Street, Suite 725
Portland, OR 97204
Re: Twelfth Amendment to Accounts Financing Agreement
-------------------------------------------------
Ladies and Gentlemen:
This Twelfth Amendment to Accounts Financing Agreement, dated as of
the 26th day of February, 1996 (this "Amendment") is for the purpose of amending
the Accounts Financing Agreement [Security Agreement] which we entered into on
or about December 20, 1990, as it has been previously amended (the "Accounts
Financing Agreement").
For valuable consideration, receipt and sufficiency of which are
acknowledged, we agree as follows:
1. The first sentence of Paragraph 9.1 of the Accounts Financing
Agreement is amended to provide as follows:
"9.1 This Agreement shall remain effective and shall continue in
force and effect for a term ending May 31, 1996 (the "Renewal Date")
and from year to year thereafter, unless sooner terminated pursuant to
the terms hereof."
2. To induce you to accept this Amendment, we make the following
representations, warranties, and covenants:
(a) Each and every recital, representation, and warranty contained in
this Amendment, the Accounts Financing Agreement, and the Deed of Trust is
correct as of the date of this Amendment.
(b) No event has occurred or is continuing which constitutes or, with
the giving of notice, the passage of time, or both, would constitute, an
Event of Default under the Accounts Financing Agreement.
3. We shall pay all expenses, including attorney fees, which you
incur in connection with the preparation and implementation of this Amendment
and any related documents.
4. Except as specifically provided above, the Accounts Financing
Agreement remains fully valid, binding, and enforceable according to its terms.
<PAGE>
Congress Financial Corporation (Northwest)
February 26, 1996
Page 2
5. We waive and discharge any and all defenses, claims,
counterclaims, and offsets which we may have against you and which have arisen
or accrued up to the date of this Amendment. We acknowledge that you and your
employees, agents and attorneys have made no representations or promises to us
except as specifically reflected in this Amendment and in the written agreements
which have been previously executed. In this connection, we specifically waive
the provisions of California Civil Code (S) 1542, which provides as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which, if known by him, must have materially affected his
settlement with the debtor.
Very truly yours,
CARVER CORPORATION
By /s/ John P. World
--------------------------
Its Executive Vice President
--------------------------
The undersigned guarantor acknowledges that Congress Financial
Corporation (Northwest) ("Congress") has no obligation to provide it with notice
of, or to obtain its consent to, the terms of this Amendment. The undersigned
guarantor nevertheless hereby (i) acknowledges and agrees to the terms and
conditions of this Amendment; (ii) acknowledges that its guaranty remains fully
valid, binding and enforceable; and (iii) waives any and all defenses, claims,
counterclaims and offsets against Congress which may have accrued to date. In
connection with these waivers, the undersigned guarantor specifically waives the
provisions of California Civil Code (S) 1542, which provides as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which, if known by him, must have materially affected his
settlement with the debtor.
USS CORPORATION, dba US Sound
By /s/ John P. World
--------------------------
Its Secretary
--------------------------
<PAGE>
Congress Financial Corporation (Northwest)
February 26, 1996
Page 3
ACCEPTED AND AGREED:
CONGRESS FINANCIAL CORPORATION (NORTHWEST)
By /s/ Drew Stawin
--------------------------
Its Vice President
--------------------------
7267\00026\0118490
<PAGE>
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
--------------------
This Agreement is entered into as of January 2, 1996 by Stephen M.
Williams ("Employee") and Carver Corporation, a Washington corporation (the
"Company").
1. Duration of Employment. Subject to paragraph 8, Employee's
----------------------
employment in the capacity set forth in paragraph 2, below, shall begin on
January 3, 1996 and shall continue through December 31, 1996. Notwithstanding
that period, this Agreement shall remain in effect until all the parties' rights
and obligations have been satisfied, terminated, or have expired, as provided
herein.
2. Title and Duties. Employee is hereby employed full-time as
----------------
President and Chief Executive Officer of the Company. In such capacity,
Employee shall perform such duties as the Company's Board of Directors shall,
from time to time, reasonably direct, provided that the parties intend that the
Employee's duties and responsibilities shall include responsibility for the
preparation and achievement of the Company's annual operating plan and principal
responsibility for the Company's operations, employee staffing and budgets.
Employee agrees to use his skills and render services to the best of his ability
on a full-time basis during the term of this Agreement.
3. Compensation. For all services Employee performs during his
------------
employment, the Company shall pay Employee as follows:
3.1 Salary. Employee shall be paid a salary at an annual rate of
-------
$172,800 (gross), payable biweekly in accordance with the Company's usual
payroll policies and procedures.
