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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 1, 1996
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CARVER CORPORATION
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Washington 0-14482 91-1043157
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification No.)
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20121 48th Avenue W., Lynnwood, Washington 98036
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(Address of principal executive offices)
Registrant's telephone number, including area code: (206) 775-1202
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(Former name or former address, if changed since last report.)
Exhibit Index
Appears on Page 4
Page 1 of 17 Pages
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ITEM 5. Other Events.
On May 1, 1996, Carver Corporation (the "Company") entered into a non-
binding Agreement in Principal with Renwick Capital Management ("Renwick")
whereby Renwick would purchase shares of preferred stock and warrants from
the Company on the terms and conditions set forth in such non-binding
Agreement in Principal filed herewith as Exhibit 99.1. The proposed
financing is summarized in a letter to the Company's shareholders, a copy
of which is filed herewith as Exhibit 99.2.
Closing of the proposed financing is subject to completion by Renwick
to its satisfaction of business and legal due diligence review of the
Company, negotiation and approval by Renwick and the Company of definitive
agreements and the absence of any material adverse changes in the business
or financial condition of the Company. The Company and Renwick have
targeted closing for the first week of June, but there can be no assurance
closing will actually occur.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARVER CORPORATION
By: /s/ John P. World
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John P. World
Executive Vice President
and General Manager
(Principal Accounting Officer)
DATE: May 23, 1996
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EXHIBIT INDEX
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EXHIBIT DESCRIPTION SEQUENTIAL
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99.1 Non-Binding Agreement in Principle, between Carver 6
Corporation and Renwick Capital Management, dated
May 1, 1996.
99.2 Letter to Shareholders of Carver Corporation 14
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EXHIBIT 99.1
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[Renwick Capital Management Letterhead]
May 1, 1996
Carver Corporation
20121 48th Avenue West
Lynnwood, Washington 98036
Attention: Stephen M. Williams, President and
Chief Executive Officer
Dear Mr. Williams:
We are pleased to inform you of our proposal to have one or more of
our affiliates (collectively, "Renwick") purchase up to 1,411,764 shares of
Carver Corporation (the "Company") Preferred Stock and warrants to purchase
up to 300,000 shares of the Company's Common Stock. We understand that the
purchase of the Preferred Stock and the Common Stock will be in accordance
with the Summary of Principal Terms attached hereto.
Our commitment to enter into the transaction described above (the
"Transaction") is contingent upon (1) completion of our business and legal
due diligence review of the Company and our satisfaction with the results
thereof, (2) the preparation, execution and delivery of legal documentation
for our purchase, all in form and substance satisfactory to us, to you, and
to your respective counsel, and (3) the absence of any material adverse
change in the business or financial condition of the Company from March 31,
1996 to the date of Closing.
Pending the consummation of the Transaction and the execution and
delivery of definitive legal documentation memorializing the transaction
and as an inducement for Renwick to proceed with its legal and business due
diligence efforts, for a period of 30 days commencing the date hereof
neither the Company nor any director, employee or agent of the Company will
directly or indirectly solicit, encourage or conduct any discussions or
negotiations with, provide any information to, or consummate any
transaction with, any entity or person other than Renwick and its
representatives and other person approved by Renwick with respect to the
sale by the Company of any of its securities except in the ordinary course
pursuant to the Company's existing employee benefit plans. If the Nasdaq
National Market denies the Company's request for a waiver of the
requirement that shareholder approval be obtained in order to complete the
Transaction, the foregoing obligation will expire the earlier of five days
after such denial or at the end of the 30 day period. In such
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event, Renwick shall be entitled to propose an alternative plan of
financing that will not require shareholder approval.
If the foregoing is in accordance with your understanding, please
evidence acceptance of such conditions and your obligations hereunder by
having a copy of this letter executed below by a duly authorized officer of
the Company.