3.2 Participation in Bonus Plans. In addition to the salary set
----------------------------
forth in paragraph 3.1, above, and beginning with calendar year 1996, Employee
shall be eligible to receive an annual bonus pursuant to the Company's
Management Bonus Plan (the "Bonus Plan"), of any amount not to exceed twenty
percent (20%) of the Employee's salary set forth in paragraph 3.1, above. The
payment of any bonus under the Bonus Plan shall be subject to the degree that
the Company and Employee achieve or exceed profit and cash flow targets
established by the Company's Annual Plan for the 1996 calendar year.
3.3 Offset. The Company may deduct from Employee's compensation any
------
amounts due the company for any advance on salary, mistaken overpayment,
products purchased from the Company, or for similar reasons, substantiated by
the Company's business
1
<PAGE>
records and specifically identified in a written notice to Employee five (5)
days in advance of any such deduction.
4. Business Expenses. The Company will reimburse Employee's
-----------------
reasonable business expenses incurred in the course of his work for the Company,
in accordance with its then current policies, and on Employee's presentation of
proper receipts and other supporting information as the Company may from time to
time reasonably require.
5. Benefits. On satisfaction of any applicable eligibility and
--------
contribution requirements, Employee will be covered by such fringe benefit
plan(s), as the Company may offer from time to time to its personnel generally.
6. Vacation and Holidays. Employee will receive paid holidays in
---------------------
accordance with the Company policy in effect from time to time. Employee will
receive four weeks (20 days) paid vacation per year.
7. Termination.
-----------
7.1 Termination for Cause. The Company has the right to terminate this
---------------------
Agreement and the employment of Employee hereunder at any time for "Cause" upon
thirty (30) days written notice. In lieu of providing such thirty (30) days
prior notice, the Company may tender notice of immediate termination for Cause,
together with thirty (30) days salary. In the event of termination for Cause,
all obligations of the Company under this Agreement will immediately cease, and
no payments of any kind, including but not limited to the payment of salary
pursuant to Section 3 hereof (except for the payment of salary and fringe
benefits up through the date of termination) will thereafter be made in respect
of the remaining term of this Agreement.
For purposes of this Agreement, "Cause" is defined to mean any act or
course of conduct of Employee which constitutes: dishonesty; repeated
intoxication on duty; fraud; deceit; gross negligence; commission of a civil or
criminal offense which adversely affects the Company's reputation or interest as
determined by the Company's Board of Directors, regardless of any legal
proceeding; material misrepresentation to shareholders, directors, or officers
of the Company; willful failure or refusal to comply with reasonably
instructions of the Board of Directors; a material breach of this Agreement; or
other similar conduct or omission that would constitute "cause" under Washington
law. If the sole basis for the notice of termination for Cause is a material
breach of this Agreement by Employee and Employee shall cure such breach to the
reasonable satisfaction of the Board of Directors within thirty (30) days of the
giving of such notice,
2
<PAGE>
then Employee's employment hereunder shall not terminate, but shall continue in
accordance with the terms hereof.
8.2 Termination Without Cause. The Company shall have the absolute
-------------------------
right to terminate Employee's employment without Cause at any time following six
(6) months' written notice. In lieu of providing such six (6) months' prior
notice, the Company may tender notice of immediate termination without Cause,
together with six (6) months' salary. In the event of termination of Employee by
the Company without Cause, the Company shall pay to Employee, as its sole and
complete severance obligation for the remaining term of this Employment
Agreement, or six months, whichever is longer, (the "Severance Period") an
amount equal to Employee's base salary and medical insurance premium for such
period, which amount shall be payable in equal monthly installments commencing
on the date of any such termination (herein the "Severance Obligation"). The
8.3 Voluntary Resignation. Should Employee wish to resign from his
---------------------
position with the Company during the term of this Agreement, Employee shall give
six (6) months written notice to the Company specifying the date on which such
resignation is to become effective. In the event of voluntary resignation, the
Company shall have no further obligations to Employee under this Agreement other
than to pay Employee salary and fringe benefits through the date of resignation.
8.4 Death or Disability. This Agreement, and the Company's
-------------------
obligations hereunder shall terminate (i) immediately upon the death of
Employee, or (ii) upon thirty (340 days written notice to Employee upon the
Disability of Employee. As used herein "Disability" shall mean (i) permanent
disability as defined and determined under any policy of disability insurance
covering him, or (ii) if no such policy is then in force, if Employee has any
physical, mental or other health condition which substantially impairs his
ability to perform his assigned duties for a period of 120 days or more within
any 240-day period, PROVIDED, however, the Company may, in its sole discretion,
grant Employee a leave of absence, or make other reasonable accommodation for
Employee's Disability. The terms of such a leave shall be confirmed by the
Company in writing, and shall determine the Employee's right, if any, to
continued compensation, his obligation to continue his job duties, the terms
under which he may return to work, and all other conditions of the leave.
8.5 Except as expressly stated in this Paragraph 8, all obligations
of the Company to pay salary and bonus or to provide benefits shall terminate on
the effective date of termination of employment.
3
<PAGE>
9. Intellectual Properties.
-----------------------
9.1 Company Ownership. All ownership, copyright, patent, trade
-----------------
secrecy and other rights in all works, programs, manuals, ideas, inventions,
improvements, discoveries, processes, or other properties ("Intellectual
Properties") made or conceived by Employee during the term of his employment,
shall be the sole property of the Company, whether developed independently by
Employee or jointly with others, whether developed or conceived during regular
work hour or at the Company's facilities, and whether the Company uses,
registers, or markets such properties. In accordance with the Company's policy
and Washington law, this Agreement does not apply to, and Employee has no
obligation to assign to the Company, any invention for which no Company trade
secrets, and no equipment, supplies, or facilities of the Company were used, and
which was developed entirely on Employee's own time, unless: (i) the invention
relates directly to the Company's business; (ii) the invention relates to the
Company's existing or demonstrably anticipated research or development work; or
(iii) the invention results from Employee's work for the Company.
9.2 Disclosure Duty. To determine whether Employee has an obligation
----------------
to assign particular Intellectual Properties to the Company, Employee shall
promptly make full written disclosure to an officer of the Company of all
Intellectual Properties that he developed, or on which he is working during the
term of his employment and during the six-month period thereafter. Employee will
assist the Company as it may request during and after the term of his employment
to further evidence, perfect, and/or enforce the Company's rights in, and
ownership of, the covered Intellectual Properties. Employee's obligation in this
respect includes, without limitation, execution of additional instruments of
conveyance and assistance to the Company with applications for patents,
copyright, or other registrations.
9.3 Infringement Warranty. Employee warrants to the best of his
---------------------
knowledge, any and all items, technology, and Intellectual Properties of any
nature developed or provided by Employee, or which in any way benefit the
Company, will be original to Employee, and will not infringe in any respect on
the rights or property of others. Employee will not, without prior written
approval of the Company, use any equipment, supplies, facilities, or proprietary
information of any other party. Employee warrants that he is entirely free to
contract for employment with the Company, and to perform his duties under this
Agreement, without any conflict with other commitments, agreements,
understandings or duties, whether to prior employers, or others. Employee will
indemnify the Company for all losses, claims, attorneys fees, and other expenses
which may arise from any breach of this warranty.
4
<PAGE>
10. Confidentiality.
---------------
10.1 Employee acknowledges that the Company's business and future
success depends on preservation of trade secrets and other confidential,
proprietary information concerning the Company, its affiliates, suppliers, and
customers ("Secrets"). These Secrets include, without limitation: product
designs, computer software, product configuration knowledge, market surveys,
financial statements and forecasts, customer lists and needs, product and
marketing plans, procedural and technical manuals and practices, pricing
methods, proposal terms, contract renewal dates, information about the
qualification of other employees, and other such business information. Employee
agrees to protect and preserve these Secrets as confidential both during and
indefinitely after the term of his employment, whether the Secrets are contained
in a tangible medium, or merely remembered.
10.2 Employee shall mark all items containing any Secret with
prominent confidentiality notices acceptable to the Company. Employee shall
neither use nor allow any person to use any of the Secrets in any way, except
for the benefit of the Company. All tangible material containing or in any way
disclosing any Secret is the Company's exclusive property, shall not be removed
from the Company's premises without specific consent from an officer of the
Company and shall be returned to the Company on the termination or expiration of
Employee's employment, or at any earlier request of the Company. At such time,
Employee shall also assembly all tangible items of work-in-progress, notes,
plans, and other materials related in any way to his employment, and shall
promptly deliver such material to the Company.
10.3 Employee's covenants in this confidentiality provision shall
supplement, rather than replace, any other rights or remedies the Company may
have under applicable law for the protection of its properties and trade
secrets.