Very truly yours,
RENWICK CAPITAL MANAGEMENT
By: \s\ Rai K. Bhatia
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Rai K. Bhatia
Accepted and agreed to:
CARVER CORPORATION
By: \s\ John P. World
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Title: Executive Vice President
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Date: May 1, 1996
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[Renwick Capital Management Letterhead]
CARVER CORPORATION
Sale of Preferred Stock and Warrants to Purchase Common Stock
Summary of Principal Terms
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May 1, 1996
Issuer: Carver Corporation (the "Company").
Investors: Renwick Capital Management (collectively,
"Renwick").
Securities: Up to 1,411,764 Shares of convertible
Preferred Stock and Warrants to acquire up to
300,000 shares of Common Stock.
Aggregate
Investment Size: $3,000,000 million to be drawn in three
tranches over a 90 day period, at the option
of the Company. The first tranche will consist
of $1,000,000 for 470,588 shares of Preferred
Stock and warrants to purchase up to 100,000
shares of Common Stock of the Company for a
price per share equal to $1.50 per share, the
second tranche will consist of $1,000,000 for
470,588 shares of Preferred Stock and warrants
to acquire up to 100,000 shares of Common
Stock and the third tranche will consist of
$1,000,000 for 470,588 shares of Preferred
Stock and warrants to purchase 100,000 shares
of Common Stock.
First Closing: On or before May 20, 1996.
Management Incentive
Stock Options: Up to ten percent of the outstanding Common
Stock of the Company, to be issued to members
of management of the Company, subject to the
judgment and approval of the Compensation
Committee of the Board of Directors of the
Company.
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The Preferred Stock
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Shares of
Preferred Stock: Up to 1,411,764 shares of Convertible
Preferred Stock.
Face Value: $2.125 per share (the "Purchase Price").
Conversion: The Convertible Preferred Stock may be
converted at any time, at the option of the
holder, into shares of Common Stock at a ratio
of one share of Common Stock for each share of
Convertible Preferred Stock. The conversion
price will be subject to standard anti-
dilution adjustment, that will be mutually
acceptable to the Company and Renwick.
Liquidation
Preference: In the event of any liquidation of the
Company, the holders of the Convertible
Preferred Stock shall be entitled to receive
the Face Value, plus any accrued but unpaid
dividends, in preference over any amounts due
or payable to the holders of any other class
or series of capital stock of the Company, and
second only to the commercial debt of the
Company. A sale of all or substantially all of
its assets by the Company or a merger by the
Company with or into another entity in which
50% or more of the voting control is
transferred will be treated as a liquidation.
Dividend: The Preferred Stock will be entitled to an 8%
compounding annual dividend which will be paid
currently for one year following the Closing
on a quarterly basis, in shares of Common
Stock of the Company at a rate per share equal
to the greater of the Purchase Price or the
average of the Closing Bid Price for the
Common Stock for the thirty days prior to the
dividend date, and thereafter, on a quarterly
basis in cash, in shares of Common Stock or a
combination thereof, at the option of the
Company, in accordance with the above formula.
Forced Conversion: The Preferred Stock shall be automatically
converted into shares of Common Stock
immediately after the earlier of (i) a firm
commitment underwritten offering or (ii) the
third anniversary of the Closing, at the
option of the Company at the then current
conversion value plus accrued and unpaid
dividends.
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Voting Rights: The Preferred Stock shall vote on a one-for-
one basis with the shares of Common Stock on
all matters for which the approval of the
shareholders of the Company may be required.