11. Non-Competition.
---------------
11.1 Employee hereby agrees that he will not, during the period of his
employment with the Company, and for the period set forth in paragraph 11.2,
below, either directly or indirectly, enter into the employment of, render
services to, or acquire any interest whatsoever in any business which competes
with the Company, or which is planning to so compete. Employee acknowledges
that the Company's business includes, without limitation, the consumer,
professional and mobile high fidelity stereo audio business as well as other
types of business the Company may choose to undertake during or shortly after
the term of Employee's employment. Employee further acknowledges that the
5
<PAGE>
Company's business is conducted in the United States, Canada, Mexico and Europe,
and in such other areas to which the Company may expand during the course of
Employee's employment or shortly thereafter. Accordingly, Employee agrees that
he will not compete with the Company in any of these areas. Nothing in this
paragraph shall prevent Employee from owning as a passive investor up to five
percent (5%) of the outstanding stock of any publicly-traded corporation or the
employment of or the rendering of services by Employee where he does not
directly or indirectly contribute to the design, development, manufacture or
sale of any product or service which competes with those offered by the Company,
or from acting as an independent sales representative for manufacturers of audio
electronic equipment.
11.2 The non-competition obligations of the Employee under paragraph
11.1 hereof shall continue during the Company's payment to the Employee of the
Severance Obligation. In the event the Employee competes with Company in
violation of paragraph 11.1, above, the Severance Obligation of the Company to
the Employee shall end.
11.3 Employee further agrees that during the period stated in
paragraphs 11.1 and 11.2, above, he will not directly or indirectly call on, or
otherwise solicit, or accept business from any actual or identified potential
customer of the Company, nor will he assist others in doing so. Employee further
agrees that he will not, during the period stated above, encourage or solicit
any other employee of the Company to leave such employment for any reason, nor
will he assist others to do so.
11.4 Employee agrees that he will during the term of his employment
with the Company promptly and fully disclose to the Company any business
opportunity coming to Employee's attention, or conceived or developed in whole
or in part by Employee, which relates to the Company's business, or anticipated
business. Employee will not at any time exploit such business opportunities for
his own gain or that of any person or entity other than the Company.
11.5 Employee acknowledges that the covenants in this paragraph are
reasonable in relation to his position and the nature of the Company's business,
and that compliance with such covenants after his employment ends will not
prevent him from pursuing his livelihood. Employee also acknowledges that the
restraints imposed by this paragraph 11 are necessary for the protection of the
business and good will of the Company and are not greater than are necessary to
protect said businesses and good will. Nonetheless, should any court find that
any provision of these covenants is unreasonable in any respect, the parties
agree
6
<PAGE>
that the covenants shall be interpreted, limited, and enforced to the maximum
extent which the court deems reasonable.
12. Certain Remedies. The harm to the Company from any breach of
----------------
Employee's obligations under or related to paragraphs 9, 10 and 11 of this
Agreement may be difficult to determine and may be wholly or partially
irreparable. Thus, the Company may enforce such obligations by seeking an
injunction as well as damages and other appropriate relief. If any bond from
the Company is required in connection with such enforcement, the parties agree
that a reasonable value of such bond shall be $5,000. Employee further agrees
that any profits made in violation of paragraphs 9, 10 and 11 shall be held in
constructive trust for the Company.
13. Waiver. No waiver of any provision of this Agreement shall be
------
valid unless in writing signed by the waiving party, nor shall any failure to
enforce any right hereunder or a waiver in one instance constitute a waiver of
that right or of any other right under this Agreement.
14. Assignment Prohibited. Employee may not assign any of his rights
---------------------
nor delegate any of his duties hereunder. The Company may assign this Agreement
and delegate its duties hereunder in connection with any merger, consolidation,
or sale of assets, or to any of its affiliates at any time owned by, or under
common ownership with the Company.
15. Governing Law; Venue. This Agreement, including all matters of
--------------------
construction, validity and performance, shall be governed by and construed and
enforced in accordance with the laws of the State of Washington, as applied to
contracts made, executed and to be fully performed in such state by citizens of
such state, without regard to its conflict of law rules. The parties hereto
agree that the exclusive jurisdiction and venue for any action brought between
the parties under this Agreement shall be the state courts sitting in King
County, Washington, and each of the parties hereby agrees and submits itself to
the exclusive jurisdiction and venue of such courts for such purpose.
16. Savings Clause. If any provision of this Agreement is held to be
--------------
invalid or unenforceable to any extent in any context, it shall nevertheless be
enforced to the fullest extent allowed by law in that and other contexts, and
the validity and force of the remainder of this Agreement shall not be affected
thereby.
17. Notices. All notices and other communications called for or
-------
required by this Agreement shall be in writing to the parties at their
respective addresses stated below, or to such other address as a party may
subsequently specify and shall be deemed to have been received (i) upon delivery
in person, (ii)
7
<PAGE>
upon the passage of seventy two hours following post by first class registered
or certified mail, return receipt requested, with postage prepaid, (iii) upon
the passage of twenty four hours following post by overnight receipted courier
service, or (iv) sent by confirmed telex or facsimile provided that is sent by
facsimile a copy of such notice shall be concurrently sent by U.S. certified
mail, return receipt requested and postage prepaid, with an indication that the
original was sent by facsimile and the date of its transmittal.
18. Complete Agreement. This Agreement comprises the entire agreement
------------------
of Employee and the Company. It may be changed only by further written agreement
signed by all parties . It supersedes and merges within it all prior agreements
and understandings between these parties, whether written or oral, express or
implied. In interpreting and construing this Agreement, the fact that either the
Company or Employee may have drafted this Agreement or any provision hereof
shall not be given any weight or relevance.
19. Option to Renew. Employee and the Company agree that this
---------------
Agreement may be extended for an additional one year period ending on December
31, 1997 by delivery of written notice of such intent to Employee on or before
October 31, 1997, together with the Company's undertaking to increase the annual
base salary of Employee by a minimum of five percent (5%) effective January 1.
1997.
By his signature below, Employee acknowledges that he has read and
understood this Agreement, that its terms have been fully and fairly negotiated
by himself and the Company, and that he signs it voluntarily.
CARVER CORPORATION EMPLOYEE
a Washington corporation
By: /s/ Robert A. Fulton By: /s/ Stephen M. Williams
-------------------------- ---------------------------
Its: President Stephen M. Williams
-------------------------
Address: 20121 48th Avenue West Address: 414 - 39th Avenue E.
Lynnwood, WA 98036 Seattle, WA 98112
8
<PAGE>
C:\msoffice\winword\williams\steve.agr
9
<PAGE>
Exhibit 10.35
THE STEPHEN M. WILLIAMS 1996 BONUS PLAN
---------------------------------------
1. PURPOSES. The purposes of the Stephen M. Williams 1996 Bonus Plan
--------
(the "Plan") is to provide Stephen M. Williams ("Williams") with incentives to
maximize shareholder value, improve gross margins on product manufactured and/or
sourced by Carver Corporation (the "Company"), and obtain loudspeaker and twelve
volt product lines to be marketed and sold under the Company's brand.
2. ADMINISTRATION OF PLAN. This Plan shall be administered by the
----------------------
Compensation Committee of the Board of Directors of the Company (the
"Administrator").
3. INCENTIVES. The incentives payable to Williams shall range from
----------
$5,000 to $20,000 depending upon the value of the goal to the Company as
determined in the sole discretion of the Administrator. The amount of an
incentive shall be set forth in writing at the time the goal is set and shall be
agreed to by Williams. Incentives shall be payable upon the closing of any
transaction which is the object of the goal or upon the execution of an
agreement which is the object of the goal.
4. GOALS. Each goals will be set forth in writing at the time the
-----
goal is set and agreed to by Williams. Goals shall be determined by the
Administrator and shall relate to strategic relationships with third parties and
may include, for example, agreements to source a loudspeaker mobile audio
product lines on terms and conditions acceptable to the Company and the
Administrator; agreements with strategic suppliers of finished goods and/or raw
materials upon such prices and/or margins as shall be acceptable to the Company;
agreements to purchase shares of authorized but unissued Common Stock or other
securities of the Company in amounts equal or greater than fifteen percent (15%)
of the Company's current outstanding shares of Common Stock upon such terms and
conditions as are acceptable to the Company.
5. PAYMENT OF INCENTIVES. Contemporaneously with the execution of
---------------------
this Plan, the Company has loaned to Williams the sum of $45,000 according to
the terms and conditions of a Promissory Note dated January 3, 1996. The
parties understand and agree that so long as any portion of the principal due
under the Promissory Note remains unpaid by Williams that any Incentives payable
to
<PAGE>
Williams pursuant to this Plan shall be offset against the unpaid principal.
In such event, the Company shall advise Williams in writing of the amount of the
Incentive applied to the principal and the amount of unpaid principal remaining
under the Promissory Note after the offset.
6. WITHHOLDING. All incentives payable under this Plan shall be
-----------
subject to reduction for any applicable withholding taxes.