Separate consent of a two-thirds majority in
interest of the Preferred Stock will be
required for (i) any liquidation, acquisition
of the Company or any of its subsidiaries,
merger or sale of the Company or any of its
subsidiaries or all or substantially all of
its (or its subsidiaries') assets, in each
case, for consideration per share that is less
the $.50 per share, (ii) the reclassification
of any securities of the Company or any of its
subsidiaries, and (iii) the payment of
dividends (other than to the Preferred Stock)
or other distributions of assets or the
redemption or repurchase of their capital
stock. Separate consent of a majority in
interest of the Preferred Stock will be
required for (i) amendment of the articles of
incorporation of the Company or any of its
subsidiaries, (ii) any change in the number of
directors, (iii) participation by the Company
or any of its subsidiaries in any businesses
other than the high fidelity audio business,
(iv) the authorization or issuance (other than
those excluded from preemptive rights below)
of any additional equity securities by the
Company or any of its subsidiaries; and (v)
the incurrence of any indebtedness for
borrowed money by the Company or any of its
subsidiaries in excess of the indebtedness for
borrowed money to which the Company is
currently subject or other than pursuant to
existing credit agreements as currently in
effect or as they may be renewed (under
substantially the same terms).
The Common Stock Purchase Warrants
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Warrants to
Purchase Shares
of Common Stock: Warrants to purchase up to 300,000 shares of
Common Stock.
Exercise Price: $1.50 per share, if exercised from the date of
Closing through the date two years from the
date of Closing, $1.75 for the next year,
$2.00 for the next year and $2.125 for the
final year. The exercise price will be subject
to standard anti-dilution adjustment that will
be mutually acceptable to the Company and
Renwick.
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Expiration Date: 5 years from the first closing date.
Registration Rights: All shares of Common Stock issuable upon
exercise of the Warrants (and upon conversion
of the Convertible Preferred Stock) will be
deemed to be Registrable Securities. For a
period of five years, holders of the
Registrable Securities will have the right to
require the Company to use its best efforts to
register their registrable securities on Form
S-1 or Form SB-2. The Company will not be
obligated to effect more than two such
registrations. The holders of Registrable
Securities will also be entitled to "piggy-
back" registration rights on registration of
the Company's securities and customary
unlimited S-3 registration rights (for a
period of ten years). The registration
expenses of all registrations and piggy-backs
will be borne by the Company.
Other Terms
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Nomination/
Election of Directors: Renwick will have the right to designate two
of the Company's seven directors. At least one
Renwick designee shall serve on each Board of
Director's committee.
Pre-emptive
Right to Purchase
New Securities: If the Company proposes to offer additional
equity shares other than (i) in connection
with an underwritten public offering, (ii)
pursuant to options or under employee benefit
plans that are outstanding as of the date of
the Closing, and (iii) with respect to a
number of shares of Common Stock not to exceed
10% of the outstanding shares of Common Stock
of the Company that may be offered and sold to
strategic partners, the Company will first
offer all such shares to Renwick pro rata,
according to its percentage ownership on a
fully-diluted basis.
Investment Banking
Agreement: The Company will enter into an investment
banking agreement with Renwick pursuant to
which Renwick will receive an annual fee of
$50,000 (payable monthly) per year for three
years and certain additional fees relating to
transactions introduced to the Company by
Renwick.
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Closing Expenses: The Company will pay all of Renwick's
reasonable expenses (including without
limitation legal fees and expenses), not to
exceed $50,000, arising out of, relating to or
incidental to, the discussion, evaluation,
negotiation and documentation of the
transaction contemplated hereby.
Additional Provisions: In addition to definitive financial and
business covenants, closing conditions
(including legal opinions of Company's
counsel), financial reporting requirements,
representations and warranties as to the
financial conditions, liabilities and business
affairs of the Company and its subsidiaries,
additional provisions will include without
limitation appropriate provisions relating to
maintenance of corporate existence, property,
payment of charges, and compliance with ERISA,
environmental laws and other federal and local
statutes.
Transferability: Renwick will be permitted to transfer the
Convertible Preferred Stock and the Warrants
to purchase Common Stock, subject to
applicable securities laws. The transferees of
the Preferred Stock and the Warrants to
purchase Common Stock will retain all of the
rights (to the extent transferred) of Renwick
then in effect with respect to the Preferred
Stock or the Warrants.
This summary of terms is provided for discussion purposes only. It
shall not be construed to bind any person or entity with respect to all or
any of its terms. In any event, prior to any closing of the transactions
contemplated herein, the following conditions must be met: (i) Renwick's
business due diligence review of the Company must be completed, (ii)
documentation for the contemplated transactions must be completed in form
and substance satisfactory to Renwick and its counsel, (iii) there shall
have been no material adverse change in the Company's business or financial
condition from March 31, 1996 to the date of the Closing and (iv) such
other conditions as may be determined by Renwick.
The Company represents and warrants that Renwick will not incur any
liability in connection with the consummation of the transaction
contemplated herein to any third party with whom the Company, its officers,
directors, shareholders or its agents have had discussions regarding a
similar or related transaction, and the Company agrees to indemnify, defend
and hold harmless Renwick, its officers, directors, stockholders, lenders
and affiliates from any claims by or liabilities to such third parties,
including any reasonable legal or other expenses incurred in connection
with the defense of such claims. The foregoing indemnity shall not extend
to any
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claims or liabilities attributable to the indemnified person's gross
negligence, intentional torts or willful misconduct and the Company's
obligations under this paragraph shall be conditioned on the indemnified
party giving written notice of any claim for which indemnity will be sought
hereunder promptly after learning thereof and the indemnified party fully
cooperating with the Company and giving it full control over the defense
and settlement of the claim. The covenants of the Company in this paragraph
will survive the termination of this letter of intent.
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EXHIBIT 99.2
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May 22, 1996
To Our Shareholders:
Carver Corporation has entered into a non-binding agreement in principal
with Renwick Capital Management ("Renwick"), a New York based investment
fund which, if consummated, would provide for the infusion of up to
approximately $3.5 million in capital. This is the latest development in a
process that began in January 1995 when the Company's Board of Directors
began to investigate strategic alternatives to improve the Company's market
position and enhance shareholder value. These alternatives included
strategic relationships, outside investment and the potential sale or
merger of all or part of the Company.
As part of this strategy, we completed the sale of the Company's
Professional Product Line in November 1995 and concluded a distribution
agreement with Circuit City in December 1995. After operating for most of
1995 under severe cash constraints, the sale of the Professional Product
Line provided the Company with much needed cash and allowed it to focus its
activities solely on its Consumer Products Line. With over 350 retail
outlets, Circuit City offers the Company potentially greater sales and
heightened national brand awareness.
To capitalize on the opportunities available to it and to sustain
continuing operations, the Company is dependent upon obtaining substantial
additional working capital immediately. At April 30, 1996, the Company had
borrowed approximately $1.9 million of the approximately $2.0 million then
available under its revolving line of credit of which the Company is
required to pay down $250,000 by May 31, 1996. Furthermore, we believe that
the Company's trade creditors and sourced product vendors may not allow the
Company to significantly delay payment and that our major suppliers may
change payment terms to require prepayment of letters of credit which would
further restrict our working capital and delay our ability to produce and
source products. Available sources of working capital are not sufficient to
fund operations. As a result the Company has not paid certain invoices nor
met certain other financial commitments and the Company believes that it is
unlikely that it will be able to satisfy a number of its financial
obligations in May 1996 without obtaining additional capital. If this
continues to occur, the Company's projected sales for 1996 will decrease
materially.
As a result, the Company has developed an operating plan designed to return
the Company to profitability and has been actively seeking additional
working capital to finance this turnaround for the past several months.