7. AMENDMENTS. This Plan may be amended at any time and from time to
----------
time by the Administrator, provided, however, that no such amendment shall act
------------------
to reduce an incentive once the corresponding goal has been attained.
8. EFFECTIVE DATE. This Plan shall become
--------------
effective on January 3, 1996.
CARVER CORPORATION STEPHEN M. WILLIAMS
By /s/ Robert A. Fulton /s/ Stephen M. Williams
----------------------- -------------------------
Its President
<PAGE>
Exhibit 10.36
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between
CARVER CORPORATION, a Washington corporation (the "Corporation"), and Stephen
Williams (the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted
to Employee an option under the Plan to purchase shares of Common Stock under
the terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and
the Employee have executed this Agreement evidencing and confirming the issuance
by the Corporation to the Employee of an option for the purchase of 15,000
shares of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is
March 11, 1995.
2. The exercise price for the Option granted pursuant hereto is $2.50
per share.
3. This Option shall be exercisable in accordance with the following
vesting schedule:
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
---------------------- --------------------------
<S> <C>
March 11, 1996 3,750
March 11, 1997 3,750
March 11, 1998 3,750
March 11, 1999 3,750
</TABLE>
4. This Option shall expire, to the extent not previously exercised,
on the earlier of March 10, 2004 or the first to occur of either of the
following events:
(a) The date of the Employee's termination of employment with the
Company for cause as defined in the Plan;
(b) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
for cause as defined in the Plan; or
<PAGE>
(c) The expiration of one (1) year from the date of death of the
Employee,or cessation of the Employee's employment with the Company by reason of
disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice
of exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of
this Option, the Corporation shall determine the amount of any United States
federal and state income tax, if any, which is required to be withheld under
applicable law and shall, as a condition of exercise of this Option and delivery
of certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect
to any common stock subject to this Option until the date that a stock
certificate for such common stock as to which the Employee has exercised this
Option has been issued to the Employee. Subject to its obligation to withhold
set forth in Section 6 hereof, and to its obligations under federal and state
securities laws set forth in Section 9 below, the Corporation shall issue such
stock certificate as soon as practicable following the exercise of the Option.
If any law or regulation, whether related to securities or otherwise, requires
the Corporation to take any action with respect to any common stock prior to the
transfer thereof, or prohibits, limits or delays the issuance thereof, then the
date for delivery of such Common Stock shall be extended for the period
reasonable necessary to take and conclude such action, or during the period of
such prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the
exercise of any portion of this Option shall confer upon the Employee any right
to, or guarantee of, continued employment by the Corporation, or in any way
limit the right of the Corporation to terminate employment of Employee at any
time, subject to the terms of any employment agreements between the Corporation
and Employee.
9. By accepting this Option, Employee represents and agrees for
himself, and all persons who acquire rights in this Option in accordance with
the Plan through Employee, that none of the shares of Common Stock purchased
upon exercise of this Option will be distributed in violation of applicable
federal and state laws and regulations, and Employee shall furnish evidence
satisfactory to the Corporation (including a written and signed representation
letter and a consent to be bound by al transfer restrictions imposed by
applicable law, legend condition, or otherwise) to that effect, prior to
delivery of the purchased share of Common Stock.
2
<PAGE>
10. Employee acknowledges that he has read and understands the terms
of this Agreement and the Plan and that:
(a) The issuance of shares of Common Stock pursuant to the exercise
of this Option, and any resale of the shares of common Stock, may only be
effected in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to
any shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the
event of certain organic changes in the capital structure of the Corporation or
for any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same
are subject to the terms and conditions set forth in the Plan and in any
amendments to the Plan existing now or in the future, which terms and conditions
are incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of
shares of its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the 11th day of March, 1995.
EMPLOYEE CARVER CORPORATION
/s/ Stephen M. Williams By: /s/ Robert A. Fulton
- ------------------------- ---------------------------
Stephen Williams Robert A. Fulton
President and CEO
3
<PAGE>
Exhibit 10.37
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between
CARVER CORPORATION, a Washington corporation (the "Corporation"), and Stephen
Williams (the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted
to Employee an option under the Plan to purchase shares of Common Stock under
the terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and
the Employee have executed this Agreement evidencing and confirming the issuance
by the Corporation to the Employee of an option for the purchase of 10,000
shares of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is
March 24, 1995.
2. The exercise price for the Option granted pursuant hereto is $2.50
per share.