These efforts culminated early this month in the execution of the agreement
in principal with
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Renwick for an equity investment (the "Proposed Financing"). The agreement
in principal contemplates that the Company will sell to Renwick or its
affiliates up to 1,411,764 shares of Convertible Preferred Stock (the
"Preferred Stock") and five year warrants to acquire up to 300,000 shares
of Common Stock (the "Warrants"). The Proposed Financing is to be made over
a 90 day period in three tranches each consisting of 470,588 shares of
Preferred Stock and warrants to purchase up to 100,000 shares of Carver
Corporation Common Stock. The price of the Preferred Stock would be $2.125
per share and each share of Preferred Stock will be convertible at any time
at the option of the holder into one share of Common Stock, subject to
certain potential antidilution adjustments to be triggered by the issuance
of additional shares of Common Stock at less than the lesser of the then
current market price or $2.125. The Preferred Stock will be entitled to an
8% compounding annual dividend payable quarterly. In the first year such
dividend will be paid with shares of Common Stock. In years two and three
(the Preferred Stock will automatically be converted into Common Stock on
the third anniversary of issuance, thereby terminating the accruing
dividend) the Company has the option of paying the dividend either in cash
or with shares of Common Stock. If paid with Common Stock, the number of
shares will be based on the greater of $2.125 per share or the average of
the closing bid prices for the Common Stock for the 30 days prior to the
dividend payment date. The Preferred Stock will entitle the holders to one
vote for each share of Common Stock into which the Preferred Stock is
convertible. The size of the Company's board will be increased to up to
seven and the holders of the Preferred Stock will be entitled to elect two
representatives to the board. Certain actions by the Company, such as a
merger or liquidation, the sale of substantially all of its assets, payment
of dividends, amendment of the Company's articles of incorporation, the
issuance of additional securities or the incurrence of certain
indebtedness, will require the approval of at least a majority of the
Preferred Stock. The Agreement in Principal also contemplates that the
investors will have preemptive rights to subscribe for additional shares
issued by the Company and rights to have the Company register shares of
Common Stock issued upon conversion of the Preferred Stock or exercise of
the Warrants.
The exercise price of the Warrants will be $1.50 per share of Common Stock,
if exercised from the date of the closing of the Proposed Financing (the
"Closing") through the date two years from the date of Closing, $1.75 for
the next year, $2.00 for the next year, and $2.125 for the final year,
again subject to certain potential antidilution adjustments. The number of
shares of Common Stock potentially issuable upon conversion of the
Preferred Stock and exercise of the warrants (assuming no antidilution
adjustment becomes necessary) are 1,411,764 and 300,000, respectively, for
a potential cumulative total of 1,711,764. These represent 38.3%, 8.1% and
46.4% of the 3,687,080 shares of Common Stock outstanding at March 26,
1996, respectively. The
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number of shares of Common Stock which might be issued in payment of the
mandatory dividend cannot be determined at this time as such number will
vary with the market price of the Common Stock.
Closing of the Proposed Financing is subject to completion by Renwick to
its satisfaction of business and legal due diligence review of the Company,
negotiation and approval by Renwick and the Company of definitive
agreements and the absence of any material adverse changes in the business
or financial condition of the Company. The Company and Renwick have
targeted closing for the first week of June, but there can be no assurance
closing will actually occur.
The foregoing is a summary of the Agreement in Principal. A complete copy
of the Agreement in Principal has been filed with the Securities and
Exchange Commission with a Current Report on Form 8-K.
By virtue of the fact that the Company's common stock is traded on the
Nasdaq National Market , the Company is required to seek shareholder
approval prior to the sale of additional shares of common stock equal to
20% or more of its outstanding common stock at a price which may be less
than current book or market value. However,applicable regulation provides
that the NASD may grant an exemption from this shareholder approval
requirement if (i) the delay of securing shareholder approval would
seriously jeopardize the financial viability of a company, (ii) the
company's audit committee expressly approves the company's reliance on such
an exception and (iii) the company mails to its shareholders not later than
10 days before issuance of the new securities a letter alerting them to its
omission to seek shareholder approval that would otherwise be required. On
May 10, 1996, the Audit Committee of the Board of Directors of Carver
Corporation expressly approved reliance on the exception to the shareholder
approval requirements of the NASD By-Laws and the NASD has also approved
reliance on the exception.
This letter serves as notice of the Company's omission to seek shareholder
approval in connection with the proposed issuance of securities to Renwick.
We believe that the proposed transaction with Renwick is in the best
interest of the Company and its shareholders.
CARVER CORPORATION
/s/ Stephen M. Williams
Stephen M. Williams
President & CEO
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