3. This Option shall be exercisable in accordance with the following
vesting schedule:
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
---------------------- --------------------------
<S> <C>
March 24, 1996 2,500
March 24, 1997 2,500
March 24, 1998 2,500
March 24, 1999 2,500
</TABLE>
4. This Option shall expire, to the extent not previously exercised,
on the earlier of March 23, 2004 or the first to occur of either of the
following events:
(a) The date of the Employee's termination of employment with the
Company for cause as defined in the Plan;
(b) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
for cause as defined in the Plan; or
<PAGE>
(c) The expiration of one (1) year from the date of death of the
Employee,or cessation of the Employee's employment with the Company by reason of
disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice
of exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of
this Option, the Corporation shall determine the amount of any United States
federal and state income tax, if any, which is required to be withheld under
applicable law and shall, as a condition of exercise of this Option and delivery
of certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect
to any common stock subject to this Option until the date that a stock
certificate for such common stock as to which the Employee has exercised this
Option has been issued to the Employee. Subject to its obligation to withhold
set forth in Section 6 hereof, and to its obligations under federal and state
securities laws set forth in Section 9 below, the Corporation shall issue such
stock certificate as soon as practicable following the exercise of the Option.
If any law or regulation, whether related to securities or otherwise, requires
the Corporation to take any action with respect to any common stock prior to the
transfer thereof, or prohibits, limits or delays the issuance thereof, then the
date for delivery of such Common Stock shall be extended for the period
reasonable necessary to take and conclude such action, or during the period of
such prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the
exercise of any portion of this Option shall confer upon the Employee any right
to, or guarantee of, continued employment by the Corporation, or in any way
limit the right of the Corporation to terminate employment of Employee at any
time, subject to the terms of any employment agreements between the Corporation
and Employee.
9. By accepting this Option, Employee represents and agrees for
himself, and all persons who acquire rights in this Option in accordance with
the Plan through Employee, that none of the shares of Common Stock purchased
upon exercise of this Option will be distributed in violation of applicable
federal and state laws and regulations, and Employee shall furnish evidence
satisfactory to the Corporation (including a written and signed representation
letter and a consent to be bound by al transfer restrictions imposed by
applicable law, legend condition, or otherwise) to that effect, prior to
delivery of the purchased share of Common Stock.
2
<PAGE>
10. Employee acknowledges that he has read and understands the terms
of this Agreement and the Plan and that:
(a) The issuance of shares of Common Stock pursuant to the exercise
of this Option, and any resale of the shares of common Stock, may only be
effected in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to
any shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the
event of certain organic changes in the capital structure of the Corporation or
for any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same
are subject to the terms and conditions set forth in the Plan and in any
amendments to the Plan existing now or in the future, which terms and conditions
are incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of
shares of its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the 24th day of March, 1995.
EMPLOYEE CARVER CORPORATION
/s/ Stephen Williams By: /s/ John P. World
- ------------------------- --------------------------------
Stephen Williams John P. World
Vice President & General Counsel
3
<PAGE>
Exhibit 10.38
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between
CARVER CORPORATION, a Washington corporation (the "Corporation"), and Stephen M.
Williams (the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted
to Employee an option under the Plan to purchase shares of Common Stock under
the terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and
the Employee have executed this Agreement evidencing and confirming the issuance
by the Corporation to the Employee of an option for the purchase of 62,000
shares of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is
January 15, 1996.
2. The exercise price for the Option granted pursuant hereto is $1.50
per share.
3. This Option shall be exercisable in accordance with the following
vesting schedule:
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
---------------------- --------------------------
<S> <C>
July 15, 1996 20,667
July 15, 1997 20,667
July 15, 1998 20,666
</TABLE>
4. This Option shall expire, to the extent not previously exercised,
on the earlier of January 14, 2006 or the first to occur of either of the
following events:
(a) The date of the Employee's termination of employment with the
Company for cause as defined in the Plan;
1
<PAGE>
(b) The expiration of ninety (90) days from the date of the
Employee's termination of employment with the Company for any reason whatsoever
other than for cause as defined in the Plan; or
(c) The expiration of one (1) year from the date of death of the
Employee, or cessation of the Employee's employment with the Company by reason
of disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice
of exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of
this Option, the Corporation shall determine the amount of any United States
federal and state income tax, if any, which is required to be withheld under
applicable law and shall, as a condition of exercise of this Option and delivery
of certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect
to any common stock subject to this Option until the date that a stock
certificate for such common stock as to which the Employee has exercised this
Option has been issued to the Employee. Subject to its obligation to withhold
set forth in Section 6 hereof, and to its obligations under federal and state
securities laws set forth in Section 9 below, the Corporation shall issue such
stock certificate as soon as practicable following the exercise of the Option.
If any law or regulation, whether related to securities or otherwise, requires
the Corporation to take any action with respect to any common stock prior to the
transfer thereof, or prohibits, limits or delays the issuance thereof, then the
date for delivery of such Common Stock shall be extended for the period
reasonable necessary to take and conclude such action, or during the period of
such prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the
exercise of any portion of this Option shall confer upon the Employee any right
to, or guarantee of, continued employment by the Corporation, or in any way
limit the right of the Corporation to terminate employment of Employee at any
time, subject to the terms of any employment agreements between the Corporation
and Employee.
9. By accepting this Option, Employee represents and agrees for
himself, and all persons who acquire rights in this Option in accordance with
the Plan through Employee, that none of the shares of Common Stock purchased
upon exercise of this Option will be distributed in violation of applicable
federal and state laws and regulations, and Employee
2
<PAGE>
shall furnish evidence satisfactory to the Corporation (including a written and
signed representation letter and a consent to be bound by al transfer
restrictions imposed by applicable law, legend condition, or otherwise) to that
effect, prior to delivery of the purchased share of Common Stock.
10. Employee acknowledges that he has read and understands the terms
of this Agreement and the Plan and that:
(a) The issuance of shares of Common Stock pursuant to the exercise
of this Option, and any resale of the shares of common Stock, may only be
effected in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to
any shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the
event of certain organic changes in the capital structure of the Corporation or
for any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same
are subject to the terms and conditions set forth in the Plan and in any
amendments to the Plan existing now or in the future, which terms and conditions
are incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of
shares of its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the 15th day of January, 1996.
EMPLOYEE CARVER CORPORATION
/s/ Stephen M. Williams By: /s/ John P. World
- ----------------------------- ----------------------
Stephen M. Williams John P. World
General Manager & EVP
3
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31,
------------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------------- ---------------- ---------------
<S> <C> <C> <C>
Primary
Net loss $(3,157,000) ($2,873,000) $(5,408,000)
--------------- ---------------- ---------------
Shares
Weighted average common
shares outstanding 3,680,000 3,678,000 3,676,000
Net common shares issuable
on exercise of certain
stock options - - -
--------------- ---------------- ---------------
Average common and common
share equivalents outstanding,
as adjusted 3,680,000 3,678,000 3,676,000
--------------- ---------------- ---------------
Primary loss per common share $( .86) $( .78) ( 1.47)
--------------- ---------------- ---------------
Assuming full dilution
Average common and
common share equivalents
as adjusted 3,680,000 3,678,000 3,676,000
Net additional common shares
issuable on exercise of
certain stock options - - -
--------------- ---------------- ---------------
Average common and common
share equivalents outstanding,
as adjusted 3,680,000 3,678,000 3,676,000
--------------- ---------------- ---------------
Loss per common share assuming
full dilution $( .86) $( .78) $( 1.47)
--------------- ---------------- ---------------
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
Carver International Ltd. Guam
<PAGE>
[LETTERHEAD OF MOSS-ADAMS LLP APPEARS HERE]
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Carver Corporation
We consent to the incorporation by reference into the Registration Statements on
Form S-8 (Registration No. 33-65005, 33-70902, 33-50076, 33-31344, 33-23168, 33-
23167 and 33-04273) of our reports on the financial statements and supplementary
schedules dated February 15, 1996, which appear in the December 31, 1995 annual
report on Form 10-K of Carver Corporation, and to the reference to our firm
under the heading "Experts" in the Prospectus.
/s/ Moss Adams LLP
Seattle, Washington
February 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 261,000
<SECURITIES> 5,000
<RECEIVABLES> 2,570,000
<ALLOWANCES> 266,000
<INVENTORY> 3,927,000
<CURRENT-ASSETS> 8,216,000
<PP&E> 4,911,000
<DEPRECIATION> 2,620,000
<TOTAL-ASSETS> 10,674,000
<CURRENT-LIABILITIES> 3,285,000
<BONDS> 0
0
0
<COMMON> 37,000
<OTHER-SE> 7,352,000
<TOTAL-LIABILITY-AND-EQUITY> 10,674,000
<SALES> 18,428,000
<TOTAL-REVENUES> 18,428,000
<CGS> 15,038,000
<TOTAL-COSTS> 15,038,000
<OTHER-EXPENSES> 6,247,000
<LOSS-PROVISION> 447,000
<INTEREST-EXPENSE> 335,000
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